CAAD Case 122/2018-T: VAT Reverse Charge Under Article 2(j) – Arbitral Decision on IVA Liquidations 2014-2016

ARBITRAL DECISION

I – REPORT

A..., a company incorporated under German law, taxpayer no. ..., with address in ..., ..., Germany, hereinafter referred to as the "Applicant," has filed a request for the establishment of an Arbitral Tribunal, pursuant to the provisions of article 2, paragraph 1, subparagraph a), 5, paragraph 1, 6 and 10 of Decree-Law No. 10/2011 of 20 January (RJAT) and of Order No. 112-A/2011 of 22 March, to challenge and declare the illegality of VAT assessments nos. ..., ..., ..., ..., ..., ... and ..., relating to the years 2014, 2015 and 2016, as well as the act of rejection of the Administrative Complaint filed in the context of case no. ...2017..., all attached to the record as documents nos. 1 to 8, which are hereby considered fully reproduced.

The request for the establishment of the Arbitral Tribunal was presented by the Applicant on 19-03-2018, was accepted by the Honorable President of CAAD and notified to the Tax Authority on 23-03-2018, in accordance with the legally foreseen terms and purposes. The Applicant chose not to appoint an arbitrator, whereby, in accordance with the provisions of subparagraph a) of paragraph 2 of article 6 and subparagraph b) of paragraph 1 of article 11 of the RJAT, as amended by article 228 of Law No. 66-B/2012 of 31 December, the Deontological Council appointed, on 26-06-2018, the undersigned as arbitrator of the arbitral tribunal to be established, who communicated her acceptance within the applicable time period. The single arbitral tribunal was constituted on 30-05-2018.

On 01-06-2018 an arbitral order was issued to the Tax and Customs Authority (Tax Authority) to present its response within the legal time period, in accordance with the terms and purposes provided for in paragraphs 1 and 2 of article 17 of the RJAT. The Respondent attached its response and the respective Administrative Process (AP) to the record on 04-07-2018, the contents of which are hereby considered fully reproduced.

In view of the positions of the parties as evidenced in the pleadings, considering that the questions raised are limited to matters of law, the absence of exceptions or preliminary issues to be resolved, no indication of testimonial evidence to be produced, and that the hearing provided for in article 18 of the RJAT would prove futile, the Arbitral Tribunal issued on 18-09-2018 an arbitral order inviting the parties to pronounce themselves on the possibility of dispensing with the holding of the hearing. Due to the absence of response from the parties, an arbitral order was issued on 23-10-2018 dispensing with the holding of the hearing provided for in article 18 of the RJAT as unnecessary, a period of 10 days, equal and successive, was fixed for the parties to submit arguments and the date for the pronouncement of the arbitral decision was set at 29-11-2018. The Applicant submitted its arguments on 2-11-2018 and the Respondent submitted no arguments.

Thus, on 29-11-2018, a reasoned arbitral order was issued in which, considering that the six-month period set for the pronouncement of the arbitral decision runs continuously, including the period of judicial holidays, and that the period set for the parties' arguments expired on 23-11-2018, it does not appear possible to issue an arbitral decision by 29-11-2018, whereby in accordance with the provisions of paragraph 2 of article 21 of the RJAT, the tribunal determined the extension of the decision period by two months, setting as the deadline for the pronouncement of the arbitral decision 29-01-2019.

B) OF THE REQUEST FORMULATED AND THE APPLICANT'S POSITION

In summary, the Applicant bases its arbitral request on error regarding the factual assumptions by application of the provisions of subparagraph j) of paragraph 1 of article 2 of the VAT Code (CIVA); violation of article 205 of the CPPT and article 62 of the CRP (duplication of collection); violation of the principle of justice and violation of the principle of VAT neutrality underlying Directive 2006/112/EC. In this regard and following the alleged violation of the principle of tax neutrality, it raises the question of preliminary referral to the Court of Justice of the European Union (CJEU).

Thus, in summary, from the Applicant's perspective, excess tax was paid in the amount of €40,329.26, because the deducted VAT was not accepted on the grounds that it was VAT charged by a civil construction services supplier, claiming the annulment of the assessments challenged, as well as the decision rejecting the Administrative Complaint.

The Applicant maintained this same position in the arguments it presented.

C – THE RESPONDENT'S RESPONSE

In its response, the Tax Authority argues for the legality of all acts performed and briefly alleged that the Applicant should have self-assessed VAT on the operations in question (civil construction) by force of the regime provided for in subparagraph j) of paragraph 1 of article 2 of the CIVA. It argues that, for the due legal purposes, the Applicant, during the period of implementation of the civil construction works, must be considered a liable person by force of the retroactive effects of its declaration of commencement of activity, which expressly refers to 1-1-2013, a period prior to the implementation of the civil construction works, whereby it cannot benefit from a delay in complying with its declarative obligations. To which it adds that the Applicant cannot simultaneously invoke the right to reimbursement of VAT contained in invoices issued before submission of the activity declaration (and claim that it be considered deductible) and, at the same time, not wish to be considered a liable person for VAT during the same period, so as not to be assigned the obligation to self-assess the tax. The acquisition of civil construction services, pursuant to subparagraph j) of paragraph 1 of article 2 of the CIVA was and is subject to the regime of reversal of the obligation to charge the tax, designated as "reverse charge," and the Applicant failed to comply with such regime.

It further alleges that the delay in complying with its declarative obligations is a matter of the exclusive responsibility of the Applicant, and it is certain that it cannot take advantage of such non-compliance and seek only to invoke the right to deduct tax, when it failed to comply with its obligation to self-assess the tax. In the Respondent's own words, the Applicant "cannot have it both ways." It thus sustains the conclusions of the Tax Inspection Report (RIT) and the legality of all acts performed.

II - PROCEDURAL REQUIREMENTS

The Arbitral Tribunal is duly constituted. The Parties have legal personality and capacity, are legitimate and are legally represented (cf. articles 4 and 10, paragraph 2 of the RJAT and article 1 of Order No. 112/2011 of 22 March).

The process is not affected by defects that would render it invalid.

A decision on the merits is required.

III – DECISION ON MATTERS OF FACT

Proven Facts

1. As material fact relevant, the present Tribunal considers the following facts to be established:

The Applicant is a company incorporated under German law whose corporate purpose is the acquisition of real estate for lease, brokerage, purchase and sale of real estate located exclusively in Portugal, and the provision of local accommodation services;

On 08/01/2013 the Applicant acquired real estate located in ..., in the Parish of ..., Municipality of ..., described in the Land Registry Office (CRP) of ... under No. ..., registered in the respective urban land registry under articles ... ... of the said parish, with the purpose of operating it through the provision of local accommodation services;

For the construction and adaptation of the acquired building, the Applicant contracted the civil construction company B..., Lda.;

This construction project generated a cost for the Applicant of €199,829.92, plus VAT charged by the service provider;

At the time the services were provided, the Applicant was not a liable person for VAT, as it only registered as a liable person on 19-11-2015, with retroactive effect to 01/01/2013;

Following the request for VAT reimbursement no. ... relating to the period 1612T, in the amount of €61,000.00, the Tax Authority considered that there were situations liable for correction for VAT purposes, namely due to failure to charge VAT by application of the reversal rule and improper VAT deductions (in the periods 201406T, 201409T, 201412T, 201503T, 201506T, 201609T);

Work orders nos. OI2017..., OI2017... and OI 2017... were issued for the years 2014, 2015 and 2016, respectively;

Following this, a Draft Report was prepared proposing partial rejection of the reimbursement request in the amount of €7,254.84;

Notification of the Draft RIT was made through official letter no. ..., of 20-04-2017 to, if the Applicant so wished, exercise within the 15-day period the right to be heard, in accordance with article 60 of the LGT and 60 of the RCPITA;

The Applicant exercised the right to be heard, but the Tax Inspection Services maintained the corrections proposed in the draft Report;

The RIT was notified to the Applicant through official letter no. ... of 22-05-2017;

Following the corrections, assessments were issued against which the Applicant submitted an Administrative Complaint and on which a project for rejection was rendered;

After exercise of the right to participate and by order of 22-05-2017 of the Director of Finance, the administrative complaint was rejected;

The Applicant submitted an Administrative Complaint against the aforementioned assessments, which was rejected;

On 30-05-2018, the Applicant submitted a request for arbitration to challenge the decision rejecting the administrative complaint, and all underlying assessments.

FACTS NOT PROVEN

1. There are no other relevant facts for the decision that should be considered as not proven.

REASONING OF THE PROVEN FACTS

1. The Tribunal need not pronounce on all details of the facts alleged by the parties, it being its duty to select the facts that are of interest to the decision and to discriminate the matter it deems proven and to declare that which it considers not proven (cf. article 123, paragraph 2 of the CPPT and article 607, paragraph 3 of the CPC, applicable by force of article 29, paragraph 1, subparagraphs a) and e), of the RJAT). In this manner, the facts pertinent to the judgment of the case are selected and shaped according to their legal relevance, which is established in consideration of the various solutions for the object of the dispute under applicable law (article 596, paragraph 1 of the CPC, applicable by force of article 29, paragraph 1, subparagraph e), of the RJAT).

Having regard to the positions assumed by the parties, in light of article 110, paragraph 7 of the CPPT, the documentary evidence attached to the record by the Applicant and that contained in the administrative process itself, the facts listed above were considered proven, with relevance to the decision.

IV – DECISION ON MATTERS OF LAW

1. The present request for arbitral pronouncement concerns the act of rejection of the administrative complaint filed under no. ... 2017..., which sustained the VAT assessments for the years 2014, 2015 and 2016, better identified in the request for arbitral pronouncement.

For this purpose, the Applicant alleges, briefly, that it accepts the corrections made by the Tax Inspection Services, relating to the non-acceptance of deducted VAT on the grounds that the supporting documents do not contain sufficient identifying elements, whereby it will proceed with the respective payment. It does not accept, whereby it challenges, the corrections relating to the non-acceptance of deducted VAT on the grounds that it is tax charged by a civil construction services supplier – a situation that led to the issuance of assessment notices in the total amount of €42,666.66. It contends that the assessments in question suffer from the following defects:

Error regarding the factual assumptions by application of the provisions of subparagraph j) of paragraph 1 of article 2 of the CIVA;

Violation of article 205 of the CPPT and article 62 of the CRP – duplication of collection;

Violation of the principle of Justice and violation of the principle of VAT neutrality underlying Directive 2006/112/EC.

Thus, it is necessary to analyze each of the situations invoked by the Applicant.

Regarding error regarding the assumptions and consequent violation of law

1. The Applicant alleges that at the time the services were provided, it was not a liable person for VAT and therefore did not meet the requirements for applying the reverse charge regime. It only registered as a liable person on 19-11-2015, with retroactive effect to 01/01/2013. Thus, on the one hand, it contends that it did not meet one of the legal requirements for applying the reverse charge regime, but immediately thereafter admits that its registration as a liable person produced retroactive effects to 1 January 2013. It admits that the formalism followed was not the most correct, but contends that this did not result in any loss of revenue for the State, and lastly, it alleges that the issuance of corrective assessments will result in a duplication of collection.

2. The assessments challenged have their basis in the Tax Inspection Report (RIT) from which the following is extracted:

(...) "from the analysis conducted on the documents supporting the deducted VAT, entered in Field 20, it appears that they relate to works carried out on the real estate of which the liable person is the owner, whereby being in the presence of the provision of civil construction services, the provisions of subparagraph j) of paragraph 1 of article 2 of the CIVA must be applied, with the VAT being owed by the purchaser of the services. In this case, only the tax charged by force of the obligation to charge and pay on the part of the purchaser confers the right to deduction, by application of the reversal rule, in accordance with paragraph 8 of article 19 of the CIVA, as amended by Law No. 66-B/2012 of 31/12. Thus, it follows from this that, even if the service provider improperly charges VAT in these operations, such tax is not deductible."

In view of what is set out above, in summary, the Applicant's argument in favor of the illegality thesis rests on the idea that it was not possible to self-assess the tax that fell on the services, since at the time they were provided it was not a liable person for VAT, although it seeks its reimbursement. This is, therefore, the question to be decided by the Tribunal, namely, whether the Applicant was or was not obligated to self-assess the tax and whether it can exercise its right to deduction, which it exercised through the request for reimbursement of the VAT it bore, improperly processed by the service provider.

1. Article 2 of the CIVA provides as follows:

"Subjective Scope

1 - The following are liable persons:

a) Natural or legal persons who, independently and on a regular basis, carry out production, trading or service provision activities, including extractive, agricultural and liberal profession activities, and also those who, in the same independent manner, undertake a single taxable transaction, provided that this transaction is connected to the exercise of the aforementioned activities, wherever this occurs, or when, regardless of such connection, such transaction meets the assumptions of the real scope of application of personal income tax (IRS) or corporate income tax (IRC);

(...)

j) Natural or legal persons referred to in subparagraph a) who have their seat, permanent establishment or domicile in national territory and who undertake transactions that confer the right to total or partial deduction of the tax, when they are purchasers of civil construction services, including remodeling, repair, maintenance, conservation and demolition of real estate, on a contract or sub-contract basis."

From this legal provision it follows that, for the liable person to exercise the right to deduction, in accordance with subparagraph c) of paragraph 1 of article 19 of the CIVA, it would have to self-assess the VAT underlying the services covered by the reversal rule which, in the case at hand, relate to invoices issued by the supplier B... Lda.

From the content of subparagraph j) of paragraph 1 of article 2 of the VAT Code (CIVA), added by article 1 of Decree-Law No. 21/2007 of 29 January, it follows that liable persons are natural or legal persons who, independently and on a regular basis, carry out production, trading or service provision activities, including extractive, agricultural and liberal profession activities, who have their seat, permanent establishment or domicile in national territory and who undertake transactions that confer the right to total or partial deduction of the tax, when they are purchasers of civil construction services, including remodeling, repair, maintenance, conservation and demolition of real estate, on a contract or sub-contract basis.

For reversal of the liable person to occur, the following assumptions must cumulatively be met:

a) there is the acquisition of civil construction services;

b) the purchaser is a liable person for VAT in Portugal;

c) and it carries out, in national territory, transactions that confer, totally or partially, the right to deduct VAT.

In the case of the present proceedings it is mutually recognized by the parties that the first and third assumptions are met. The disagreement persists only regarding the second assumption, namely, whether the purchaser should or should not be considered a liable person for VAT in Portugal at the time the services were provided in Portugal.

1. The Preamble of Decree-Law No. 21/2007 of 29 January, which introduced this rule into the CIVA, helps clarify the scope of this provision, by stating that: "Thus, by way of reversal of the liable person, it becomes incumbent upon the purchasers or recipients of those services, when they are configured as liable persons with total or partial right to deduction of the tax, to proceed with the charging of the VAT owed, which may also be the subject of deduction according to general provisions. With this measure, it is intended to provide safeguards against certain situations that result in loss of revenue for the public treasury, currently arising from the birth of the right to deduct VAT borne, without such tax ever reaching the State coffers."

This is a regime instituted for the purpose of preventing fraud and ensuring effective collection of the tax. As Clotilde Celorico Palma properly notes: "The most common form of tax evasion consists of the invoicing of the delivery of goods by an operator, a liable person for VAT, who then disappears without delivering the tax to the tax authorities, leaving the purchaser (also a liable person for VAT) with a valid invoice for purposes of deduction of the tax. In this manner, tax administrations do not receive the VAT collected on the sale of products, but must recognize to the following operator in the chain of distribution the right to deduction of the tax borne upstream. In certain cases, this practice evolved into fraud designated as missing trader intra-community fraud, which consists of intra-community fraud using fictitious operators and constitutes an organized attack on the VAT system based on abusive charging of the tax by operators when the transmission of goods to a liable person in another Member State is exempt from payment of that tax. Furthermore, this type of fraud often involves the transfer in a chain of the same goods, which may circulate several times between Member States (the so-called "carousel fraud"), with the tax administration being injured multiple times in the payment of VAT on the same product. This type of fraud is also expanding to the provision of services. Through the reverse charge or self-assessment mechanism, VAT is no longer charged by the operator to the purchaser who is a liable person for VAT, with the latter assuming this obligation. In practice, the purchasers (insofar as they are normal liable persons with full right to deduction) simultaneously begin to declare and deduct the VAT, without actual payment to the tax administrations. In this way, the theoretical possibility of fraud is eliminated." (emphasis added)

In the same sense, Manuela Moreira notes, regarding carousel fraud on VAT, that: "In a normal VAT operation, the person charging VAT is the seller and the purchaser bears the tax through repercussion. However, there are exceptions to the rule when there is a reversal of the mechanics of application of the tax. That is, the VAT is not charged by the one transmitting the good or providing the service but by the purchaser, the so-called reverse charge or reversal of the liable person. Thus, reversal of the liable person emerged as a way to combat carousel fraud on VAT. In Portugal, reverse charge appears as a measure to combat fraud in the sectors of scrap and recyclable materials, real estate, investment gold and emission rights, certified emission reductions or greenhouse gas emission reduction units, to which Decree-Law No. 233/2004 of 14 December refers. However, reverse charge represents 'an obvious distortion of the system and is justified only for exceptional reasons: in certain cases, for reasons of practicability, because it proves impossible to require the tax from the seller; in others for reasons of fraud prevention, because it is safer to require the tax from the purchaser than from the seller. (...) As such, introducing reversal of the liable person in all sectors would result in an exponential increase in control by the competent entities on retailers, and also in the appearance of other types of fraud (on the retailer)."

The reasons underlying the "reverse charge" regime or reversal of the tax are thus well explicit, as is the majority understanding of Doctrine and Jurisprudence as to the sense and scope of the regime in question.

1. It is important to add that this same understanding is supported by the jurisprudence of our superior courts. In this regard, the North Administrative Court of Appeal has pronounced, among others, in its Decision of 26-02-2015, from which the following is extracted:

"The service provider is, as a general rule, the liable person for VAT, but in situations designated as reversal of the tax debt or reversal of the liable person (reverse charge), the purchaser of the services or goods becomes the liable person for the tax by virtue of such acquisition, and must accordingly proceed with the charging of the tax.

According to the rules of subjective scope provided for in article 2 of the CIVA, liable persons are natural or legal persons who, independently and on a regular basis, carry out the activities listed therein.

However, there are situations in which 'the purchaser of the services and goods becomes the liable person for the tax by virtue of such acquisition. These are the situations designated as 'reverse charge,' reversal of the tax debt or reversal of the liability or of the liable person, that is, in these cases, the debt reverts from the service provider to the purchaser. Being the purchaser the subject of the tax, it must accordingly proceed with the charging of the tax, and is assigned the right to deduction of the VAT paid for the acquisition of the services, in accordance with article 19, paragraph 1, subparagraphs c) and d) of the CIVA. In that situation, the purchaser is the liable person for the tax and, therefore, is the one who proceeds with the charging of VAT with the right to deduction of VAT on those acquisitions. The purchaser, a liable person for VAT, must proceed with the charging of the tax that is owed on those transactions, whenever the supplier is also a liable person for the tax." (emphasis added)

This jurisprudential understanding is further supported by the Supreme Administrative Court, as is evident from the decision in its Decision of 27-02-2013, which established the following understanding: "by application of the general rules, the service provider is the liable person for VAT, but in situations designated as reversal of the tax debt or reversal of the liability or of the liable person (reverse charge) the purchaser of the services or goods becomes the liable person for the tax by virtue of such acquisition, and must accordingly proceed with the charging of the tax, being assigned the right to deduction of the VAT paid for the acquisition of the services."

Finally, arbitral jurisprudence also follows this understanding, as is evident, for example, in the arbitral decision issued in case no. 361/2015-T, of 07-01-2016, in which it was decided that: "Article 2, paragraph 1, subparagraph j) of the CIVA establishes that 'the following are liable persons for the tax (...) natural or legal persons referred to in subparagraph a) who have their seat, permanent establishment or domicile in national territory and who undertake transactions that confer the right to total or partial deduction of the tax, when they are purchasers of civil construction services, including remodeling, repair, maintenance, conservation and demolition of real estate, on a contract or sub-contract basis.'"

1. Thus established, paragraph 8 of article 19 of the CIVA provides that "in cases in which the obligation to charge and pay the tax falls to the purchaser of the goods and services, only the tax charged by force of that obligation confers the right to deduction."

In the case at hand, at the time the services were provided, due to a fact attributable to the Applicant, it had not yet filed its declaration of commencement of activity. Non-compliance that is of its exclusive responsibility.

It is certain that, also by its own declaration of will, in regularizing this situation on 19/11/2015, it declared its commencement of activity with retroactive effect to 01-01-2013. Given these facts, there is no doubt that, for all legal purposes, including to assess the nature of the legal regime applicable to the deduction of the aforementioned tax, we must consider the Applicant as a liable person for tax purposes since then, namely, as of 01-01-2013.

Therefore, there is no doubt about the application, in this case, of the tax reversal regime. It is within this framework that the possible right to deduction and reimbursement of tax claimed by the Applicant must be assessed.

1. Now, we have no doubt that, given the aforementioned legal provisions, and as the Tax Authority properly alleges in its response, even if the transferor of goods or service provider improperly charges VAT in those operations, such tax is not deductible, by force of the tax reversal regime.

The Applicant cannot request the reimbursement of VAT (which presupposes that it considers itself a liable person for tax purposes since the time of the civil construction services in question), claim that the VAT contained in invoices issued before filing the activity declaration be considered deductible VAT, and at the same time, not wish to be considered a liable person for VAT during the same period, so as not to be assigned the obligation to self-assess the tax on the acquisition of civil construction services, in accordance with subparagraph j) of paragraph 1 of article 2 of the CIVA. Such a position contains in itself an irreconcilable contradiction.

1. It results from the established facts that the Applicant only in 2015 complied with its declarative obligation, with retroactive effect to 1-01-2013 (a date prior to the provision of services in question in the proceedings). The delay in complying with this obligation is of its exclusive responsibility. Whereby, during the period of implementation of the civil construction works, the Applicant must be considered a liable person for tax purposes.

We are faced with a situation similar to that decided in arbitral case no. 361/2015-T, where it was decided, with application in the case of the present proceedings, the following: "The Parties are in agreement as to the application of this regime to the invoices of the civil construction services provided by E..., whereby it must be concluded that VAT charging was improperly included therein. Having improperly charged VAT in the invoices in question, the service provider is a liable person for the aforementioned tax [article 2, paragraph 1, subparagraph c), of the CIVA], whereby it was obligated to deliver it to the State."

1. In the concrete case of the present proceedings, and given what is set out above, it is to be concluded that the Applicant meets the three assumptions for application of the tax reversal regime. From the established facts in the present proceedings it results that although the Applicant only filed its declaration of commencement of activity on 19-11-2015, the same retroacted to the date of 1-01-2013, as declared by the party itself. Therefore, it is as of that date that it acquired the status of liable person and, being so, the understanding is that as of then it is considered covered by the rules applicable to liable persons for VAT.

Whereby, it is not correct in its invocation of the defect of error regarding the factual and legal assumptions underlying the assessments in question. The alleged illegality by violation of law, as alleged by the Applicant, therefore does not proceed.

Regarding the alleged duplication of collection and violation of article 205 of the CPPT, article 62 of the CRP and the principle of justice

1. Also regarding the alleged violation of the provisions of articles 205 of the CPPT and 62 of the CRP, for duplication of collection, the Applicant's thesis does not appear to be well-founded, as will be demonstrated.

Primarily, because the party obligated to self-assess the tax was, for the reasons set out above, the Applicant. It fell to the Applicant to prove that the value of VAT collected, allegedly, by the service provider was duly delivered to the State coffers, which did not occur. It is not proven in the proceedings that it did so, and, although the Applicant argues to the contrary and that no loss resulted for the State, the truth is that it presented no proof that would allow us to conclude that the due VAT was delivered. It results from what is alleged by the Tax Authority and contained in the AP that during the course of the inspection process the witness questioned stated that she was convinced that the value of the tax had been delivered. But it is evident that such a statement is mere supposition, as it is clear that she had no actual knowledge of whether this occurred or not. Moreover, it could never be demonstrated that from the perspective of tax collection there was no loss, as the processing of the tax by the service provider would not be the same as its self-assessment by the purchaser of the services, and the respective context for the exercise of the right to deduction. Whereby, the Applicant did not demonstrate, nor could it, the alleged duplication of collection.

In this regard, reference is made to what was decided in arbitral case no. 661/2016-T, which fits perfectly in the concrete case at hand:

"Indeed, and as is noted, for example, in the following decision of the STA: 'I - By application of the general rules, the service provider is the liable person for VAT, but in situations designated as reversal of the tax debt or reversal of the liability or of the liable person (reverse charge) the purchaser of the services or goods becomes the liable person for the tax by virtue of such acquisition, and must accordingly proceed with the charging of the tax, being assigned the right to deduction of the VAT paid for the acquisition of the services. II - The duplication of collection, provided for in article 205 of the CPPT, results from the application of the same legal provision more than once to the same tax event or concrete tax situation, and the non-requirement of a second payment [from the appellant/applicant], to which the invocation of duplication of collection is reduced, can only be justified if the first [required from the service provider] was owed, as if it was not, the amount that was paid may be subsequently reimbursed, through the appropriate means of appeal and revision of the tax act and, in such a situation, it does not make sense to forego the second payment, which is effectively owed.' (Decision of the STA of 27/2/2013, case 01079/12).

The aforementioned decision further states that 'the assumptions of duplication of collection are not met, as the Public Prosecutor's Office notes in its learned Opinion, 'the payment of VAT made by the civil construction service provider is not owed, since the liable person for the tax is the appellant. Not being such payment owed, it makes no sense to forego the payment by the appellant, that which is legally owed.' Thus, it will always be open to the service provider to obtain the reimbursement of the improperly charged tax through appropriate procedural mechanisms and means. As the Public Prosecutor's Office notes in this sense in its learned Opinion, 'The improper payment of VAT by the service provider could have been resolved by the return of the invoices by the appellant for correction or by requesting that it make the regularization provided for in article 78, paragraph 3 of the CIVA, with the applicant being reimbursed by the service provider of the VAT improperly charged to it. (...). The appellant cannot, however, by means of a judicial action to challenge, seek the reimbursement of the VAT improperly paid, by means of the annulment of the tax act under review, as, as was seen, the assessment has legal basis, since the liable person for VAT is itself and not the service provider, whereby the alleged duplication of collection is not verified.'"

1. Said otherwise, given the tax reversal regime in question, no other understanding different from what is set out above would be acceptable, under penalty of preventing the Tax Authority from correcting this type of situation, imposing on the true liable person the obligation of additional assessment. As the Tax Authority properly alleges, any other understanding would be equivalent to having the "solution" to circumvent the legal regime of reverse charge. For the same reasons, the claim regarding the violation of the principle of justice does not proceed, as the duplication of state revenue is not demonstrated. It should be noted that state revenue is not necessarily the same, in the case of self-assessment (as it should have been) or of charging by the service provider. The Applicant's conclusion regarding the absence of loss to the State is therefore not correct. It is not clear, moreover, that a company such as the Applicant, with a clear objective of tourist and real estate investment in the region of ... did not take steps to ensure the correct processing and/or regularization of the tax in question.

It is concluded, therefore, that given the factual matters proven in the present proceedings, the duplication of VAT payments to the State, as alleged by the Applicant, cannot be considered demonstrated, whereby in this question too the request formulated by the Applicant must not proceed.

Regarding the alleged violation of the principle of VAT neutrality underlying Directive 2006/112/EC and the request for Preliminary Referral to the CJEU

1. Regarding the alleged violation of the principle of VAT neutrality, which is invoked last as a basis for the illegality of the assessments and as grounds for the request for preliminary referral, it is important to take into account the correct framing of the question in light of the jurisprudence of the CJEU. In fact, the principle of neutrality must be interpreted in a way that is compatible with the degree of autonomy that, by choice of the Community legislator, was attributed to the Member States, in a way that allows them to exercise their power of regulation of the tax within the internal space of each country, taking into account the specific characteristics and difficulties felt, particularly as to the control of tax fraud. It should not be forgotten that this is one of the fundamental pillars of the proper functioning of the tax.

Tax harmonization in the VAT field is, as is known, imperfect harmonization. We are far from a single and equal tax throughout the EU space.

The principle of VAT neutrality constitutes the structuring base of the tax, emanating from the Treaty of Rome, which since 1967 has been highlighted in the preambles of the first two VAT Directives, as the basis or reason for the adoption of this type of tax and the rejection of the cascade tax model.

The principle of neutrality, enshrined and developed since the first VAT Directive, imposes equal treatment of similar goods and, unlike cumulative cascade taxes, implies that Community VAT should apply in the same way at all phases or moments in the economic circuit. The principle of neutrality is systematically invoked by the Commission to oppose national laws deemed incompatible with Community rules, as well as by tax administrations and taxpayers in the various Member States, and has been applied countless times by the CJEU. Thus, the interpretation of the principle is already quite clear, as well as its scope and application.

The Sixth Directive reaffirmed the relevance of the principle of tax neutrality, referring to its essential objective which consists of the realization of a true internal Community market, to justify the need for VAT neutrality as to the origin of goods and services.

The principle of neutrality has an important corollary in the classic legal principle of non-discrimination and finds its justification in other principles that govern VAT, such as the principles of equal treatment, prohibition of double taxation or absence of taxation. There will be neutrality with respect to consumption when the tax does not influence the choices of various goods or services by consumers. A tax will be neutral from the production perspective if it does not induce producers to alter the organization of their production process. It is a harmonized tax, but which allows internal legal orders to regulate the tax within their respective legal orders, adjusting its rules to the specific needs of each. This choice is clear and if it were not so, the EU could have long ago adopted a standardized tax.

As Pitta e Cunha points out, "Long ago, fiscal science abandoned the old conception of tax neutrality, according to which neutral taxation would be that which does not affect economic life. All taxation today inevitably produces modifications to the economy; it is understood today that a tax is 'neutral' when it operates modifications that are homotetic, equal for all elements of the economic environment."

A completely neutral tax seems to be out of the question whenever exemptions are granted, with possible differentiation in the rate applicable to the various transactions of goods and services.

1. The CJEU has already developed a long body of jurisprudence, so there appears to be no justification or need for a preliminary referral on the issue under discussion in the proceedings.

Thus, from the analysis of the jurisprudence of the CJEU, as it concerns service provision, the principle of neutrality means that similar service provisions in themselves and that are in competition with each other should not be treated differently.

In summary, according to the CJEU the principle of neutrality opposes the treatment of similar goods or service provisions that are therefore in competition with each other in a different manner from the point of view of value added tax. It includes the principle of elimination of distortions of competition resulting from different treatment from the point of view of value added tax, so as not to allow distortions of competition, duplication of tax, absence of taxation, that is, it imposes equal treatment of persons as to the same type of operations.

From the principle of neutrality, there also flows the prohibition of double taxation or absence of taxation, with implications at the level of the right to deduction.

In the Case Commission/Italy, the CJEU concluded that it follows from the very letter of article 18, paragraph 4, of the Sixth Directive and, in particular, from the expression "under the conditions they set," that Member States have a certain degree of freedom to set the conditions for reimbursement of excess VAT. However, as the reimbursement of excess VAT is one of the fundamental elements to ensure the application of the principle of neutrality, the conditions set by Member States cannot be such as to violate this principle, imposing on the taxpayer, in whole or in part, the burden of VAT.

As for the question of the tax reversal regime, known as "reverse charge," the CJEU has already ruled in the context of the joined cases C-95/07 and C-96/07 (Ecotrade SpA v. Agenzia Entrate Ufficio Genova 3) on the mechanism of reversal of the obligation to charge VAT, concluding that: "The Member State has the freedom to regulate the tax internally, namely by considering as exempt or not exempt certain transactions, or by reversing the obligation to charge the tax."

Thus, from the point of view of the CJEU, the position on this question appears clear and evident, recognizing that Member States have the possibility of adopting measures adjusted to the control of the tax, among which is mentioned that of reversing the obligation to charge the tax, provided it does so in a non-discriminatory manner so as not to affect the neutrality of the tax.

Thus, it is for each Member State to regulate, in a non-discriminatory and non-disproportionate manner, the regime of exemptions or other derogatory measures, among them, the regime of reversal of the obligation to charge tax. Within the powers of autonomy of the Member State is the regulation of the tax, defining the requirements for application of the regime of reversal of the obligation to charge tax.

The question in issue raises no interpretive or application doubts regarding the norms and, in particular, regarding conformity with European Union law, which would justify recourse to the preliminary referral as suggested by the Applicant.

1. Moreover, it is important to note that the application by the national legislator of the regime of reversal of the liable person or "reverse charge," in civil construction service provision, is expressly permitted by Directive No. 2006/69/EC of 24 July. As stated in the preamble of DL 21/2007 of 29 January:

• "The present decree-law introduces into VAT legislation a set of measures intended to combat certain situations of fraud, evasion and abuse that have been occurring in the performance of real estate operations subject to taxation, following, on this matter, the experience previously acquired and the best practices adopted in other Member States of the European Union.

(...) Outside the scope of the operations provided for in paragraphs 30 and 31 of article 9 of the VAT Code, but still in the field of some service provision relating to real estate, namely in civil construction work carried out by contractors and subcontractors, the present decree-law shall adopt, in the same manner, another power conferred by Directive No. 2006/69/EC, of the Council, of 24 July. Thus, by way of reversal of the liable person, it becomes incumbent upon the purchasers or recipients of those services, when they are configured as liable persons with total or partial right to deduction of the tax, to proceed with the charging of the VAT owed, which may also be the subject of deduction according to general provisions. With this measure, it is intended to provide safeguards against certain situations that result in loss of revenue for the public treasury, currently arising from the birth of the right to deduct VAT borne, without such tax ever reaching the State coffers."

1. Thus, in conclusion, by force of the provision of article 2, paragraph 1, j) of the CIVA, as amended by the aforementioned DL 21/2007, "natural or legal persons referred to in subparagraph a) who have their seat, permanent establishment or domicile in national territory and who undertake transactions that confer the right to total or partial deduction of the tax, when they are purchasers of civil construction services, including remodeling, repair, maintenance, conservation and demolition of real estate, on a contract or sub-contract basis."

This legal provision does not appear to be discriminatory, nor disproportionate and is in compliance with the powers of autonomy of the Portuguese State in the regulation of the tax, in line with the interpretation already made by the CJEU on the question of reversal of the liable person for tax purposes, as set out above. The requested preliminary referral therefore does not proceed.

1. For all the reasons set out above, it is concluded that the assessments challenged are not affected by any defect and must therefore be upheld.

In fact, what is proven, as to payments and receipts by the State relating to the aforementioned civil construction services, is only that the Applicant received the VAT indicated in the invoices, by improperly exercising the right to deduction and subsequent request for reimbursement.

Therefore, before the assessments made by the Tax and Customs Authority, the situation that presents itself is that the Applicant improperly holds in its possession the amount of VAT, whereby the effects of the deduction should be eliminated.

It is certain that, having the Applicant improperly paid VAT to the supplier, it will be prejudiced, as it cannot exercise the right to deduction regarding that amount. However, as it has not been proven that the VAT paid to the supplier was delivered to the State, it cannot be considered demonstrated that the State was not prejudiced by the deduction of VAT made by the Applicant. Thus, it cannot be considered that the principle of VAT neutrality has been violated.

Thus, all requests formulated in the request for arbitral pronouncement do not proceed.

V. DECISION

In accordance with what is set out above, this Arbitral Tribunal decides:

To find all requests formulated in the request for arbitral pronouncement to be totally without merit;

To order the Applicant to pay the arbitral costs due.

VI. VALUE OF THE PROCESS

The value of the process is fixed at €40,329.26, in accordance with article 97-A, paragraph 1, a), of the CPPT, applicable by force of subparagraphs a) and b) of paragraph 1 of article 29 of the RJAT and paragraph 2 of article 3 of the Regulation of Costs in Arbitration Proceedings.

VII. COSTS

The value of the arbitration fee is fixed at €2,142.00, in accordance with Table II of the Regulation of Costs in Tax Arbitration Proceedings, in accordance with articles 12, paragraph 2, and 22, paragraph 4, both of the RJAT, and article 5 of the aforementioned Regulation, to be paid by the losing party.

Notify.

Lisbon, 28-01-2019

The Single Arbitral Tribunal,

(Maria do Rosário Anjos)