Process: 153/2018-T

Date: December 11, 2018

Tax Type: IVA

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 153/2018-T) addresses whether a bank can rectify a VAT calculation error related to its pro rata deduction coefficient. Bank A, a mixed taxable person conducting both VAT-deductible operations (financial leasing) and exempt operations, initially calculated a 9% allocation coefficient for December 2014. Upon discovering it had omitted December 2014 taxed operations from the numerator, the bank submitted a replacement return in February 2017 reflecting a corrected 10% coefficient, increasing the deduction by €71,986.26. The Tax Authority rejected this correction during a tax inspection, issuing an additional VAT assessment. The bank challenged this through CAAD arbitration, arguing the error constituted a rectifiable writing or calculation error under Article 98(2) of the VAT Code, and that the Tax Authority violated Article 23(6) regarding definitive adjustments and principles of fiscal neutrality and proportionality. The arbitral tribunal examined whether a mathematical error in applying the pro rata formula—specifically the inadvertent omission of properly declared December operations—qualifies as a correctable calculation error, and whether the two-year time limit between the original declaration (February 2015) and replacement declaration (February 2017) complied with legal rectification deadlines. The decision establishes important precedents regarding the scope of taxpayer self-correction rights for computational errors versus substantive errors requiring formal amendment procedures.

Full Decision

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Raquel Franco and Jorge Carita, appointed by the Deontological Board of the Centre for Administrative Arbitration to form an Arbitral Tribunal, hereby decide as follows:

I – REPORT

On 27 March 2018, Bank A..., S.A., Tax Identification Number ..., with registered office in ..., ..., ...-... Lisbon, filed a request for constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as LRAT), seeking the declaration of illegality of the additional VAT assessment act No. ... of 11-04-2017, relating to the tax period 201412, in the amount of €71,986.26, as well as the decision rejecting the gracious complaint regarding that assessment act.

To support its request, the Claimant alleges, in summary:

  • Breach of law by non-compliance with Article 23, Section 6 and Article 98, Section 2 of the VAT Code;
  • Disregard of the principles of fiscal neutrality, proportionality, effectiveness and equivalence.

On 28-03-2018, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).

The Claimant did not appoint an arbitrator, and therefore, pursuant to the provisions of Article 6(2)(a) and Article 11(1)(a) of the LRAT, the President of the Deontological Board of CAAD appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated their acceptance of the appointment within the applicable deadline.

On 21-05-2018, the parties were notified of these appointments, and neither manifested any desire to challenge them.

In accordance with the provisions of Article 11(1)(c) of the LRAT, the collective Arbitral Tribunal was constituted on 12-06-2018.

On 03-09-2018, the Respondent, duly notified for that purpose, submitted its reply in which it defended itself solely through rebuttal.

Pursuant to the provisions of Article 16(c) and (e) and Article 29(2) of the LRAT, the holding of the meeting referred to in Article 18 of the LRAT was dispensed with.

Having been granted a deadline for the presentation of written submissions, these were presented by the Claimant, pronouncing itself on the evidence produced and reiterating and developing its respective legal positions.

It was indicated that the final decision would be notified by the deadline established in Article 21(1) of the LRAT.

The Arbitral Tribunal is materially competent and is properly constituted, in accordance with Articles 2(1)(a), 5 and 6(1) of the LRAT.

The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with Articles 4 and 10 of the LRAT and Article 1 of Order No. 112-A/2011, of 22 March.

The proceedings are not subject to any nullities.

Thus, there is no obstacle to the examination of the case.

All having been considered, we must now issue:

II. DECISION

A. FACTUAL MATTERS

A.1. Facts Established as Proven

  • The Claimant is a joint-stock commercial company with head office and effective management in Portuguese territory, classified for VAT purposes under the general monthly periodicity regime.

  • The Claimant is a mixed taxable person, carrying out both operations that confer the right to VAT deduction, such as movable and immovable financial leasing, and operations that do not confer such right.

  • On 10-02-2015, the Claimant electronically submitted its periodic VAT return for December 2014, to which it was assigned No. ....

  • In the said return, the Claimant entered in field 40 – Adjustments in favour of the taxable person – the amount of €573,002.39.

  • In 2017, the Claimant verified that it had not included in the numerator of the fraction intended to determine the definitive percentage of tax deduction, the taxed operations of December 2014.

  • Subsequently, on 10 February 2017, the Claimant submitted a replacement declaration for its periodic VAT return for December 2014, to which it was assigned No. ....

  • In the replacement declaration, the Claimant entered in field 40 ("adjustments in favour of the taxable person") the amount of EUR 644,988.65, thereby including in that value the taxed operations of December 2014.

  • The Claimant was subject to a tax inspection procedure under Service Order No. OI2016..., conducted by the tax inspection services of the Division for Inspection of Banks and Other Financial Institutions (DIBIF), of the Large Taxpayers Unit.

  • The Tax Inspection Services requested from the Claimant, through an email sent on 13-02-2017, the itemization of the calculations and the justification for that increase shown in the replacement periodic return.

  • In response to that email, the Claimant informed that:

"The amount of €71,986.26 additionally reported in field 40 of the replacement declaration for the 2014/12 period corresponds to the VAT adjustment as detailed below.

Bank A... is a taxable person that simultaneously carries out operations that confer the right to deduction and operations that do not confer such right.

For the purposes of deducting VAT on resources common to both types of operations, Bank A... uses the method of real allocation based on an allocation criterion calculated in compliance with Circulated Order No. 30108, of 30 January 2009, because among the operations that confer the right to deduction is immovable property leasing.

At the end of 2014, Bank A... calculated an allocation criterion of 9% and in the field of the periodic declaration for December 2014, the amount of €478,567.26 was included, relating to the adjustment of deductible VAT resulting from the difference between the provisional criterion used between January and November of 2014 and the definitive allocation criterion.

Recently, Bank A... verified that the calculated percentage – of 9% – was incorrect because, as a result of a demonstrated lapse, the value of the taxed operations of December 2014 (reported in the periodic declaration of that same month) was not considered in the numerator.

The corrected allocation coefficient is 10%."

  • Through Order No. ..., of 07-04-2017, the Claimant was notified of the tax inspection report.

  • The Tax Inspection Report contained corrections in VAT, in the amount of €71,986.26, relating to December 2014, corresponding to the difference between the values corrected by the Claimant (€644,988.65) and the values initially declared by the Claimant (€573,002.39) in field 40 of the periodic VAT return for that period.

  • The Tax Inspection Report contains the following:

[Content of report excerpt not fully displayed in source]

  • By email of 11 August 2016, the Claimant sent to the inspectors an email to which it attached the supporting document for the calculation of the initial pro rata of 9%, referring to the year 2014.

  • On 17 February 2017, the Claimant provided to the AT the respective justification for the correction of the pro rata percentage to the amount of 10%, which states:

"Recently, Bank A... verified that the calculated percentage - of 9% - was incorrect because, as a result of a demonstrated lapse, the value of the taxed operations of December 2014 (reported in the periodic declaration of that same month) was not considered in the numerator."

  • The Claimant's taxed operations in December 2014 are reflected in the periodic declaration of that month, timely submitted to the AT and are included in the supporting document of the specific allocation coefficient for 2014.

  • On 12-04-2017, the Claimant was notified of the additional VAT assessment, relating to December 2014.

  • As a result of the issuance of this assessment, the Claimant's tax credit was reduced by EUR 71,986.26, thus becoming a global amount of EUR 9,981,136.53 (EUR 10,053,122.79 – EUR 71,986.26).

  • On 10-08-2017, the Claimant filed gracious complaint No. ...2017... relating to the said additional VAT assessment.

  • On 27-12-2017, the Claimant was notified of the decision rejecting the gracious complaint.

A.2. Facts Not Established as Proven
  • The Tax Inspection Services, during the course of the tax inspection procedure, requested from the Claimant clarifications and additional information; however, the Claimant did not provide such clarifications or supply such information.
A.3. Substantiation of Proven and Unproven Factual Matters

With respect to the factual matters, the Tribunal need not pronounce itself on everything alleged by the parties, but rather has the duty to select the facts that matter for the decision and to distinguish between proven and unproven matters (cf. Article 123(2) of the Code of Tax Procedure and Process (CTPP) and Article 607(3) of the Code of Civil Procedure (CCP), applicable pursuant to Article 29(1)(a) and (e) of the LRAT).

Thus, the facts relevant to the judgment of the case are selected and delineated based on their legal relevance, which is established in consideration of the various plausible solutions of the legal question(s) (cf. previous Article 511(1) of the CCP, corresponding to current Article 596, applicable pursuant to Article 29(1)(e) of the LRAT).

Thus, having regard to the positions assumed by the parties, in light of Article 110(7) of the CTPP, the documentary evidence and the record in the file, the facts listed above were considered proven, with relevance to the decision.

The fact not established as proven results from the absence of sufficient evidence supporting it.

As was written in the Decision of the Administrative Court of the South of 26-06-2014, issued in case 07148/13, "the probative value of the tax inspection report (...) may have evidential force if the assertions contained therein are not challenged."

The fact is that in its submissions (cf. section B.5 of the submissions), the Claimant challenges the assertions contained in the Tax Inspection Report, according to which it did not provide necessary information and clarifications, and from the documentation available in the file, and specifically from the record together by the Respondent, in compliance with the provision in Article 17(2) of the LRAT, nothing appears that would corroborate what is contained in the Tax Inspection Report.

Furthermore, the Tax Inspection Report, referring generically, with regard to the denominator of the pro rata fraction, to "insufficiency of the information provided," does not specify, in the least, what information is deficient, nor what the relevance thereof is for the assessment of the correction of that denominator, which is the only question at issue here.

Allegations made by the parties and presented as facts, consisting of strictly conclusive statements, unsusceptible of proof and whose veracity must be assessed in relation to the specific factual matter consolidated above, were neither given as proven nor as not proven.

B. LAW

The dispute at issue has simple contours, and can be reduced, in summary, to determining the legal-fiscal classification, in VAT matters, of the following facts:

  • The Claimant verified in 2017 that in the pro rata percentage calculated in the last periodic declaration of the year 2014, submitted on 10-02-2015, the value of the taxed operations in December 2014 was not considered in the numerator;

  • Thus, on 10-02-2017, it submitted a replacement declaration for the original tax declaration, recalculating, taking into account the inclusion in the numerator of the pro rata the value of the taxed operations in December 2014;

  • Following a tax inspection procedure, the AT issued an additional assessment, "reversing the increase in the tax deduction included in field 40 of the replacement periodic VAT declaration" aforementioned, submitted by the Claimant on 10-02-2017.

Before proceeding with the legal classification of the situation described, it is necessary to first frame it, in the sense of determining whether it amounts to the correction of an error – of law, as the Claimant maintains, or otherwise.

With all respect due to other opinions, it is believed that the Claimant is not correct in sustaining that, in the concrete case, we are dealing with an error of law.

In fact, always with due respect, the error in question does not emerge from an incorrect application of law to the facts, that is, from incorrect identification of the applicable rule, or from incorrect interpretation thereof (the Claimant surely was not convinced that the applicable legal regime resulted in December not being included in the calculation of the pro-rata for the year).

Besides, in the very gracious complaint request itself (points 29 et seq.), the Claimant itself frames the situation at hand as a calculation error.

And, indeed, the analysis of the Periodic Declaration for December 2014, submitted on 10 February 2015, allows for a better understanding of the error committed by the Claimant.

In the Demonstration of VAT Settlement, in the "Taxable Base" Table in field 3, the amount of €4,223,688.97 is entered.

The Claimant had no doubt that this amount, which was already contained in the periodic declaration it had filled in, should, a priori, be entered in the numerator of the fraction for the calculation of the pro rata.

What transpires is that this value was omitted in the transcription to the Schedule for Determination of the specific allocation coefficient, the same having occurred with the value entered in that same Declaration, but in Field 5 - €40,930.54.

Thus, in summary, the Claimant never doubted that these values, because relating to taxed operations, must be considered relevant for the purposes of the calculation method of the pro rata, inserted in the numerator of the fraction, as clearly results from the law.

We are thus dealing, not with an error of law, but with a material error, as results from Article 249 of the Civil Code, "revealed in the very context of the declaration or through the circumstances in which the declaration is made," as well as from Article 95-A(2) of the CTPP, which states that "Material or manifest errors are considered, namely (...) unequivocal situations of calculation error, writing error, inaccuracy or lapse."

As appears from the Tax Inspection Report, the AT based the correction against which the Claimant here objects, petitioning its annulment, on the grounds that, for what matters to the case:

"in accordance with the provision in Section 6 of the same legal provision [Article 23 of the VAT Code] the percentage or percentages of deduction to be applied to the tax borne on inputs, regardless of the method of deduction used, generic pro rata or specific pro rata, provisionally calculated based on operations carried out in the prior year, is corrected according to the definitive values relating to the year to which they refer, thereby causing the adjustment of the deductions initially considered, which must be stated in the declaration of the last period to which they refer.

It thus becomes evident that, in accordance with this provision, any corrections in the calculation of the value of the deduction or of the percentage(s) of deduction used (provisionally) during a given fiscal year must be carried out a priori at the end of that year, based on the definitive values of the operations carried out by the taxable person in the course of the same.

It may thus be concluded that Article 23 of the VAT Code does not provide for the possibility of a taxable person who, at the moment the right to VAT deduction arises, has opted for a coefficient for calculating the right to deduct tax borne on goods and services of mixed use, to retroactively alter or correct that coefficient, recalculating the initial deduction effected and already adjusted in accordance with Section 6.

From this provision it follows that corrections to the deduction criteria and to the calculation of the allocation coefficient must be made at the end of the year in question and also that they must be reflected in the declaration relating to the last period.

Once the initial deduction is exercised, the taxable person can only proceed to make corrections to that deduction, under the conditions set out in Article 23, already described, as well as in accordance with Articles 24 to 26 and 78 of the VAT Code."

With respect to the assumed possibility of corrections to deduction in accordance with Article 78 of the VAT Code, the Tax Inspection Report considered that:

"Let us then see what Article 78, specifically its Section 6, establishes (...).

In order to determine the meaning of 'material errors or calculation,' since the legislator did not delimit it, let us pay attention, in compliance with the provision of Article 11 of the General Tax Law, how other branches of law have conceptualized the expression in question.

In light of these concepts, it may be concluded that the interpretation of the Tax Administration conveyed as early as 1985 and later reaffirmed in point 9.3 of Circulated Order 30082/2005, of 17 November, on VAT, in the sense that material errors or calculation errors are those that result from internal errors of the company and which have no interference in the sphere of third parties, does not depart, in substance, from the same.

We can thus consider that material errors or calculation errors encompass errors in the transposition of data from supporting documents to accounting, or from accounting to the periodic declaration, or arithmetic errors committed in accounting or in declarations.

Now, as has already been noted, with respect to goods and services of indistinct use in operations that confer the right to deduction and operations that do not confer such right, Article 23 imposes two methods of deducting the tax borne on those inputs: the method of real allocation of all or part of the goods and services used (Section 2) and the generic pro rata [Section 1(b)], while leaving, however, to the choice of taxable persons the option for one of them. The tax administration will only intervene, a posteriori, in the choice made, if it verifies that the same causes significant distortions in taxation, and this because the implementation of a real allocation method that allows determining the degree of use of inputs in downstream operations requires a case-by-case analysis and the taxable person is the best knower of the activity it develops and of the organizational and administrative structure at its disposal. (...)

For all that has been said, it is concluded that retroactive alterations applied in the calculation of the right to deduct goods and services of mixed use do not have as their basis the material or calculation errors provided for in Article 78 or errors of any other nature, because in accordance with Article 23, the taxable person made a choice at the moment the right to deduction arises, as established in Section 1 of Article 22 of the VAT Code, which falls within the scope of the autonomy of action permitted by the tax and is materialized in the self-assessment effected by the taxable person.

It should be noted that in the same sense, the VAT Services Division has already pronounced itself, through the aforementioned Circulated Order No. 30082/2005, clarifying in point 8 that 'the adjustments provided for in Article 71 of the VAT Code (current Article 78) are intended to correct, in favour of the taxable person or in favour of the State, the tax already remitted or already deducted in a given tax period, due to various circumstances occurring after the sending of the periodic declaration and which are not contemplated in other legal norms. In that sense, the mechanisms provided for in Article 71 (current 78) may not be used in other situations, namely:

• alteration of the method of deducting tax in mixed taxable persons;

• determination of pro rata;

• adjustments of VAT on real estate and other fixed assets or relating to the allocation of real estate to purposes other than those to which they are intended.

These situations should be adjusted under Articles 23, 24, 24-A (current 25) and 25 (current 26) of the VAT Code, as the case may be'."

And this interpretation indeed derives from Article 22 itself, by expressly safeguarding, in its Section 2, the provision of Article 78: "Without prejudice to the provisions of Article 78, deduction must be effected in the declaration of the period or of a subsequent period (...)"

Now, always with due respect, it is believed that the reasoning provided by the AT should not be accepted, which is, moreover, based on a fallacy of reasoning.

In fact, if one correctly interprets what was stated in the Tax Inspection Report, and what has just been transcribed, the AT's understanding amounts to considering that the fixing of the pro rata is a faculty of the taxable person, whose option is exercised in the respective periodic declaration, and that it is not susceptible to being affected by material error or calculation error, so we cannot be dealing with a material error or calculation error (quod erat demonstrandum).

That is: instead of determining whether there is an error (material or of calculation), the AT begins by defining that, in this case, material or calculation errors cannot exist, and then concludes that there is no error of that type.

The evidence of such fallacy is easily exposed, using the example of a material error or calculation error whereby the taxable person, upon entering the pro rata percentage, makes a mistake in a numeral (for example: instead of entering 23%, which would be, in the example, correct, entering 13% or 33%).

Faced with such material error, the AT's understanding, according to which it is exclusively a question of an option of the taxable person, unsusceptible to material or calculation error, there would be no possibility of correcting such error, because "it falls within the scope of the autonomy of action permitted by the tax and is materialized in the self-assessment effected by the taxable person"!

Given this, it is believed evident that the premises from which the AT departs do not sustain the conclusion it draws.

In fact, one thing is the options of the taxable person, for the application of the real allocation methods, the generic pro rata or the specific pro rata, which may be discussed whether they are, or are not, susceptible to revision, and another thing is the operations of implementation of the chosen option, which, evidently, may be subject to correctable errors or lapses.

Now, the Tax Inspection Report itself recognizes that "regardless of the method of deduction used, generic pro rata or specific pro rata, provisionally calculated based on operations carried out in the prior year, is corrected according to the definitive values relating to the year to which they refer, thereby causing the adjustment of the deductions initially considered." (emphasis added).

And this is what is at issue: whether the values considered in the corrected replacement declaration are, or are not, "in accordance with the definitive values relating to the year to which they refer," and this is what the Tax Inspection Report fails to demonstrate.

On the contrary, all available factual data point to the effect that the replacement declaration is indeed "in accordance with the definitive values relating to the year to which they refer."

Moreover, the non-conformity of the original declaration results from a situation that is expressly characterized by the Tax Inspection Report itself as a material error, namely, "errors in the transposition of data from supporting documents to accounting, or from accounting to the periodic declaration, or arithmetic errors committed in accounting or in declarations" (emphasis added).

Now, as has been noted, and indeed the Tax Inspection Report itself recognizes, the material error or calculation error is rectifiable in accordance with Article 78(6) of the applicable VAT Code, which provides that:

"The correction of material or calculation errors in the record to which Articles 44 to 51 and 65 refer, in the declarations mentioned in Article 41 and in the guides or declarations mentioned in paragraphs b) and c) of Section 1 of Article 67 is facultative when it results in tax in favour of the taxable person, but can only be effected within two years, which, in the case of the exercise of the right to deduction, is counted from the date of the birth of the respective right in accordance with Section 1 of Article 22, and is mandatory when it results in tax in favour of the State."

With respect to the counting of this two-year deadline, the AT has already considered, in Circulated Order No. 30,082, of 17 November 2005, that "The correction of this type of error is facultative if it favors the taxable person and can only be effected within two years [...]. For errors found in the completion of periodic declarations, the counting of the new deadline shall be made as from the date of their submission or the date on which the legal deadline for submission ends, in cases in which it has not been observed" (emphasis added), an understanding from which there is no reason to diverge.

Thus, given that the original periodic declaration was submitted on 10-02-2015, and the replacement declaration, correcting the material error in question, on 10-02-2017, the same must be judged as timely.

Thus, and given the foregoing, given the incorrect application of Article 23(6) and 78(6) of the VAT Code, the correction at issue incurred an error of law and should as such be annulled, and the arbitral claim succeeds.

The objection raised by the Respondent, in its Reply, will not prevent the conclusion just reached, that "despite clarifications and additional information being requested that would allow the Tax Inspection Services to assess the (material) right to the correction effected by the Claimant, this never provided such clarifications or supplied such information."

In fact, although this circumstance is referred to in the Tax Inspection Report, it is in no way specified, and does not even appear from the elements of the record submitted by the Respondent, in compliance with the duty enshrined in Article 17(2) of the LRAT, which is why it was not given as proven.

On the other hand, as was written in the Arbitral Decisions issued in cases 58/2016-T and 22/2018-T: "in cases of administrative challenge (namely of gracious complaint and hierarchical appeal of assessment acts), if the respective decision maintains the challenged act with different reasoning, it should be understood that revocation by substitution of that act occurs, with a new act thereby remaining in the legal order which, despite maintaining the same decision content, will have the new reasoning as its support."

Now, upon examination of the gracious complaint decision, it appears that it is completely silent as to the alleged non-fulfillment of the Claimant's duty of cooperation, or the lack of elements necessary to assess the regularity of the pro rata resulting from the replacement declaration that was corrected, referring instead expressly to the fact that "the assessment of the legality of the VAT adjustments effected by the taxable person and which are here under examination comes to focus on the discussion as to the mechanism for adjustment of the tax which, within the legally foreseen framework, appears applicable to the case in question."

Thus, and for the reasons stated, this is the only issue to be examined in the present forum, and, in accordance with the terms previously stated, the conclusion must be that the arbitral claim should succeed.

With the annulment request, the Claimant cumulates the request for the AT to be condemned to reimburse the amount corresponding to the additional assessment now annulled, plus payment of compensatory interest, in accordance with Article 43(1) of the General Tax Law (LGT), which provides that:

"Compensatory interest is due when it is determined, in gracious complaint or judicial challenge, that there has been error attributable to the services resulting in payment of the tax debt in an amount greater than that legally due."

As results from the factual matter given as proven, it is not established that payment of the tax debt has occurred, but, merely, that a reduction in the Claimant's tax credit occurred.

In these terms, given that the presuppositions of the said provision of Article 43(1) of the LGT have not been established, the Claimant's request in this respect cannot proceed, and should, if necessary, at the stage of execution of this Decision, make whatever compensatory rights it deems to have available.

C. DECISION

In these terms, this Arbitral Tribunal decides to judge the arbitral claim filed as well-founded and, in consequence:

  1. Annul the additional VAT assessment act No. ... of 11-04-2017, relating to the tax period 201412, in the amount of €71,986.26, as well as the decision rejecting the gracious complaint regarding that assessment act;

  2. Condemn the Respondent to pay the court costs, in the amount set out below.

D. Value of the Case

The value of the case is fixed at €71,986.26, in accordance with Article 97-A(1)(a) of the Code of Tax Procedure and Process, applicable by virtue of paragraphs (a) and (b) of Article 29(1) of the LRAT and Section 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is fixed at €2,448.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the claim was well-founded, in accordance with Articles 12(2) and 22(4) of the LRAT, and Article 4(4) of the said Regulation.

Let it be notified.

Lisbon, 11 December 2018

The Presiding Arbitrator

(José Pedro Carvalho)

The Arbitrator Member

(Raquel Franco)

The Arbitrator Member

(Jorge Carita)

[Footnotes as in original text]

Frequently Asked Questions

Automatically Created

What constitutes a writing or calculation error eligible for VAT rectification under Portuguese tax law?
Under Portuguese tax law, a writing or calculation error eligible for VAT rectification is a mechanical or arithmetical mistake that does not alter the substantive facts or legal characterization of transactions. Article 98(2) of the VAT Code allows taxpayers to correct such errors through replacement declarations. In this case, the bank argued that omitting December 2014's taxed operations from the pro rata numerator—when those operations were properly declared in the periodic return—constituted a pure calculation error. The key distinction is that the underlying commercial operations and their VAT treatment remained unchanged; only the mathematical application of the allocation formula was incorrect. However, tax authorities often scrutinize whether alleged calculation errors actually represent substantive reassessments requiring formal amendment procedures rather than simple error correction.
How does Article 23(6) and Article 98(2) of the Portuguese VAT Code apply to additional VAT assessments?
Article 23(6) of the Portuguese VAT Code establishes that mixed taxable persons must calculate a definitive pro rata coefficient at year-end based on actual operations, adjusting provisional deductions made throughout the year. Article 98(2) governs the procedural aspects of correcting VAT declarations, including time limits and formalities. In this decision, the bank contended that the Tax Authority's additional assessment violated these provisions because: (1) the correction properly implemented the mandatory year-end definitive adjustment mechanism under Article 23(6), and (2) the replacement declaration submitted under Article 98(2) was the appropriate legal instrument for correcting the computational error. The Tax Authority's position was that the two-year delay between the original and replacement declarations exceeded reasonable correction timeframes, and that the error's magnitude suggested substantive reassessment rather than mere calculation correction.
Can a bank challenge an additional VAT assessment through CAAD tax arbitration proceedings?
Yes, banks and other taxpayers can challenge additional VAT assessments through CAAD (Centro de Arbitragem Administrativa) proceedings under the Legal Regime for Arbitration in Tax Matters (RJAT - Decree-Law 10/2011). This case demonstrates the standard procedure: the bank first filed a gracious complaint (reclamação graciosa) with the Tax Authority, which was rejected. Following this administrative rejection, the bank had standing to request constitution of an arbitral tribunal under Articles 2 and 10 of RJAT. The arbitral tribunal has jurisdiction to review the legality of both the additional assessment act and the decision rejecting the administrative complaint. CAAD arbitration has become increasingly popular for financial institutions facing VAT disputes because it offers faster resolution than administrative courts, specialized arbitrators with tax expertise, and binding decisions equivalent to court judgments.
What are the principles of fiscal neutrality, proportionality, and effectiveness in VAT dispute resolution?
The principle of fiscal neutrality in VAT requires that similar economic activities bear the same tax burden regardless of legal form, ensuring taxpayers exercising deduction rights are not disadvantaged by administrative technicalities when substantive requirements are met. Proportionality demands that tax authority measures are necessary and not excessive relative to legitimate objectives, prohibiting disproportionate penalties for formal errors when no revenue loss or fraud occurred. Effectiveness (effectiveness principle) ensures EU VAT rights can be practically exercised, preventing procedural obstacles from rendering substantive rights illusory. In this dispute, the bank argued that denying correction of a mathematical error violated these principles because: (1) the underlying taxed operations were properly declared and verifiable, (2) the pro rata method was correctly applied substantively, (3) only a computational slip occurred, and (4) refusing correction would impose disproportionate consequences (€71,986.26 lost deduction) for a demonstrable arithmetical mistake with no impact on tax authority verification capabilities.
What is the procedure for filing a tax arbitration request against a VAT additional assessment and prior administrative claim denial?
The procedure for filing tax arbitration against a VAT additional assessment in Portugal follows these steps: (1) Upon notification of the additional assessment, the taxpayer must first file a gracious complaint (reclamação graciosa) with the Tax Authority within 120 days under Article 70 of the Tax Procedure Code (CPPT), contesting the assessment's legality; (2) If the Tax Authority rejects the complaint or fails to decide within the legal timeframe, the taxpayer may then file an arbitration request with CAAD; (3) The arbitration request must be submitted electronically through CAAD's platform within 90 days of notification of the complaint rejection, pursuant to Article 10 of RJAT; (4) The request must identify the contested acts, present factual allegations and legal grounds, include supporting documentation, and pay the required arbitration fee; (5) CAAD notifies the Tax Authority, which has 30 days to submit its defense; (6) An arbitral tribunal of one or three arbitrators is constituted depending on case value; (7) The tribunal follows simplified proceedings unless oral hearings are requested, and must issue a decision within six months (extendable). In this case, the bank filed on 27 March 2018 challenging both the 11 April 2017 additional assessment and the prior complaint rejection.