Summary
Full Decision
ARBITRAL DECISION
I - REPORT
A - IDENTIFICATION OF THE PARTIES
Claimant: Municipality of A..., with Tax Identification Number ..., with registered office at Street ..., no. ... - ... ..., hereinafter referred to as Claimant or Taxpayer.
Respondent: Tax and Customs Authority, hereinafter referred to as Respondent or TA.
The Claimant filed a request for establishment of an Arbitral Tribunal in tax matters and a request for arbitral award, pursuant to the provisions of paragraph a) of article 2, paragraph 1 and paragraph a) of article 10, paragraph 1, both of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters), hereinafter abbreviated as LFAT.
The request for establishment of the Arbitral Tribunal was accepted by the President of the Administrative Arbitration Centre (CAAC), and in accordance with the provisions of paragraph c) of article 11, paragraph 1 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Tax Authority was notified on 2018-03-22.
The Claimant did not proceed with the appointment of an arbitrator, whereby, pursuant to the provisions of paragraph 1 of article 6 and paragraph b) of article 11, paragraph 1 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council designated Ms. Rita Guerra Alves as Arbitrator, who accepted the designation in accordance with the legal provisions.
On 2018-05-15, the parties were duly notified of this designation, and did not express any intention to refuse the appointment of the arbitrator, in accordance with article 11, paragraph 1, paragraphs a) and b), of the LFAT and articles 6 and 7 of the Deontological Code.
The Singular Arbitral Tribunal was regularly constituted on 2018-06-05, to examine and decide on the subject matter of the present dispute, and on the same day the Tax and Customs Authority was automatically notified, as recorded in the respective minutes.
No witness evidence was called, and therefore in the procedural sequence, the waiver of the hearing referred to in article 18 of the LFAT was accepted by both parties.
The parties have legal standing and legal capacity, are legitimately constituted and are represented (articles 4 and 10, paragraph 2, of the same decree and 1 of Order no. 112-A/2011, of 22 March).
The proceedings do not suffer from defects that would render it invalid.
B - CLAIM
The Claimant petitions for a declaration of illegality of the tax assessment acts for Value Added Tax (VAT) no. ..., no. ..., no. ..., no. ..., no. ..., no. ..., no. ... and ..., corresponding to the fiscal years 2014 and 2015, in the total amount of 37,279.97€ (thirty-seven thousand two hundred seventy-nine euros and ninety-seven cents).
C - GROUNDS FOR CLAIM
To support its request for arbitral award, the Claimant alleges the following with a view to obtaining a declaration of illegality of the tax assessment act for Value Added Tax (VAT), already described in point 1 of this decision:
The Municipality of A... is a legal person under public law classified for VAT purposes as a mixed taxpayer, with quarterly periodicity.
In pursuing its duties, the Municipality carries out a vast set of operations within the scope of its powers of authority (e.g. fixing traffic signs, subdivision of works), which are excluded from VAT liability, as the Municipality does not act in its capacity as a taxpayer subject to the tax, pursuant to the provisions of paragraph 2 of article 2 of the VAT Code.
On the other hand, the Municipality also performs a set of operations, whether they are transfers of goods or provision of services, which are not encompassed within the scope of its powers of authority, and are therefore subject to VAT under the general terms of the Code.
Within this scope, the Municipality carries out both operations subject to VAT (e.g. water distribution to residents) and operations exempt from this tax.
During the years 2014 and 2015, the Municipality only deducted the tax incurred, based on the application of the real allocation method, in the acquisition of certain resources directly related to water distribution to residents (an activity entirely subject to taxation by the Municipality).
In 2016 and 2017, in the course of a review of procedures, the Claimant verified that it had improperly limited the exercise of the right to deduct VAT incurred in 2014 and 2015, having thus borne tax which, in accordance with the rules of the Code, would be recoverable.
The Claimant alleges that during the years 2014 and 2015, it had improperly limited its right to deduct VAT incurred in the acquisition of "common" resources (i.e., resources used, simultaneously, both in the taxable activity and the non-taxable activity - whose VAT is recoverable by the pro-rata method or on the basis of objective criteria), as well as in certain resources entirely allocated to the performance of taxable operations (whose VAT is, therefore, recoverable in full).
Within this scope, and considering the provisions of articles 22 and 98 of the VAT Code, the Claimant effected in the years 2016 and 2017, the deduction of VAT incurred in the acquisition of goods and services related to the aforementioned "common" resources, as well as in the acquisition of goods and services directly allocated to taxable operations.
For this purpose, the Municipality submitted, on 18 May 2016 and 3 March 2017, two amended declarations relating to the 4th quarter of 2014 and the 4th quarter of 2015, respectively, calculating a VAT credit in the amount of €63,525.91 and €77,146.46.
It contends that the amended declarations mentioned above were thus submitted within the legal deadline established for this purpose.
Subsequently, following a reimbursement request made in the periodic declaration for the 3rd quarter of 2017, the Municipality was subject to internal inspection procedures, which focused on the years 2014 and 2015, with a view to verifying the legitimacy of the VAT credits in question.
The Claimant submits that the Tax Authority, in the inspection reports, at no point contests the fact that the Municipality had effectively borne the VAT in question during the years 2014 and 2015 and that it is therefore deductible.
Indeed, the corrections made by the Tax Authority are related solely to the deadline and the time at which the Municipality exercised its right to deduction.
The Claimant argues that it merely followed the provisions of the legislation in force, having deducted the VAT in question in accordance with articles 20 to 23 of the VAT Code.
The Claimant proceeded to recover the tax incurred in excess, in accordance with the applicable deduction methods, within the legal deadline.
It submits that there can be no doubt that the Municipality of A... made a legal error, susceptible to correction, having thus exercised its right to deduct the tax incurred in compliance with the law - i.e. at a later time from the date of receipt of the invoices, within the legal deadline established for this purpose of 4 years.
Accordingly, taxpayers can exercise the right to deduction (through inclusion of the tax in their favor in the periodic declaration) in any period subsequent to the receipt (and respective accounting) of the invoices, naturally having to do so within the deadline provided in paragraph 2 of article 98 of the VAT Code (i.e. 4 years).
The Claimant concludes by requesting the annulment of the additional assessments as being illegal.
D - RESPONSE OF THE RESPONDENT
The Respondent, duly notified for this purpose, timely filed its response, in which, in brief summary, it alleged the following:
Given that a change in the method of deduction of the tax was involved, this is not a material error or calculation error in the record referred to therein, and therefore the Claimant cannot avail itself of this legal mechanism nor proceed with any regularization of the tax previously deducted.
In fact, in the years 2014 and 2015, adopting the criterion of total real allocation, the Claimant recorded the cost documents associated with the activity carried out and proceeded with their classification under VAT.
Furthermore, in the amended periodic declarations, as a result of a change in calculation methodology, it deducted the full amount of tax borne in the acquisition of goods and services allocated to the water sector.
Now, contrary to what the Claimant understands, the deadline for exercise of the right to deduction is provided for in the VAT Code, and it is not permitted to the taxpayer to choose at its pleasure the time of its determination.
In fact, what is found is that, with respect to VAT borne on inputs allegedly of mixed use, the Claimant considered it as an expense, because it understood that the same was not deductible.
Now, the mechanism of VAT deductions is provided for in articles 19 to 26 of the VAT Code and is part of the essence of the tax itself, with article 19 stating that, for purposes of determining the tax due (self-assessment), taxpayers deduct from the tax incurred on taxable operations in a given period, the tax that was invoiced to them in the acquisition of goods and services from other taxpayers, mentioned in invoices or equivalent documents issued in proper form, in the same period, a situation that should be reflected in the periodic declaration referred to in paragraph c) of article 1, paragraph 29 of the VAT Code.
In fact, following the provisions of article 23 of the VAT Code, the deduction should have been completed monthly or quarterly on the basis of a provisional pro-rata, to be adjusted in December of each fiscal year.
Thus, VAT deductions made by a VAT taxpayer are, in principle of a final nature, and may, however, in certain cases expressly provided for in article 78 of the VAT Code, be subject to amendment.
The Claimant seeks to rely, in the case sub judice, on the four-year deadline to proceed with the correction of the VAT which it claims it bore in excess, which, in its view, derives from paragraph 2 of article 98 of the VAT Code.
In fact, although paragraph 2 of article 98 of the VAT establishes that, without prejudice to special provisions, the right to deduction may be exercised up to the limit of four years, the VAT taxpayer does not have freedom to determine the time of exercise of that right, with that rule limiting itself to fixing only a maximum limit of a general nature, after which that right can no longer be exercised.
The segregation of costs associated with specific business sectors of a mixed taxpayer – as is the case of the Claimant - must be carried out at the time of exercise of the right to deduction or, at the limit, in accordance with paragraph 6 of article 23 of the VAT Code, and allegations of error are not acceptable based on segregations of costs only subsequently carried out.
In fact, when exercising the right to deduction, the Claimant was not segregating costs associated with its different business sectors from an accounting perspective, there being no error in the failure to deduct tax, but rather a lack of preparedness to differentiate those costs in respect of which it could proceed with full deduction by direct allocation in accordance with article 20 of the VAT Code.
Accordingly, in light of the legislation applicable to the case at hand, it cannot fail to be understood that neither the two-year deadline established in paragraph 6 of article 78 nor the four-year deadline established in paragraph 2 of article 98, both of the VAT Code, can be applied in the case of the present proceedings, since we are not faced with any specific rectification, nor with a legal error regarding the exercise of the right to deduction.
Accordingly, what is found is that the Claimant should have complied with the rules provided for in article 23 of the VAT Code, that is, it should have effected the deduction of the tax relating to goods and services of mixed use, which it certainly recorded in its accounts, respecting both the general rule of paragraph 2 of article 22 of the VAT Code and paragraph 6 of its article 23, correcting these amounts at the end of each year.
Having failed to do so, by its own oversight, as it states in the present request for arbitral award.
The Respondent concludes by requesting the dismissal of the claim, as not substantiated, and, consequently, absolved of all requests with the legal consequences thereof.
E - STATEMENT OF FACTS
For purposes of addressing the questions raised, it is first necessary to present the factual matter relevant to its understanding and the decision to be rendered, based on the facts alleged and the documentary evidence produced in the record.
On the matter of fact deemed relevant, this Tribunal takes as established the following facts:
The Claimant is a legal person under public law classified for VAT purposes as a mixed taxpayer, with quarterly periodicity.
The Claimant submitted, on 18/05/2016 and 03/03/2017, amended periodic declarations relating to the 4th quarter of 2014 and the 4th quarter of 2015, where it calculated a tax credit in its favor in the amount of €63,525.91 and €77,146.46, respectively.
The TA proceeded, in the scope of the inspection procedure for fiscal year 2014 - through the service order no. OI2017... and an inspection action for fiscal year 2015 – OI no. 2017....
The Claimant was notified, through letters no. ... and ... of 15 December 2017, of the tax inspection reports, where arithmetic corrections were made in the amount of €18,939.76 and €19,543.57 for the years 2014 and 2015, respectively.
Subsequently, the Tax Authority issued additional VAT assessments nos. ..., ..., ..., ..., ..., ..., ... and ... in the total amount of €38,483.33.
F - UNPROVED FACTS
Of the facts of interest for the decision of the case, contained in the claim, subject to concrete analysis, those not included in the factual description set forth above have not been proved.
G - QUESTIONS TO BE DECIDED
Given the positions of the parties, adopted in the arguments presented by each, it is necessary to examine and decide the following central question:
(i) Regarding the declaration of illegality of the tax assessment acts for Value Added Tax (VAT) nos. ..., no. ..., no. ..., no. ..., no. ..., no. ..., no. ... and no. ..., relating to fiscal years 2014 and 2015, in the total amount of 37,279.97€ (thirty-seven thousand two hundred seventy-nine euros and ninety-seven cents).
(ii) Regarding the payment of compensatory interest;
H - MATTERS OF LAW
As previously stated, the central question to be resolved by this Arbitral Tribunal concerns the examination of the legality of the tax assessment act for Value Added Tax (VAT) nos. ..., no. ..., no. ..., no. ..., no. ..., no. ..., no. ... and ..., relating to fiscal years 2014 and 2015.
For this purpose, we will begin by determining the applicable law, giving priority, in compliance with the provisions of paragraph a) of article 2, paragraph 124 of the Code of Tax and Customs Procedures (CTCP), to the analysis of the defects of the assessment act.
Accordingly, before the factual situation established as proved and the legal norms in force at the date of the facts, we will begin examining the question of the legal-fiscal classification of the error to be attributed to the Claimant by the submission of amended declarations relating to the 4th quarter of 2014 and the 4th quarter of 2015, submitted on 18/5/2016 and 3/3/2017, respectively.
It is therefore important to examine the legal-fiscal, doctrinal and jurisprudential framework on the question sub judice.
We emphasize for this purpose article 22 of the VAT Code:
1 - The right to deduction arises at the moment the deductible tax becomes due, in accordance with that established by articles 7 and 8, being effected by subtraction from the total amount of tax due on the taxable operations of the taxpayer, during a declaration period, of the amount of deductible tax, due during the same period.
2 - Without prejudice to the provisions of article 78, the deduction must be effected in the declaration of the period or of a period subsequent to that in which receipt of the invoices or receipt of payment of VAT that forms part of the import declarations has occurred.
As well as, what is established in article 23 of the VAT Code, regarding the deduction methods relating to goods of mixed use:
1 - When a taxpayer, in the exercise of its activity, performs operations that give the right to deduction and operations that do not confer that right, in accordance with article 20, the deduction of tax borne in the acquisition of goods and services that are used in the performance of both types of operations is determined as follows:
a) When a good or service is partially allocated to the performance of operations not arising from the exercise of an economic activity provided for in paragraph a) of article 2, paragraph 1, the non-deductible tax as a result of that partial allocation is determined in accordance with paragraph 2;
b) Without prejudice to the preceding paragraph, when a good or service is allocated to the performance of operations arising from the exercise of an economic activity provided for in paragraph a) of article 2, paragraph 1, part of which does not confer the right to deduction, the tax is deductible in the percentage corresponding to the annual amount of operations that give rise to deduction.
2 - Notwithstanding the provisions of paragraph b) of the preceding number, the taxpayer may effect the deduction according to the real allocation of all or part of the goods and services used, on the basis of objective criteria that make it possible to determine the degree of use of those goods and services in operations that confer the right to deduction and in operations that do not confer that right, without prejudice to the General Tax Authority being able to impose special conditions on it or cease this procedure in the event that it is found that they cause or may cause significant distortions in taxation.
And regarding amendments, article 78, paragraph 6 of the VAT Code establishes that they may be subject to amendment at a later time in the situations provided therein: "6 - Correction of material errors or calculation errors in the record referred to in articles 44 to 51 and 65, in the declarations mentioned in article 41, and in the guides or declarations mentioned in paragraphs b) and c) of article 1, paragraph 67, is optional when it results in tax in favor of the taxpayer, but may only be effected within two years, which, in the case of exercise of the right to deduction, is counted from the birth of that right in accordance with paragraph 1 of article 22, being mandatory when it results in tax in favor of the State."
Article 78 of the VAT Code thus provides that the taxpayer may proceed with amendment of its VAT declaration, by means of an amended declaration when one of the situations listed in article 78 occurs (material or calculation errors), within two years, which, in the case of exercise of the right to deduction, is counted from the birth of the respective right in accordance with paragraph 1 of article 22.
And as prescribed by article 7, paragraph 1, paragraphs a) and b) of the VAT Code, the moment of tax liability, in transfers of goods, is at the moment the goods are placed at the disposal of the acquirer and in provision of services, at the moment of its performance.
However, paragraph 2 of article 98 of the VAT Code provides for a period of 4 years, provided that the requirements listed are met, namely:
1 - When, for reasons attributable to the services, tax has been assessed in excess of the amount due, official revision shall be carried out in accordance with article 78 of the general tax law.
2 - Without prejudice to special provisions, the right to deduction or reimbursement of the tax paid in excess may only be exercised up to the expiration of four years after the birth of the right to deduction or payment in excess of tax, respectively.
By reference from paragraph 1 to article 78 of the General Tax Law, let us also see what it provides: 1 - Revision of tax acts by the entity that issued them may be effected on the initiative of the taxpayer, within the administrative objection period and on the grounds of any illegality, or, on the initiative of the tax administration, within four years following the assessment or at any time if the tax has not yet been paid, on the grounds of error attributable to the services.
2 - Without prejudice to the legal burdens of administrative objection or challenge by the taxpayer, error attributable to the services, for purposes of the preceding number, is deemed to be error in self-assessment.
3 - Revision of tax acts in accordance with paragraph 1, regardless of whether it is a material or legal error, involves the respective recognition duly reasoned in accordance with paragraph 1 of the preceding article.
In light of the foregoing, we now proceed to examine the legal classification to be given to the type of error committed by the Claimant, in accordance with article 78, paragraph 6 of the VAT Code and article 98, paragraph 2 of the VAT Code.
On the question now at hand, there is abundant jurisprudence that will be followed closely; in particular, the judgment of the Supreme Administrative Court in case 1427/14, of 28-6-2017, and the decisions issued by the CAAC in cases numbered: 91/2013-T, 117-2013-T, 502/2014-T, 549/2016-T, 85/2017-T, 252/2017-T, which we adopt.
We emphasize for the case sub judice, the Judgment of the STA in Case 1427/14, of 28-6-2017:
"The application of the deduction methods relating to goods of mixed use is legally complex, and the error resulting from the application of this legal regime is neither a material error nor a calculation error. Article 95-A, paragraph 2, of the CTCP establishes that material or manifest errors are deemed to be those resulting from the anomalous functioning of the information systems of the tax administration, as well as unequivocal situations of calculation error, writing error, inaccuracy or lapse. Included in this concept (cf. Jorge Lopes de Sousa in Code of Tax and Customs Procedures, Annotated and Commented, 6th ed. 2011) are "all kinds of material lapses, which are situations in which the author of the act left written therein something that did not correspond to their intention, such as for example, incorrect indication of the name of the taxpayer or the tax in question or arithmetic error in calculating the tax. This concept of material lapses also includes those derived from the deficient functioning of the information system of the tax administration.". Now in the disputed case it is the conviction of this Arbitral Tribunal that the "error" committed by the Claimant by carrying out the regularization of the tax after the last declaration of the last period of 2011 (that is, in the PD of 201203T) is a legal error, with the legal regime provided for in paragraph 2 of article 98 of the VAT Code being applicable, an understanding consistent with the STA in the above-mentioned ruling "The applicable deadline for disputing VAT paid in excess, in a situation classifiable as the so-called legal error is four years, in accordance with the provisions of article 98, paragraph 2 of the VAT Code". (our emphasis).
We also emphasize the Arbitral Judgment issued in case no. 502/2014-T: "In the wording given to that paragraph 2 of article 22 by Law no. 107-B/2003, of 31 December), the following was established: «Without prejudice to the provisions of article 71, the deduction must be effected in the declaration of the period or of a period subsequent to that in which receipt of the invoices, equivalent documents or receipt of payment of VAT that forms part of the import declarations has occurred».
The enormous difference lies in the possibility of VAT deduction not only in the declaration of the period of receipt of the documents, but also in a declaration «of a later period», without any restriction.
In fact, on the assumption that the legislature knew how to express its thought in adequate terms, as must be presumed, by virtue of the provisions of paragraph 3 of article 9 of the Civil Code, the use of the expression «of a later period», without the definite article, and not «of the later period» reveals that it is not even required that the VAT be deducted in the declaration of the period immediately following receipt of the documents, being permitted in the declaration of any later period, without prejudice, of course, to the special and general limits, in particular those contained in articles 78 and 92, paragraph 2.
Article 98, paragraph 2, of the VAT Code establishes that «without prejudice to special provisions, the right to deduction or reimbursement of the tax paid in excess may only be exercised up to the expiration of four years after the birth of the right to deduction or payment in excess of tax, respectively».
In the case at hand, we are not faced with a situation classifiable under article 78, paragraph 6, of the VAT Code, in which a special deadline of two years is provided for the «correction of material errors or calculation errors», including in periodic declarations, in the following terms: «correction of material errors or calculation errors in the record referred to in articles 44 to 51 and 65, in the declarations mentioned in article 41, and in the guides or declarations mentioned in paragraphs b) and c) of article 1, paragraph 67, is optional when it results in tax in favor of the taxpayer, but may only be effected within two years, which, in the case of exercise of the right to deduction, is counted from the birth of that right in accordance with paragraph 1 of article 22, being mandatory when it results in tax in favor of the State».
Article 95-A, paragraph 2, of the CTCP ( ) provides a concept of «material or manifest errors» indicating that it integrates, «in particular those resulting from the anomalous functioning of the information systems of the tax administration, as well as unequivocal situations of calculation error, writing error, inaccuracy or lapse».
The association of calculation error with material error made in this paragraph 6 of article 78 of the VAT Code, similar to what occurs in other norms (such as article 249 of the Civil Code, article 667 of the CPC of 1961 and article 614 of the CPC of 2013) reveals that the calculation errors to which it is intended to allude will be of this type, in particular arithmetic errors in the operations of calculating the amount to be deducted.
Accordingly, we will be faced with a material error in completing the amount of deductible VAT in a declaration when it was intended to write a certain amount and, through carelessness or lapse, a different amount ended up being written, or when the error in completing the declaration results from an earlier error of the same type that exists in the accounts or in some document that serves as the basis for the exercise of the right to deduction.
We will be faced with a calculation error when arithmetic operations to determine the amount of deductible VAT were carried out incorrectly, either in the declaration itself or in any of the documents on which it is based.
In that same sense, we also refer to the Judgment issued in case 117-2013-T of the CAAC:
"We will be faced with a material error in completing the amount of deductible VAT in a declaration when it was intended to write a certain amount and, through carelessness or lapse, a different amount ended up being written, or when the error in completing the declaration results from an earlier error of the same type that exists in the accounts or in some document that serves as the basis for the exercise of the right to deduction. We will be faced with a calculation error when arithmetic operations to determine the amount of deductible VAT were carried out incorrectly, either in the declaration itself or in any of the documents on which it is based. (...) The error regarding the application of certain legal regimes is neither a material error nor a calculation error, so it is manifest that the regime of the said paragraph 6 of article 78 of the VAT Code cannot be applied to it.".
In sum, from the above jurisprudence, it follows the understanding that when a material error or calculation error occurs, to the detriment of the taxpayer, the same may be corrected within the deadline fixed by the provisions of article 78, paragraph 6 of the VAT Code, and that when a Legal Error occurs, which has been made to the detriment of the taxpayer, the same may be corrected within four years, in accordance with the provisions of article 98, paragraph 2, of the VAT Code.
Returning to the analysis of the established facts, it follows that the Claimant is a legal person under public law classified, for VAT purposes, as a mixed taxpayer, and that it submitted amended declarations, on the understanding that "In 2016 and 2017, in the course of a review of procedures, the Claimant verified that it had improperly limited the exercise of the right to deduct VAT incurred in 2014 and 2015, having thus borne tax which, in accordance with the rules of the Code, would be recoverable." and "during the years 2014 and 2015, it had improperly limited its right to deduct VAT incurred in the acquisition of "common" resources, as well as in certain resources entirely allocated to the performance of taxable operations (whose VAT is, therefore, fully recoverable)".
There is no doubt that we are dealing with goods of mixed use, in which the Claimant committed neither a material error nor a calculation error, but rather a Legal Error, and therefore it is manifest that the regime of said paragraph 6 of article 78 of the VAT Code cannot be applied to it.
In that same sense, the above-cited rulings, with which we agree and which we follow, in particular the STA Case 1427/14, of 28-6-2017, from which it follows that the application of the deduction methods relating to goods of mixed use is legally complex, and therefore the error resulting from the application of this legal regime is neither a material error nor a calculation error.
In fact, as a rule, VAT deduction must be effected, in accordance with the provisions of article 22 of the VAT Code, that is, in the "declaration of the period in which receipt of the invoices has occurred. However, the right to deduction may be exercised at later times", in accordance with the provisions of article 98, paragraph 2, of the VAT Code, of which a maximum limit of four years exists, a deadline which is configured as a general deadline, only applicable when a special deadline is not provided for, as is the case with the deadline provided for in article 78/6. (cf. Arbitral judgment 549/2016-T).
In accordance with the foregoing, we are faced with a legal error, and as such the Claimant is not subject to the regime of article 78, paragraph 6, and moreover there is no regime with a special time limit for exercise of the right to deduction on the grounds of legal error, and therefore the general regime of 4 years provided for in paragraph 2 of article 98 of the VAT Code will be applicable to the Claimant. In that sense we also have the Judgment of the Supreme Administrative Court of 18-5-2011, issued in case no. 966/10 (currently at this point), and Arbitral Judgment, 502/2014-T.
Accordingly, the Claimant is right that, as this is a legal error, the deadline to recover the tax paid in excess is not 2 years (the special deadline for VAT deduction), but rather 4 years, in accordance with the provisions of article 98, paragraph 2 of the VAT Code (the general deadline for exercise of the right to deduction or reimbursement of tax paid in excess).
Consequently, this Tribunal grants the Claimant's request, and annuls the tax assessment act for Value Added Tax (VAT) nos. ..., no. ..., no. ... , no. ..., no. ..., no. ..., no. ... and ..., relating to fiscal years 2014 and 2015, for suffering from an error as to the assumptions of law, from an error of interpretation of article 98, paragraph 2, of the VAT Code, combined with articles 22, paragraph 2, and 78, paragraph 6, of the same Code, a defect which justifies annulment [article 135 of the Code of Administrative Procedure, applicable by virtue of the provisions of article 2, paragraph c), of the General Tax Law].
The Arbitral Tribunal, in accordance with articles 608, paragraph 2, 663, paragraph 2 and 679 of the Code of Civil Procedure, by application of article 29 of the Arbitration in Tax Matters Regulation, is not obliged to examine all arguments alleged by the Claimant or by the Respondent, when the decision is already determined by the solution already issued, as is the case in the present record, for which reason the remaining questions submitted to the request for arbitral award are prejudiced from examination.
J - COMPENSATORY INTEREST
The Claimant further requests payment of compensatory interest.
In light of the foregoing, the assessment, insofar as covered by the annulment, results from factual and legal errors attributable exclusively to the tax administration, to the extent that the Claimant fulfilled its reporting obligation.
In fact, it has been demonstrated that the Claimant paid the impugned tax in an amount higher than what is due. In this manner and by virtue of the provisions of articles 61 of the CTCP and 43 of the General Tax Law, the Claimant has the right to the compensatory interest owed, such interest which must be accounted for from the date of payment of the undue tax (annulled) until the date of issuance of the respective credit note, the period for payment of which is counted from the date the deadline for spontaneous execution of this decision begins (article 61, paragraphs 2 to 5, of the Tax Code), all at the rate calculated in accordance with the provisions of paragraph 4 of article 43 of the General Tax Law.
In light of all the foregoing and the cited legal provisions, it is decided to grant the Claimant's request.
I - DECISION
Accordingly, in light of all the foregoing, this Arbitral Tribunal decides:
To uphold the claim for a declaration of illegality of the tax assessment act for Value Added Tax (VAT) nos. ..., no. ..., no. ..., no. ..., no. ..., no. ..., no. ... and ..., relating to fiscal years 2014 and 2015, in the total amount of 37,279.97€ (thirty-seven thousand two hundred seventy-nine euros and ninety-seven cents).
To order the Respondent to refund to the Claimant this amount improperly assessed and paid, plus payment of compensatory interest already accrued relating to the period between the date of payment of the tax and its reimbursement, as well as payment of accruing compensatory interest counting from the date of notification of this decision until full and complete payment, all in accordance with paragraphs 2 to 5 of article 61 of the CTCP, at the legal rate calculated in accordance with the provisions of paragraph 4 of article 43 of the General Tax Law until full reimbursement.
The value of the case is set at 37,279.97€ (thirty-seven thousand two hundred seventy-nine euros and ninety-seven cents), corresponding to the value of the assessment taking into account the economic value of the case, assessed based on the value of the impugned tax assessment, and in accordance therewith the costs are set, in the respective amount of 1,836.00€ (one thousand eight hundred thirty-six euros), to be borne by the Respondent in accordance with article 12, paragraph 2 of the Tax Arbitration Regime, article 4 of the Code of Tax and Customs Procedures and Schedule I attached to the latter. – paragraph 10 of article 35, and paragraphs 1, 4 and 5 of article 43 of the General Tax Law, articles 5, paragraph 1, paragraph a) of the Tax Code, 97-A, paragraph 1, paragraph a) of the CTCP and 559 of the Code of Civil Procedure).
Notify.
Lisbon, 3 September 2018
The Arbitrator
Rita Guerra Alves
Text prepared by computer, in accordance with article 138, paragraph 5 of the Code of Civil Procedure (CCP), applicable by reference to article 29, paragraph 1, paragraph e) of the Arbitration in Tax Matters Regulation.
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