Summary
Full Decision
ARBITRAL DECISION[1]
The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Ricardo Rodrigues Pereira and Clotilde Celorico Palma, appointed by the Deontological Council of the Administrative Arbitration Centre to form an Arbitral Tribunal hereby agree:
I – REPORT
On 23 February 2017, Real Estate Investment Fund Closed A…, NIPC …, with registered office at …, no. …, … …-… Lisbon, filed a request for constitution of an arbitral tribunal, under the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking the declaration of illegality of the VAT assessment act No. 2014…, relating to the period 201401 in the amount of € 2,664,285.59, as well as of the decision on the administrative complaint No. …2014… and of the hierarchical appeal No. …2015…, which had that act as their object.
To support its request, the Applicant alleges, in summary, that the understanding of the Tax Authority ("AT") is vitiated by errors in its factual and legal premises, since the AT's argument, contained in the Tax Inspection Report and in the decision denying the hierarchical appeal, to the effect that the alleged "preponderant activity that B… carries out on lots 9 and 10 - rental - is characterized as an exempt activity that does not confer the right to deduction," cannot proceed, since only through mere error could one state that one is in the present case faced with a situation of "pure rental," in the sense of Article 1022 of the Civil Code and, consequently, of the exemption provided for in No. 29 of Article 9 of the VAT Code, insofar as the contractual model in question, and the reality it corresponds to, does not find correspondence in the rules legally typified for the traditional situation of rental of immovable property, whereby, given that it is demonstrated that there is, within the scope of those immovable spaces, the effective realization of operations subject to VAT, it will be necessary to conclude that the waiver of VAT exemption carried out between the Fund and B… was validly exercised, because, contrary to what the AT alleges, the condition required by subparagraph d) of No. 2 of Decree-Law No. 21/2007, of 29 January, is fully met, which requires that the "immovable property be devoted to activities that confer the right to deduct the VAT borne on acquisitions."
On 24-02-2017, the request for constitution of the arbitral tribunal was accepted and automatically notified to the AT.
The Applicant did not proceed to appoint an arbitrator, whereby, under the provisions of subparagraph a) of No. 2 of Article 6 and of subparagraph a) of No. 1 of Article 11 of the RJAT, the President of the Deontological Council of the CAAD appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated their acceptance of the assignment within the applicable time limit.
On 11-04-2017, the parties were notified of these appointments, and manifested no intention to refuse any of them.
In accordance with the provisions of subparagraph c) of No. 1 of Article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 28-04-2017.
On 02-06-2017, the Respondent, duly notified for this purpose, submitted its reply defending itself by way of challenge and exception. The Respondent also challenged the value of the case.
The Applicant, notified for this purpose, stated its position in writing regarding the subject matter of the Respondent's Reply, which was subject to contradiction.
Under the provisions of subparagraphs c) and e) of Article 16 and No. 2 of Article 29, both of the RJAT, the holding of the meeting referred to in Article 18 of the RJAT was dispensed with.
The parties were given the opportunity to submit written submissions, which neither did.
Given that the Tax Inspection File ("PA") attached by the Respondent did not relate to the assessment that is the object of the present arbitral action, but to another taxpayer, it was determined that the documents attached as PA be removed from the file, and the Respondent was notified to attach to the proceedings the correct PA and the Applicant to attach to the proceedings the contract referred to in Article 16 of the initial request.
Once the missing documentation was attached, the parties were given the opportunity to respond accordingly.
The time limit referred to in Article 21/1 of the RJAT was extended twice by 60 days, under the terms of No. 2 of the same article, for the delivery of final decision.
The Arbitral Tribunal is materially competent and is properly constituted, under the terms of Articles 2, No. 1, subparagraph a), 5 and 6, No. 1, of the RJAT.
The parties have legal personality and capacity, are legitimate and are legally represented, under the terms of Articles 4 and 10 of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.
The proceedings are not vitiated by any nullities.
Thus, there is no obstacle to the consideration of the case.
All considered, it is necessary to issue
II. DECISION
A. FACTUAL MATTER
A.1. Facts deemed proved
The Applicant is a Fund administered, managed and represented by C… – Fund Management Company for Real Estate Investment, SA (C…), with NIPC …, which is registered with the CMVM (Securities Market Commission) as an authorized financial intermediary with the number …, since 22 December 1999.
The Applicant's corporate object is the "management and administration, on behalf of participants, of real estate investment funds, both open and closed."
On 18-07-2012, the Applicant acquired from the Closed Real Estate Investment Fund D… ("D…"), NIPC …, the urban immovable property under land register entries … and … (current … and …), located at …, parish of …, municipality of Loures, respectively, lot 9 and lot 10 of … .
The parties (D… and Applicant) opted to exercise, in July 2012, the waiver of VAT exemption on the transfer of the two immovable properties.
Certificates of Waiver of VAT Exemption on the Transfer of Immovable Property were issued, dated 17-07-2012 and 16-07-2012, respectively for lots 9 (entry …) and 10 (entry …).
Thus, the Applicant assessed and paid to the State the VAT relating to the acquisition of the two aforementioned immovable properties.
According to the acquisition contract, Lot 9 was acquired for €3,370,000 and Lot 10 for €2,920,000, totaling €6,290,000 (land with constructed buildings).
VAT was assessed and paid to the State in the total amount of €1,446,700 (23% rate).
The Applicant carried out, between 2012 and 2014, various completion works on the two warehouses located on the above-described lots, which amounted to a total value of € 5,836,477.33, plus VAT in the amount of € 1,217,585.59.
The Applicant did not proceed at that time to deduct the VAT incurred on the acquisition nor on the subsequent construction (finishing) of Lots 9 and 10.
On 01-12-2011, D… entered into a contract with the company B…, under which it undertook to lease lots 9 and 10 (as well as the remaining lots of the same enterprise … – Lots 5, 6, 7, 8, and 11), which at that date were already under construction, and it was established that the lease of these (two) lots would be for use in that company's activity, and that would commence as soon as the construction thereof was completed and the respective certificate of use was issued, the probable date for this being indicated as 30 June 2013.
Under the terms provided for in the aforementioned lease contract, the warehouses leased to B… were intended to be used "in the exercise of the activity to be carried out within the scope of the corporate object of the companies of the business group in which the lessee B… is included, namely the guarantor identified as the company E…, S.A."
With the transfer of Lots 9 and 10 to the Applicant, D… also assigned its contractual position in the aforementioned contract with B….
On 26-12-2012, the Applicant entered into a new contract with B…, in which the contractual clauses are restated and the status of the works in progress on lots 9 and 10 is mentioned.
Under the terms of the aforementioned concluded contract, the parties agreed that the immovable properties in question, which are the object of the lease, would be devoted by the lessee to operations subject to VAT.
B…, as lessee, entered into a contract referred to as space assignment with other companies in the business group in which it is included, the companies F…, S.A. ("F…") and G…, Lda ("G…").
Under the terms defined in the aforementioned contract, the space assigned to the assignees was intended for the performance of their corporate object, in accordance with their needs and the assignor's availability.
The spaces were properly prepared for the development of warehousing and logistics activities, comprising spacious areas equipped with surveillance and cleaning services.
The aforementioned assignee entities could, under the contractual terms, opt to alter the assigned area, that is, the space assignment contracts allow for adjustment of areas based on the needs of the respective assignees, which, given the type of activity in question, could vary.
The Applicant opted to exercise, in January 2014, the right to waive the VAT exemption on the lease of the aforementioned Lots 9 and 10.
Upon the Applicant's request to the AT for the waiver of exemption, Certificates of Waiver of VAT Exemption on the Lease of Immovable Property were issued dated 21-01-2014 for both Immovable Properties: Lot 9 (entry …, formerly …) and lot 10 (entry …, formerly …), both belonging to the parish of … and … (Parish…).
Commenced in January 2014 the lease of Lots 9 and 10 between the Fund and B…, the effects of the waiver of VAT exemption were initiated, insofar as the Fund deducted all VAT borne (acquisition + construction in the total amount of €2,664,285.59) and B… commenced the lease with VAT assessment on the rents to the lessee entities (F…, SA, NIPC… and G…, Lda., NIPC…).
By the Applicant, the VAT return for the period 2014.01 was then submitted, in which it assessed as the total tax in favor of the taxpayer the amount of €2,664,285.58, and as the total tax in favor of the State the amount of € 13,050.28, resulting in a balance in favor thereof in the amount of € 2,651,235.30.
This amount was entirely generated by the amount entered in January 2014 in field 24 - Services, which reflects the accumulated amount from the acquisition (in 2012), followed by construction (finishing works), of two warehouses (intended for warehouse and/or industrial use) located in Loures, in the so-called …, specifically lots 9 and 10.
The Applicant deducted the amount relating to the actual allocation of VAT corresponding to lots 9 and 10 (which totals €2,664,285.59), covered by the aforementioned Lease Contract, for which it opted for the waiver of VAT exemption.
This VAT deduction forms the basis of the Refund Request in the amount of €2,651,235.30.
Following the refund request submitted, the Applicant was subject to an inspection action, regarding VAT, carried out by the Tax Inspection Division.
In October 2014, the Applicant was notified of the respective Tax Inspection Report with the decision to completely deny the refund request submitted, proposing within the same a VAT correction in the total amount of € 2,664,285.59, corresponding to the tax considered as deducted in excess by the Applicant.
In the Tax Inspection Report it is stated, among other things, that:
"..., B… provides two distinct services: a) space assignment and b) cost pass-through of expenses. The first constitutes the main service; and the second the ancillary service which, not constituting an end in itself, constitutes a means of providing the main service under the best conditions. The predominant element of the transaction is the lease."
"(...) the operation of space assignment of lots 9 and 10 configures a pure lease contract since the predominant characteristic of the economic operation is the passive placement of the immovable property at the disposal of its user, without any added value being associated with it. Thus, and returning to the requirements defined by Decree-Law No. 21/2007 for the validation of the waiver of VAT exemption on the lease of Lots 9 and 10, it is not confirmed that B… (lessee) uses these immovable properties in the realization of operations subject to taxation (with right to deduction). Although it has formalized its active operations as subject to taxation, having initiated VAT assessment on the lease of the facilities to group companies, in substance, it is developing an exempt activity provided for in No. 29 of Article 9 of the VAT Code."
"...all the conditions imposed cumulatively are not, after all, met for the acceptability of the waiver of VAT exemption on the operation of lease of lots 9 and 10, between Fund A… and B…, insofar as there is no compliance with subparagraph d) of No. 2 of Decree-Law 21/2007," since "the preponderant activity that B… carries out on Lots 9 and 10 - lease – is characterized as an exempt activity that does not confer the right to deduction."
The AT considered that the Applicant and the lessee, B…, met the subjective legal conditions established for the exercise of the waiver of VAT exemption relating to the lease of the immovable properties, considering that they were taxpayers whose activity had as its object, on a habitual basis, the construction or acquisition of immovable properties for sale or for lease.
The AT further considered that the immovable properties in question (Lot 9 and 10) met the conditions provided for in subparagraphs a), b), c) and e) of No. 1 and c) of No. 2 of the Waiver Regime.
The AT also considered that B… did not use the immovable property in the realization of operations subject to taxation that would confer the right to deduction, insofar as it understood that B… provided two distinct services, the space assignment and the cost pass-through of expenses at a sum equal to that borne and framing equal to that borne, the first being the main service and the second the ancillary service.
In Dispatch DI2014… of the Finance Department of Lisbon it states that:
"In January 2014, B… entered into a contract identified as "space assignment," relating to lots 9 and 10 with the firms F…, SA, TIN … and G…, Lda. TIN…, the former being engaged in the provision of services in the area of logistics, warehousing, transport and distribution of goods and the latter in the transport, logistics, distribution, warehousing and marketing of food and other products.
- Upon visiting the warehouses, it was verified that they are occupied by goods, with clear evidence of activity of entry and exit thereof. The goods handling machines (forklifts and others) as well as the means of transport are owned by the lessees.
- The security of the enterprise is ensured by the firm H…, and paid by B…, SA. However, B…, SA passes on the cost of security entirely to its customers.
- B…, SA also bears the costs of water and electricity consumption, maintenance expenses for external spaces, gardening, waste management and recycling and other service provision. These services are passed on invoice by invoice to customers.
- B…, SA issues monthly invoices with the description of "space assignment" according to the space used by customers, assessing the respective VAT. The space actually used is invoiced at the m2 rate, being evidenced in the respective invoices.
- B…'s main customers are the aforementioned companies, F…, SA and G…, SA, all part of the I… group; However, B… also invoices other firms not belonging to the group, such as J…, Lda. and K…, SA."
Following this, the Applicant was notified of the VAT assessment statement, with assessment number 2014…, and correlative compensatory and default interest, relating to the period of January 2014, which disregarded the amount self-assessed and deducted by the Applicant, being fixed, as a consequence, at the total amount of tax and default interest, to be paid in the amount of € 9,942.60.
The VAT assessment and compensatory and default interest was paid within the respective legal time limit.
The Applicant filed an administrative complaint on 19 November 2014.
Owing to the lack of decision by the AT within the legal time limit for this purpose, the formation of a presumption of tacit denial of the administrative complaint filed occurred, and the Applicant filed, on 8 April 2015, a hierarchical appeal reiterating the claim previously made.
During the month of October 2016, the Applicant was notified, through Letter No. … of 18 October 2016 from the VAT Services Department, of the AT's draft decision regarding the aforementioned hierarchical appeal.
The Applicant not having exercised the right to a hearing on that proposed denial, on 5 December 2016 it was notified of the final decision denying the aforementioned hierarchical appeal, issued by the Central Service Director.
A.2. Facts deemed not proved
With relevance to the decision, there are no facts that should be considered as not proved.
A.3. Justification of the factual matter proved and not proved
Regarding the factual matter, the Tribunal does not have to pronounce on everything that was alleged by the parties; rather, it is incumbent upon it to select the facts that matter for the decision and to discriminate between the matter proved and not proved (see Article 123, No. 2, of the CPPT and Article 607, No. 3 of the CPC, applicable ex vi Article 29, No. 1, subparagraphs a) and e), of the RJAT).
In this manner, the pertinent facts for the judgment of the case are chosen and defined based on their legal relevance, which is established in consideration of the various plausible solutions to the question(s) of Law (see previous Article 511, No. 1, of the CPC, corresponding to the current Article 596, applicable ex vi Article 29, No. 1, subparagraph e), of the RJAT).
Thus, having regard to the positions assumed by the parties, in light of Article 110/7 of the CPPT, the documentary evidence and the PA attached to the proceedings, the facts listed above were considered proved, with relevance to the decision, taking into account that, as was written in the Decision of the South TAC of 26-06-2014, issued in case 07148/13[2], "the evidential value of the tax inspection report (...) may have evidential force if the assertions contained therein are not challenged."
Not deemed proved nor not proved were allegations made by the parties, and presented as facts, consisting of strictly conclusive assertions, incapable of proof and whose truth shall be assessed in relation to the concrete factual matter above established.
B. ON LAW
i. On the matter of exception
The Respondent concludes its Reply by raising the issue of the incompetence of the CAAD to decide the claim formulated by the Applicant in subparagraph c) of its Initial Request, to the effect that the Respondent be condemned to refund the amount of VAT of € 2,651,235.30 correctly entered in the Periodic VAT Return for the period of January 2014.
On this matter, it is considered that the AT is right, insofar as, as provided in Article 2/1/a) of the RJAT, for what is relevant to the case, the CAAD is only competent for the "Declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account."
On the other hand, the claim in question is not a principal claim, but merely an ancillary one (configured as resulting from the success of the principal claim for annulment of the assessment act, which is the object of the present arbitral action, and whose competence for consideration by this Tribunal is not contested), to be considered in the context of eventual execution of an annulling judgment that may be issued.
As was written in the Decision of the South TAC of 28-04-2016, issued in case 09286/16:
"In the absence of a legal provision that permits concluding otherwise, the scope of the judicial review process and of the arbitral processes is restricted to questions of the legality of acts of the types referred to in Article 2 that are covered by the binding undertaken in Ordinance No. 112-A/2011, it not being competent for arbitral tribunals to define the terms in which annulling judgments that are issued shall be executed."
In this manner, the arbitral tribunal should confine its decision to the limits of annulment or not of the act which is the object of the proceedings, it being incumbent, subsequently, in the first place, on the Respondent to determine the terms of execution thereof, in accordance with the provisions of Article 24 of the RJAT, and the Applicant being able, insofar as it considers that the acts practiced by the AT do not give proper execution to the annulling judgment, to have recourse to the process of execution of judgments, under the terms legally established.
Thus, and in light of the foregoing, the aforementioned exception of material incompetence of this Arbitral Tribunal to consider subparagraph c) of the prayer formulated in the Initial Request is upheld.
*
ii. On the merits of the case
With respect to the merits of the case, the issue is to ascertain whether, in the present case, the prerequisites of the regime of waiver of VAT exemption on operations relating to immovable property, established by Decree-Law 21/2007 of 29-01, are demonstrated or not, the waiver of exemption specifically in question being provided for in No. 30 of Article 9 of the VAT Code applicable, which exempts "Operations subject to municipal tax on onerous transfers of immovable property."
With regard to this exemption, Article 12/5 of the aforementioned Code provides that:
"5 - Taxpayers who transfer the right of ownership of urban immovable property, autonomous fractions thereof or land for construction in favor of other taxpayers, who use them, in total or predominantly, in activities that confer the right to deduction, may waive the exemption provided for in No. 30) of Article 9."
No. 6 of the same article provides further that "The terms and conditions for the waiver of the exemption provided for in Nos. 4 and 5 are established in special legislation." This special legislation is condensed in the aforementioned Decree-Law 21/2007 of 29-01.
Among the legally established requirements, as the Respondent refers in its Reply, "In accordance with what was ascertained in the RIT, Fund A… and the Lessee, B…, meet the subjective legal conditions established for the exercise of the waiver of VAT exemption relating to the lease of the immovable properties."
It is also verified, under the terms likewise referred to by the Respondent, that "The immovable properties in question (Lot 9 and 10) meet the conditions provided for in subparagraphs a), b), c) and e) of No. 1 and c) of No. 2 [of Article 2] of the Waiver Regime."
Thus, and still following the Respondent's Reply, the issue in the present arbitral proceedings is to ascertain whether "the condition provided for in subparagraph d) of No. 1" of Article 2 of the Waiver Regime is met, which provides that:
"Waiver of exemption is admitted on operations relating to immovable property when the following conditions are shown to be satisfied: (...)
d) The immovable property is devoted to activities that confer the right to deduct the VAT borne on acquisitions."
In the present case, the AT considered that the lessee (B…) did not use the immovable property in the realization of operations subject to taxation that would confer the right to deduction, insofar as it understood that the latter provided two distinct services, the space assignment and the cost pass-through of expenses at a sum equal to that borne and framing equal to that borne, the first being the main service and the second the ancillary service, that is, that the lessee used the immovable property in the realization of operations subject to taxation that confer the right to deduction.
As stated in the RIT, the AT understood, in summary, that, for purposes of the aforementioned subparagraph d) of No. 1 of Article 2 of the Waiver Regime of Decree-Law 21/2007 of 29-01, "it is an indispensable condition that B… use the immovable property in the realization of operations subject to taxation that confer the right to deduction," having concluded that "it is not confirmed that B… (lessee) uses these immovable properties in the realization of operations subject to taxation (with the right to deduction)."
*
It is to be noted, from the outset, that it is considered that the AT is not right in the corrections it made.
Indeed, and with regard to the aforementioned understanding that it is an indispensable condition for purposes of the aforementioned subparagraph d) of No. 1 of Article 2 of the Waiver Regime of Decree-Law 21/2007 of 29-01, that the lessee use the immovable property in the realization of operations subject to taxation that confer the right to deduction, it is to be noted from the outset that this does not correspond with the legal text of the norm in question, which refers to the need that "The immovable property is devoted to activities that confer the right to deduct the VAT borne on acquisitions."
Now, "devotion" is, naturally, from a semantic and also a legal point of view, a concept distinct from "use." Indeed, "devote," in the context, means "Designate for a specific use or purpose,"[3] whereas "use" means "To put to use; employ."[4]
The difference between the two concepts, which cannot be considered interchangeable, lies in the fact that "devote" has underlying it a purpose, an intention to give (or to have given) a certain use, whereas "use" presupposes an action, actual use.
Now, as was seen, the AT based the corrections it made not from the perspective of the devotion of the immovable property, but from the perspective of the actual use which, in its view, did not occur.
On the other hand, Article 5 of the Waiver Regime of Decree-Law 21/2007 of 29-01, regarding the "Moment at which the waiver of exemption becomes effective," prescribes that:
"1 - The waiver of exemption only operates at the moment the contract of sale or lease of the immovable property is entered into, provided that the taxpayer is in possession of a valid waiver certificate and that the conditions for the waiver of exemption established in the present regime continue to be met at that moment.
2 - If the conditions of waiver of exemption cease to be met before the execution of the contract referred to in the preceding number, or if the validity period of the waiver certificate has expired without such contract having been entered into, the taxpayer who requested the issuance thereof must communicate, by electronic means, this fact to the tax administration.
3 - The exercise of the waiver of exemption without the conditions referred to in No. 1 being met produces no effects."
The aforementioned norm confirms, with clarity, that the relevant devotion is that resulting from the contract (non-fraudulent or abusive), in the case of lease, since it is with the execution of such contract that the waiver of exemption is consummated (operates), as provided in No. 1.
Hence, No. 2 of the aforementioned norm only imposes on the taxpayer the obligation to communicate that the conditions of waiver of exemption cease to be met before the execution of the contract, and not after, because, precisely, the conditions of waiver of exemption are relevant, from the perspective of the regime in question, and with regard to the transferor or lessor, at the moment of the execution of the contract of transfer or lease.
Also, No. 3 of the same norm, in coherence, limits the non-production of effects of the waiver of exemption to situations in which the conditions referred to in No. 1 are not "met," that is, when "at the moment the contract of sale or lease of the immovable property is entered into":
the taxpayer is not "in possession of a valid waiver certificate"; and/or
the conditions for "the waiver of exemption established in the (...) regime" do not "continue to be met at that moment."
Only these – which in the case do not apply – and not others, namely the subsequent actual use that may occur, constitute impeditional facts of the rights arising from the waiver of exemption.
It is thus clear, it is considered, that the legal situation of waiver of exemption in question is consummated at the moment the lease contract of the immovable property is entered into, forming itself, in the legal-tax sphere of the Applicant, the rights (and duties) arising therefrom, namely the right to deduction, under the terms of Article 8 of the aforementioned Regime, whereby (in the case) the lessor may "deduct the VAT relating to the immovable property in the return for the tax period or a later tax period than the one in which, under the terms of No. 1 of Article 5 of the present regime, the waiver of exemption takes place, having regard to the time limit referred to in No. 2 of Article 91 of the VAT Code" (Article 8/2 of the Waiver Regime), from which it follows, without room for doubt, that the concrete and actual use that may be given to the immovable property (the circumstance on which the AT directly based the corrections made) does not interfere with the constitution of the situation of waiver of exemption, such circumstance being a fact supervening on such constitution, which may be relevant from the perspective of the lessee (who will not be able to deduct the VAT invoiced by the lessor, if the immovable property, in each tax period, is not actually devoted to operations subject to VAT[5]), as well as from the perspective of the ascertainment of situations of fraud or abuse, but which, absent a norm that legitimates it, cannot serve as an impeditional, modificative or extinctive fact of a legal situation that was constituted with the execution of the contract, and was consummated with the exercise of the right to deduction under legal terms.
Moreover, it will be well understood that the actual use that may be given to the immovable property that has been devoted to operations subject to VAT does not contend with the waiver of exemption of the transferor or lessor, on pain of rendering it eventual or precarious, that is, subject to condition, without anything in the law suggesting that such is the legislative intent.
Furthermore, such conditioning of the waiver of exemption of the transferor or lessor to the actual use of the immovable property that were to occur subsequently would always run into considerable practical obstacles, and it could be questioned, for example, what time limit the transferee or lessee would have to initiate the activity corresponding to the operations subject to VAT, or what would happen to the exemption of the transferor or lessor, if the transferee or lessee were to suspend or cease the activity at some point, there being, within the applicable legislative framework, no norm capable of answering such questions.
Note, moreover, in this respect, that the Waiver Regime, equates, for what is relevant to the case, the transferor of the property to the lessor, not distinguishing between them, either in the prerequisites, or in the procedures, or in the effects of the waiver of exemption.
Thus, just as in the case of a taxpayer who transfers the ownership of an immovable property, contractually intended for the exercise of operations subject to VAT, such party should not see its waiver of exemption, legally constituted and exercised, affected by the non-commencement, suspension, or cessation of such exercise by the transferee, which is beyond its control (and if it is not, one would be, at least by indication, facing situations of fraud or abuse), the same should also be the case with the lessee.
One would be here, moreover, facing a situation analogous, for example, to what occurs in connection with IMT, with regard to the exemption on acquisitions intended for permanent own residence, and where the legislator saw fit to provide for the situation where the devotion given contractually is altered or does not materialize within a certain time limit,[6] on pain of lapse,[7] a situation which in the case of waiver of VAT exemption does not occur.
In light of the available elements and the facts deemed proved, there are no founded doubts, as to the circumstance that the immovable property was devoted, as presupposed by subparagraph d) of No. 1 of Article 2 of the Waiver Regime of Decree-Law 21/2007 of 29-01, to activities that confer the right to deduct the VAT borne on acquisitions.
Indeed, in the case it is verified that:
The immovable properties in question were acquired with waiver of VAT exemption and the Applicant assessed and paid to the State the VAT relating to the acquisition thereof, in the total amount of €1,446,700 (23% rate);
The Applicant carried out, between 2012 and 2014, various completion works on the two warehouses located on the above-described lots, which amounted to a total value of € 5,836,477.33, plus VAT in the amount of € 1,217,585.59, not having proceeded at that time to deduct the VAT incurred on the acquisition or on the subsequent construction;
There was already, dated 01-12-2011, a promise contract between B… and D…, from whom the Applicant acquired the immovable properties, and whose contractual position therein was transferred to the Applicant, of identical tenor to that which was subsequently entered into between the Applicant and B…;
On 26-12-2012, the Applicant entered into a new contract with B…, in which the contractual clauses are restated and the status of the works in progress on the lots in question is mentioned, it being established in the contract entered into that the immovable properties in question, which are the object of the lease, would be devoted by the lessee to operations subject to VAT;
B…, as lessee of the aforementioned immovable properties, entered into a contract referred to as space assignment with other companies in the business group in which it is included, the companies F…, S.A. ("F…") and G…, Lda ("G…").
Under the terms defined in the aforementioned contract, the space assigned to the assignees was intended for the performance of their corporate object, in accordance with their needs and the assignor's availability, the spaces being properly prepared for the development of warehousing and logistics activities, comprising spacious areas equipped with surveillance and cleaning services.
The aforementioned assignee entities could, under the contractual terms, opt to alter the assigned area, that is, the space assignment contracts allowed for adjustment of areas based on the needs of the respective assignees, which, given the type of activity in question, could vary;
The Applicant opted to exercise, in January 2014, the right to waive the VAT exemption on the lease of the aforementioned Lots 9 and 10, Certificates of Waiver of VAT Exemption on the Lease of Immovable Property were issued dated 21-01-2014 for both immovable properties, the Applicant having exercised the aforementioned right in the periodic return of January 2014;
B… commenced the lease with VAT assessment on the rents to the lessee entities (F…, SA, NIPC… and G…, Lda., NIPC…).
In this context, being the contract entered into between the Applicant and B… clear, in imposing on the latter that the immovable properties in question, which are the object of the lease, would be devoted by the lessee to operations subject to VAT, and it not being verified, in light of the established facts, that such was not the real purpose of the parties (or any indication of fraud or abuse), on the contrary, since everything indicates that, in fact, the parties intended that the lessee would use the leased property in operations subject to VAT, it must be concluded that, at the moment of the execution of the lease contract, the immovable properties were devoted to activities that conferred the right to deduct the VAT borne on acquisitions.
A different matter will be the circumstance that the lessee may have eventually given the leased immovable property a use different from that which was contractually conferred and authorized upon it.
Such use, if verified, will be illegitimate – because proscribed contractually – and, save for, obviously, situations of fraud or abuse, which are not, in the present case, invoked, beyond the Applicant's control, which devoted, legally, the immovable property to operations subject to VAT.
Nevertheless, it is not incumbent here to ascertain whether or not the lessee gave the immovable property a use different from that which, contractually, was conferred and authorized upon it, it not being relevant here, for all that was seen, the vicissitudes occurring after the execution of the contract, vicissitudes that, in reality, boil down essentially to a disagreement between the AT and the taxpayers as to the qualification and legal framing of the relationship of the lessee with its customers.
In light of the foregoing, considering that what is relevant for purposes of subparagraph d) of No. 1 of Article 2 of the Waiver Regime of Decree-Law 21/2007 of 29-01, is the devotion of the immovable property, at the time of transfer or lease, to activities that confer the right to deduct the VAT borne on acquisitions, devotion that in the case was verified, and not the subsequent use that may occur, as was understood in the tax acts which are the object of the present arbitral action, such acts will be vitiated by error of law, due to erroneous interpretation of the aforementioned norm, and should, as such, be annulled.
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iii. On compensatory interest
The Applicant further requests that the Respondent be condemned to the refund of the improperly paid tax, plus compensatory interest, under the terms of Article 43, No. 1, of the General Tax Law.
In accordance with the provision in subparagraph b) of Article 24 of the Legal Regime of Tax Arbitration, the arbitral decision on the merits of the claim that is not subject to appeal or challenge binds the Tax Administration as from the expiry of the time limit provided for appeal or challenge, the latter being obliged, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the expiry of the time limit provided for voluntary execution of the sentences of the tax courts, to "restore the situation that would have existed if the tax act which is the object of the arbitral decision had not been practiced, adopting the acts and operations necessary for the effect," which is in harmony with the provision in Article 100 of the General Tax Law, applicable by force of the provision in subparagraph a) of No. 1 of Article 29 of the Legal Regime of Tax Arbitration.
Already, No. 5 of Article 24 of the Legal Regime of Tax Arbitration, which states that "payment of interest, regardless of its nature, is due, under the terms provided for in the General Tax Law and in the Code of Tax Procedure and Process," is nothing more than the recognition of the right to compensatory interest in the arbitral process.
In the case at hand, given that the illegality of the assessment act has been declared, compensatory interest is due, under the terms of Article 43, No. 1, of the General Tax Law and Article 61 of the Code of Tax Procedure and Process, calculated on the amount that the Applicant paid improperly.
Such interest shall be considered due from the date of improper payment until the moment of the respective refund.
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iv. On the value of the case
The Respondent contests the value of the case, attributed by the Applicant, insofar as "the immediate object of the present dispute, the act that is frontally challenged, is the VAT assessment No. 2014…, in the amount of € 9,942.60."
With due respect, it is considered that the linear reading proposed by the Respondent lacks any substantial foundation.
Indeed, as was written in the Decision of the South TAC of 13-03-2014, issued in case 07125/13:
"With respect to the determination of the economic utility of the claim, it must be noted that "such utility must always be based on the cause of action that explains and delimits it. The criterion of the immediate economic utility of the claim does not abstract from it, whereby it is not considered abstractly, but rather in comparison with the cause of action, for the determination of the value of the case."(1) The cause of action consists of the constitutive fact of the legal situation that the plaintiff wishes to make prevail or deny, incumbent upon it the function of individuation and delimitation of the claim.
In the case under examination, it is a matter of judicial challenge brought against the negative silence on the request for official revision of the 2008 IRC assessment, with a view to the annulment of the aforementioned assessment. The impugning intention at issue centers on the alleged erroneous nature of the act of fixation of the taxable matter, the impugner pointing to it the vices that are discriminated above. Thus, the cause of action of the impugning intention in the file centers on the alleged erroneous fixation of the taxable matter, by indirect methods.
What the impugner questions is the fixation of the taxable matter by indirect methods and the consequent disregard of the declarative principle, that is, what is sought with the present challenge is the restoration of the legal-tax situation that would have existed but for the practice of the act of fixation of the taxable matter by indirect methods hallowed as illegal. The fixation of the taxable matter by the AF, under the terms of Article 92/6 of the General Tax Law, amounted to €0.00 (No. 3 of the probative matter), and the taxable matter for which the impugner contends corresponds to that which was declared by itself, that is, the one corresponding to tax losses of €304,301.31 (Nos. 1 and 7 of the probative matter). From which it follows that this latter amount corresponds to the economic benefit to be obtained with the success of the present action, whereby the claim centers on the annulment of the assessment impugned in the part in which it disregarded the declared tax losses of €304,301.31, being this the value of the action, under the terms of Article 97-A/1/a), of the Code of Tax Procedure and Process."
That is, as is referred to in the aforementioned decision, the criterion fixed in Article 97-A/1/a), of the Code of Tax Procedure and Process does not derive from the amount corresponding to the economic benefit to be obtained with the success of the action, and this is, moreover, evidenced by the very wording of the norm in question, when it refers to the "amount whose annulment is sought."
Now, in the present arbitral action, as in the aforementioned decision, the Applicant questions the "disregard of the declarative principle," and what it seeks is the restoration of the legal-tax situation that would have existed but for the practice of the act of assessment hallowed as illegal, in conformity with the provision in subparagraph b) of No. 1 of Article 24 of the RJAT, which imposes on the AT the duty to "Restore the situation that would have existed if the tax act which is the object of the arbitral decision had not been practiced, adopting the acts and operations necessary for the effect."
In the case, the restoration of the legal-tax situation that would have existed but for the practice of the act of assessment hallowed as illegal, will be reduced, in light of the absence of any autonomous and express act which has wholly or partially revoked it, to the emergence in the legal order of the VAT self-assessment carried out by the Applicant, in its return for the period 201401, in which it assessed as the total tax in favor of the taxpayer the amount of €2,664,285.58, and as the total tax in favor of the State the amount of € 13,050.28, resulting in a balance in favor thereof in the amount of € 2,651,235.30 (see point 23 of the facts proved), being therefore that, in light of the criteria exposed, the amount to be considered for purposes of fixing the value of the action.
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C. DECISION
Whereupon, it is decided in this Arbitral Tribunal to find the arbitral claim formulated as well-founded and, in consequence:
Annul the VAT assessment act No. 2014…, relating to the period 201401, as well as the decision on the administrative complaint No. …2014… and of the hierarchical appeal No. …2015…, which had that act as their object;
Condemn the Respondent to the payment of compensatory interest in the terms fixed above;
Not to consider subparagraph c) of the claim formulated in the Initial Request;
Condemn the Respondent to pay the costs of the proceedings.
D. Value of the proceedings
The value of the proceedings is fixed at € 2,651,235.30, under the terms of Article 97-A, No. 1, a), of the Code of Tax Procedure and Process, applicable by force of subparagraphs a) and b) of No. 1 of Article 29 of the RJAT and of No. 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.
E. Costs
The value of the arbitration fee is fixed at € 34,272.00, under the terms of Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the claim was entirely well-founded, under the terms of Articles 12, No. 2, and 22, No. 4, both of the RJAT, and Article 4, No. 4, of the aforementioned Regulation.
Let notification be made.
Lisbon 29 January 2018
The Presiding Arbitrator
(José Pedro Carvalho)
The Arbitrator Member
(Ricardo Rodrigues Pereira)
The Arbitrator Member
(Clotilde Celorico Palma)
[1] Digital version for purposes of notification. The original paper version will remain deposited with the CAAD.
[2] Available at www.dgsi.pt, as is the remaining case law cited without mention of source.
[3] See Priberam Dictionary, at https://www.priberam.pt.
[4] Ibid.
[5] Note that in such a situation, given that the lessor assesses and pays VAT on the acquisition of the immovable property, and assesses and collects VAT on the rents it bills to the lessee, if the latter, violating its obligations arising from the lease contract and the norms regulating the right to deduction, does not exercise an activity that confers such right, no prejudice arises for the AT, since it will be the lessee that is burdened with the tax it cannot deduct, which will bear the prejudice of its own action.
[6] Note that this provision was only introduced by Law No. 55-A/2010, of 31 December. Until then, if the acquisition of the immovable property was intended for permanent own residence, but no different purpose being given, such devotion was not to be materialized, the exemption would not lapse.
[7] Note also that, in coherence, lapse is an extinctive fact, and not an impeditional one, of the right, which is consistent with the nature of the fact supervenient thereto, in relation to the constitution thereof.
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