VAT on Tourist Developments: CAAD Arbitration on Self-Assessment Illegality (Process 170/2016-T)

ARBITRAL DECISION

The Arbitrators Dr. Jorge Manuel Lopes de Sousa (arbitrator-president, designated by the other Arbitrators), Dr. João Taborda da Gama and Prof. Doctor António Carlos dos Santos, designated, respectively, by the Claimant and by the Respondent, to constitute the Arbitral Tribunal, constituted on 08-06-2016, agree as follows:

1. STATEMENT OF FACTS

A... SOCIEDADE UNIPESSOAL LDA., Tax ID..., with registered office at Avenue..., ..., in ... (hereinafter "A..." or "Claimant"), came, in accordance with the terms and for the purposes of the provisions of articles 2, no. 1, letter a), 3, no. 1, and 15 and following of Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT"), to submit requests for declaration of illegality and partial annulment of the self-assessment acts and relating to the tax periods comprised between the 2nd quarter of 2009 and January 2011, for the total amount of € 771,212.06, as well as the acts of rejection of the necessary official reviews thereof presented.

The Respondent is the TAX AUTHORITY AND CUSTOMS AUTHORITY.

The Claimant designated as Arbitrator Dr. João Taborda da Gama, pursuant to the provisions of article 6, no. 2, letter b), of the RJAT.

The request for constitution of the Arbitral Tribunal was accepted by the President of the CAAD and automatically notified to the Tax Authority and Customs Authority on 04-04-2016.

In accordance with the provisions of letter b) of no. 2 of article 6 and no. 3 of the RJAT, and within the period provided for in no. 1 of article 13 of the RJAT, the senior official of the Tax Administration Service designated as Arbitrator Prof. Doctor António Carlos dos Santos.

The Arbitrators designated by the Parties agreed to designate Counselor Jorge Lopes de Sousa as presiding arbitrator, who accepted the designation.

In accordance with the terms and for the purposes of the provisions of no. 7 of article 11 of the RJAT, the President of the CAAD informed the Parties of this designation on 23-05-2016.

Thus, in compliance with the precepts of no. 7 article 11 of the RJAT, after the period provided for in no. 1 of article 13 of the RJAT had elapsed without the Parties having anything to say, the Collective Arbitral Tribunal was constituted on 08-06-2016.

The Tax Authority and Customs Authority submitted a response in which it defended that the request should be judged to be unfounded.

By order of 09-09-2016, witness evidence and holding of a hearing were dispensed with and it was decided that the proceedings continue with oral pleadings.

The Arbitral Tribunal was properly constituted.

The parties have legal personality and capacity and are legitimately constituted (articles 4 and 10, no. 2, of the same decree and article 1 of Order no. 112-A/2011, of 22 March).

There is no indication of any nullity or obstacle to the consideration of the merits of the case.

3. MATTERS OF FACT

3.1. Proven Facts

The following facts are considered proven:

a) The Claimant A... Sociedade Unipessoal Lda, is a taxable person subject to Corporate Income Tax (IRC) resident in national territory and covered by the normal VAT regime with monthly periodicity;

b) The Claimant's principal activity is the operation of tourist resort villages with restaurant services;

c) The Claimant is the owner of a tourist accommodation establishment;

d) The Claimant's establishment includes all the typical elements that characterize any establishment intended for tourist accommodation and the services provided therein do not differ from services provided in an ordinary hotel;

e) The Claimant's establishment has 96 fully equipped residences ready to occupy and use which benefit from daily housekeeping and cleaning services, replacement of towels, bed linen and personal hygiene consumables;

f) The Claimant's establishment includes support and leisure infrastructure, such as reception, restaurant, bars, tennis and football courts, outdoor and indoor swimming pools, sauna and jacuzzi, gymnasium, games room, a children's play area, common resting areas, a hairdresser, among other similar equipment;

g) Like a hotel, the Claimant's establishment provides ancillary services to guests accommodated therein, including personalized reception services, meals or other specific complementary services such as supervised classes in various sports practices and other leisure activities;

h) The Claimant's establishment is exclusively sought for non-residential purposes and use by all its clients is limited to short periods of time intended for rest and leisure;

i) The services available may be enjoyed by both Club members and any user in general, although under different conditions, more advantageous for members;

j) The service that the Claimant provides to all its clients – members and non-members of the Club – is identical;

k) Between the second quarter of 2009 and the month of January 2011, on the value of the annual payment invoiced to Club member clients, the Claimant was applying VAT at the normal rate, whereas on the value invoiced to other clients for accommodation in the same residences, the Claimant was applying VAT at the reduced rate;

l) The procedure which the Claimant was thus observing resulted from the administrative instructions then in force, namely the positions adopted in documents nos. 4 and 5 attached with the request for arbitral determination, whose contents are hereby reproduced;

m) In the aforesaid document no. 4, the following is stated, among other things:

VAT - REAL RIGHT TO PERIODIC HOUSING

1. The establishment of real rights to periodic housing is regulated by Decree-Law no. 355/81, of 31 December, as amended by Decree-Laws nos. 368/83, of 4 December, and 130/89, of 18 April, and is characterized by being a real right, evidenced by a property certificate, transferable by simple endorsement or annotation.

2. In accordance with no. 31 of article 9 of the VAT Code, there are exempt from VAT "operations subject to transfer tax", as transfer tax applies to transfers of the right of property over immovable property and to fractional rights thereof, it follows that the generality of operations on immovable property, being subject to transfer tax, are exempt from VAT.

3. The sale of titles of real rights to periodic housing are covered by no. 31 of article 9 of the VAT Code and, as such, constitute operations exempt from VAT, without right of deduction, in accordance with the provisions of no. 1 of article 20.

4. However, in accordance with the provisions of article 18 of Decree-Law no. 130/89, of 18 April, the holder of periodic housing rights is bound to the payment of an annual pecuniary obligation to the entity responsible for the operation of the development (commonly called "maintenance fee"), fixed in the constitutive title and relating to expenses with contributions and taxes, council rates, land registry fees, repairs, cleaning, administration and other matters, and may include a percentage intended to remunerate management, which shall not exceed 20% of its value, proportionally corresponding to them (continued Decree-Law no. 130/89 - article 18).

5. The value of this pecuniary obligation paid by holders of periodic housing rights is thus considered the consideration for a set of differentiated services, subject to VAT, so VAT should be charged on that value, at the normal rate, in accordance with letter c) of no. 1 of article 18 of the VAT Code.

(AGREEING DECISION BY THE SUB-DIRECTOR-GENERAL OF VAT, OF 92.08.03 - INFORMATION NO. 2139, OF 92.07.31);

n) In the Information from the Directorate of Services for Value Added Tax that constitutes document no. 5 attached with the request for arbitral determination, the following is stated, among other things:

1.2 In this Tourist Village, accommodation, catering and recreation services are provided to Club members, the parent company of the claimant.

1.3 The status of Club member confers on the respective beneficiaries the right to spend a certain period of each year (namely one week) in the Tourist Village.

1.4 The consideration for the provision of accommodation services is directly paid by the parent company, after the charging of VAT at the rate of 16%.

1.5 The remaining service provisions are charged directly to each member, at the time of their provision or at the time of departure from the Village, amounts on which VAT is charged. These service provisions consist essentially of ancillary services provided within the scope of hotel accommodation, catering and sports and recreational activities.

1.6 Accordingly, it requests clarification:

a) on the VAT rate that should apply to the provision of accommodation services paid directly by the parent company, whether 16% or 5%.

b) on the right of deduction of VAT borne for the provision of accommodation services paid by the parent company.

1.7 If the rate to be applied to the provision of hotel accommodation services paid by the parent company is 5%, it requests authorization to be able to regularize the VAT charged in excess in situations occurring more than one year ago.

1. In view of the question posed and through official letter no. ... of 96.01.18, these Services requested from the District Finance Directorate of..., information about the type of operations carried out and corresponding rates applied, the value of the respective regularizations sought, as well as whether the corresponding documents were issued in legal form.

2. On 96.06.20, information was sent to us by that District Finance Directorate, which reports the following:

3.1 The taxpayer is a Portuguese branch of a company headquartered in the Isle of Man, United Kingdom, composed of members of a club who acquired the exclusive right to use a development located in the urbanization of..., owned by company B... Lda., taxpayer no. ... (Portuguese branch of another with the same name headquartered in the Isle of Man).

3.2 In accordance with the Lease Promise Contract exhibited, it states it exercises the activity of "Operation of Integrated Support Services in the Private Tourist Complex".

3.3 On the other hand, it states that the right to occupy the apartments and to use the accommodation services, as well as the right to use the development's support infrastructure are acquired in a manner similar to that of "titles of periodic housing rights" by club members, at the time of purchase of the respective title, from the owner company, C..., Ltd.

3.4 Thus, the rights mentioned in the subject matter of the said contract were acquired by club members upon purchase of the titles, so no justification can be found for the lease contract (promise) with no possibility of identifying the existence of accommodation service provisions to club members.

3.5 Through analysis of the years 1992 to 1995, they note that the taxpayer's principal activity is to administer the resort acquired by club members from owner company C..., Limited in the form of periodic housing rights, and as secondary activity the provision of support services to club members such as catering, various services (telephone, fax, daily cleaning, vehicle rental, damage and towel rental, etc.), concessions (gaming machines, hairdresser, shops), sports (snooker, squash, tennis, ping-pong, golf, etc.), electricity consumed in apartments and newspapers.

3.6 Regarding the principal activity, the company does not provide hotel accommodation services, since its users acquired this right through the purchase of the titles from company B... and access to the development is limited to Club members, holders of the respective title, which prevents the applicant from charging any amount relating to the provision of accommodation services.

3.7 They conclude, therefore, that the principal reason for the existence of the claimant is the administration of the development, in order to ensure its maintenance and guarantee to club members the existence of optimal conditions for the use of apartments and common areas, in compliance with the provision of point 8 of the Club Regulations.

3.8 For obtaining these services, purchasers of vacation weeks pay an annual sum, relating to each title acquired.

3.9 From the analysis of the applicant's accounting, they state they have not found any accounting records regarding the receipt of those services, so they conclude that club members pay directly to the parent company, C..., LTD., headquartered in the Isle of Man, an annual sum, relating to each week acquired and depending on the type of apartment, as provided in point 4 of the Club Regulations.

3.10 Accordingly, they consider that the transfers made by the parent company were not intended to pay for accommodation services, as stated by the taxpayer, but rather to compensate part of the costs incurred by the branch to exercise its principal activity, an activity subject to the normal rate due to the outsourcing of the following third-party services: cleaning of apartments, laundry, general administration costs, electricity costs not attributable to apartments, water, infrastructure and gardening, costs relating to the management of the development, etc.

3.11 They conclude, therefore, that the rate applied by the taxpayer is correct, and the same should also have applied to the transfers made by the parent company as "compensation for losses".

3.12 As for the right of deduction of VAT borne by the company in the acquisition of goods and services for the practice of operations that constitute its normal activity, they observed no impediment to the exercise of that right.

1. Through analysis of the supervision services report, as well as its annexes, particularly the club regulation, we can conclude that:

4.1 The transfers made by the parent company, including those designated "for compensation for losses", do not presuppose the provision of accommodation services, since these were acquired by club members at the time they acquired the "periodic tourism housing rights".

4.2 Given that administration of the development is the principal reason for the existence of the claimant and club members pay an annual sum according to the number of weeks acquired and the type of apartment and these are not recorded by the applicant, it leads us to deduce that such sums are paid directly to the parent company, which then transfers them giving rise to the sums in question.

4.3 Therefore, taking into account the residual concept of service provisions provided in no. 1 of article 4 of the VAT Code, as well as its economic reflection, the transfers made by the parent company presuppose the consideration for the provision of administration services which are subject to VAT at the normal rate.

o) The price established by the Claimant with its clients, Club members, for the hotel accommodation service it provides to them has always been a final price, with VAT included;

p) Between the second quarter of 2009 and the month of January 2011, the Claimant charged for the same identical hotel accommodation service the same price, regardless of whether it included VAT at the normal rate of 20%, 21% or 23% which it self-assessed in the respective periodic statements and immediately remitted to the State;

q) Without being able to charge its clients any amount in addition to the value of the fixed annual charge it contracted with them, the Claimant reduced its margin, so that the same price could include VAT at the normal rate that resulted from Tax Administration administrative instructions instead of VAT at the reduced rate that would result from law;

r) Between the second quarter of 2009 and the month of January 2011, as between February 2011 and April 2013, the now Claimant never charged its clients any additional sum to the value of the fixed annual charge that was established as consideration for the hotel accommodation service it provided to them and always maintained a fixed annual price, with VAT included, assuming itself, through the reduction in its income, the burden of supporting the difference between VAT at the normal rate and the reduced rate;

s) Given the identical nature of the services it provides to all its clients, the Claimant understood that it should treat them uniformly for purposes of their subjection to VAT;

t) To that end, it began charging VAT at the reduced rate also on the annual payment invoiced to Club members, as accommodation, in the months of February to August 2011;

u) In order to remove any doubt about this understanding, the Claimant submitted, on 28-03-2011, a request for binding information;

v) The binding information from the VAT Services Directorate given in case no...., sanctioned by the Director-General, and notified to the now impugning party on 03-10-2011, expressed the understanding that services provided to Club members are subject to VAT at the normal rate and not at the reduced rate that the Claimant had applied in its invoicing (document no. 6 attached with the request for arbitral determination, whose contents are hereby reproduced);

w) The said binding information was based on the fact that the annual payment relates to a set of rights and not merely to the right of occupying a week in a specific residence and as such constitutes an operation subject to tax, taxed at the normal VAT rate, which does not fall within the scope of a hotel-type accommodation service provision;

x) In light of the information obtained, the Claimant additionally self-assessed, on 31-10-2011, on the value of the same service, tax at the normal rate by means of amended statements relating to February, March, April, May, June, July and August 2011;

y) The Claimant, while adopting the understanding expressed in the binding information, understood that each of the said acts of additional VAT self-assessment in which it applied it was subject to error;

z) For that reason, it filed administrative appeals against all acts of additional VAT self-assessment from February to August 2011, all dated 31-10-2011;

aa) The appeals filed against the VAT self-assessment acts of February and March 2011 which applied the normal rate were rejected by decision of the Deputy Director of the Finance Directorate of..., set forth in cases nos. ...2012... and ...2012... of that Finance Directorate;

bb) From this rejection, the Claimant filed arbitral impugnation which was processed at the CAAD under case no. 117/2012-T;

cc) On 21-05-2013, the Arbitral Tribunal decision was handed down, which judged the request to be entirely well-founded and annulled the VAT self-assessment acts of February and March 2011 which applied the normal rate (document no. 7 attached with the request for arbitral determination, whose contents are hereby reproduced);

dd) The appeal filed against the VAT self-assessment act of April 2011 which applied the normal rate was likewise rejected by decision of the Deputy Director of the Finance Directorate of..., set forth in case no. ... 2012 ... of that Finance Directorate;

ee) From this rejection, the Claimant filed judicial impugnation which was processed at the Administrative and Tax Court of Loulé;

ff) On 31-10-2013, the decision of the Administrative and Tax Court of Loulé was delivered, which judged the request to be entirely well-founded and annulled the VAT self-assessment act of April 2011 which also applied the normal rate (document no. 8 attached with the request for arbitral determination, whose contents are hereby reproduced);

gg) The appeal filed against the VAT self-assessment acts of May to August 2011 which applied the normal rate was entirely allowed by decision of the Deputy Director of the Finance Directorate of..., delivered in case no. ... 2013 ... of that Finance Directorate which immediately annulled them (document no. 9 attached with the request for arbitral determination, whose contents are hereby reproduced);

hh) The Claimant also filed administrative appeals against all acts of additional VAT self-assessment relating to the periods from September 2011 to April 2013 in the cumulative amount of € 853,351.89, in accordance with article 131 of the General Tax Procedure Code (CPPT);

ii) The appeals filed against the VAT self-assessment acts of September 2011 to April 2013 which applied the normal rate were rejected by decision of the Deputy Director of the Finance Directorate of Faro, set forth in cases nos. ... 2013 ... of that Finance Directorate;

jj) From this rejection, the Claimant filed a request for arbitral determination which was processed at this Administrative Arbitration Centre under case no. 78/2014-T and in which, on 11-07-2014, the Arbitral Tribunal decision was handed down which judged the request to be entirely well-founded and annulled the VAT self-assessment acts of September 2011 to April 2013 which applied the normal rate (document no. 10 attached with the request for arbitral determination, whose contents are hereby reproduced);

kk) The Director-General of the Tax Authority and Customs Authority did not impugn or appeal the decision of 11-07-2014;

ll) On 18-06-2013, the Claimant submitted at the VAT Services Directorate 16 requests for official review directed to the Respondent, which concerned the sixteen VAT self-assessment acts relating to the 2nd, 3rd and 4th quarters of 2009 and to the months of January 2010 to January 2011, inclusive, which give rise to the present proceedings;

mm) On 25-09-2013, the Claimant asked the Director of VAT Services to inform it, pursuant to the provisions of article 67 of the General Tax Act (LGT), of the phase in which the procedure then was and the expected date for its completion (document no. 11 attached with the request for arbitral determination, whose contents are hereby reproduced);

nn) By official letter of 04-10-2013, the Claimant was notified that its requests for official review were awaiting analysis, but that the services anticipated that their completion would occur during the month of November 2013 (document no. 12 attached with the request for arbitral determination, whose contents are hereby reproduced);

oo) Without, meanwhile, having succeeded in obtaining any development, on 30-05-2014 the Claimant again asked the Director of VAT Services to inform it of the phase in which the procedure was and the new expected date for its completion (document no. 13 attached with the request for arbitral determination, whose contents are hereby reproduced);

pp) By official letter of 19-06-2014, the Claimant was notified that its requests for review would have been submitted to the then Director-General of the Tax Authority for its consideration/decision (document no. 14 attached with the request for arbitral determination, whose contents are hereby reproduced);

qq) On 23-07-2014, the Claimant promoted with the VAT Services Directorate, and within the scope of the said official review procedure, the referral to the Director-General of the Tax Authority of the aforesaid decision of 11-07-2014, delivered in case no. 78/2014-T (document no. 15 attached with the request for arbitral determination, whose contents are hereby reproduced);

rr) Without having succeeded in obtaining any news, on 15-01-2015, the Claimant again asked the Director of VAT Services to inform it of the phase in which the procedure was and the expected date for its completion (document no. 16 attached with the request for arbitral determination, whose contents are hereby reproduced);

ss) By official letter of 06-04-2015, the Claimant was notified that its 16 requests for review would have been submitted to the Legal and Contentious Services Directorate for "purposes of analysis" (document no. 17 attached with the request for arbitral determination, whose contents are hereby reproduced);

tt) Without having succeeded in obtaining any news, on 16-09-2015, the Claimant petitioned at the Administrative and Tax Court of Loulé that the here Respondent be required to issue an express decision on the 16 requests for review, following which, on 17-11-2015, that Court required the Respondent to practice the acts of express decision of the 16 official review requests, within a period of 30 days (document no. 18 attached with the request for arbitral determination, whose contents are hereby reproduced);

uu) On the 16th and 17th of December 2015, the 16 acts of express rejection of the official review requests were practiced, delivered by the VAT Services Directorate Director, which constitute the subject matter of the present request for arbitral determination, in the following procedures for review of tax acts:

– no. ...2013... of 2009;
– no. ... 2013... of 2009;
– no. ...2013... of 2009;
– no. ...2013... of 2010;
– no. ...2013... of 2010;
– no. ...2013... of 2010;
– no. ...2013... of 2010;
– no. ...2013... of 2010;
– no. ...2013... of 2010;
– no. ...2013... of 2010;
– no. ...2013... of 2010;
– no. ...2013... of 2010;
– no. ...2013... of 2010;
– no. ...2013... of 2010;
– no. ...2013... of 2010;
– no. ...2013... of 2011;

(documents nos. 1A to 1P attached with the request for arbitral determination, whose contents are hereby reproduced);

vv) In the 2nd, 3rd and 4th quarters of 2009 and in the months of January 2010 to January 2011, inclusive, the Claimant charged VAT at the normal rate in the amounts shown in the table that follows, in which the differences are indicated for the amounts that would be due if the charging were made at the normal rate:

[Table would be shown here]

ww) The determination of VAT charged in the periods in question is based on the invoicing reports of the Impugning party relating to the price received for the tourist accommodation services in which it included VAT at the normal rate, which are contained in documents nos. 2A to 2P attached with the request for arbitral determination, whose contents are hereby reproduced;

xx) The said invoicing reports were supported by the invoices issued by the Claimant in the periods in question, copies of which are contained in documents nos. 3A to 3P, whose contents are hereby reproduced, which relate to accommodation services in its aforementioned establishment;

yy) In the said decisions of the official review requests, whose contents are hereby reproduced, there is agreement with information in which reference is made, among other things, to the following:

III.4 - Analysis

1. As referred to in information no. .../15, from the DSCJC, already referenced, the normative statement of no. 4 of article 68-A of the LGT limits its effects to the so-called circulatory right of the Tax Authority, such as generic guidelines, regulations or instruments of the same nature, whose character is general and abstract.

2. That is, the norm in question does not refer to any decisions to be made by the Tax Authority within administrative procedures in which the application of law to a specific case is at issue.

3. On the other hand, the legal precept in question alludes only to superior courts, and account should be taken of the provisions of articles 210 and 212 of the Constitution of the Portuguese Republic (CRP), "(...) from which it follows, respectively, that the Supreme Court of Justice is the superior body of the hierarchy of judicial courts and that the Supreme Administrative Court is the superior body of the hierarchy of administrative and tax courts, without prejudice to the proper competence of the Constitutional Court (as stated in point 9 of information no. .../15, from the DSCJC, already referenced).

4. Even if a different interpretation were drawn from the normative precept of no. 4 of article 68-A of the LGT, it would still have to be concluded that the Arbitral Decision handed down in case no. 117/2012-T is not capable of conditioning the decision to be taken in the matter in question, leading, without more, to the sought annulment of the tax act.

5. Indeed, the matter of fact that supports the said Arbitral Tribunal decision is different from that which is established in the present tax procedure.

6. In the said Arbitral Tribunal decision, at issue was the tax self-assessed and borne by the now Claimant, with reference to the periods of 201102 and 201103, following the binding information that was provided to it by the VAT Services Directorate, on 2011-09-29, in case no...., in which the understanding was established that services provided to Club members were subject to VAT at the normal rate and not at the reduced rate.

7. That is, with reference to periods 201102 and 201103, the Claimant charged the tax based on the reduced rate, and it was this tax that it passed on to its clients, in accordance with no. 1 of article 37 of the VAT Code. Subsequently, it proceeded to a regularization of VAT in favor of the State, faced with the Tax Administration's understanding that tax was due at the normal rate. It was only this regularization that came to be annulled.

8. Therefore, the VAT charges that the Arbitral Tribunal decided to annul related to tax that was borne by the Claimant and not to tax that had been legally passed on to third parties.

9. Conversely, in the case of the present proceedings, the tax was charged in the invoices issued to clients who were Club members, on the initiative of the Claimant. The rate considered for this purpose was the normal rate, which the Tax Administration only in 2011 came to confirm as being due.

10. Note that no amended statement was filed, for the period under analysis, as can be seen through the application of the VAT computer system, which allows for the conclusion that this is not tax resulting from any regularization in favor of the State.

11. That is, it is not VAT borne by the Claimant, but tax that this passed on and received from its clients. This tax was charged at the normal rate, but it was not the Claimant who bore it, but rather its clients.

12. Thus, it seems to us that, even if the understanding of the binding information referred to above were to be altered, this would not result in any right to annulment of the tax act that is here claimed.

13. Article 97, no. 3, of the VAT Code, determines that "charges can only be annulled when it is proven that the tax was not included in the invoice issued to the purchaser in accordance with article 37.

14. Indeed, if it were considered that the reduced rate is applicable to services invoiced to Club members, the only legal solution for the case would be a regularization of tax, pursuant to the provisions of article 78 of the VAT Code.

15. No. 3 of article 78 of the VAT Code determines that, "in cases of inaccurate invoices that have already given rise to the registration referred to in article 45, the correction is mandatory when there is tax charged too little, being able to be effected without any penalty until the end of the period following that to which the invoice to be corrected relates, and is optional, when there is tax charged in excess, but may only be effected within a period of two years".

16. For that purpose, no. 5 of the same article establishes that, "when the taxable value of an operation or the respective tax suffer correction for less, the regularization in favor of the taxable person can only be effected when this has in its possession proof that the purchaser was made aware of the correction or that was reimbursed of the tax, without which the respective deduction is considered undue".

17. In accordance with the notes of the then VAT Office, "in the case of the taxable value of an operation or the respective tax suffering correction for less, the taxable person should be enabled to prove that the purchaser was reimbursed, without which the respective deduction will be considered undue".

18. In the case that is not proven in the present proceedings, that the Claimant acted in conformity with the mentioned provisions of article 78 of the VAT Code, within the legal period of two years, it is concluded that the present request for review of tax acts cannot be accepted, due to lack of legal basis.

19. In this same sense, one can see the Arbitral Decision handed down within case no. 63/2015-T, whose decision was favorable to the Tax Authority, and in which also, in that case, a taxable person, operator in the same line of activity as the now Claimant, charged VAT at the normal rate on the value of the annual payment invoiced by the Claimant to clients who were members of the respective club.

20. In the said arbitral decision, the panel concludes that, "(...) in order for it to be possible to annul the self-assessments in question, it was necessary for the invoices issued by the Claimant, in which this, admittedly included 23% VAT, to be corrected, in accordance with legal terms, so that it would contain the rate that this understands to be correct, namely 6%, as well as the corresponding amount of tax, resulting from the application of this rate, to the taxable value of the operation".

21. The same Arbitral Decision further concludes that, "If such requirements (of articles 29/7, 97/3, and 78/1, all of the VAT Code) are not verified, there are no legal grounds for the annulment of the self-assessments in question, which are carried out in accordance with the regulations that govern them".

22. Such conclusion is not prevented, as the Panel emphasizes, "(...) by the circumstance - not disputed in the case - that the operations in question are taxable at the rate of 6%, and not at the rate, invoiced by the Claimant, of 23%. Indeed, this does not result in the illegality of the self-assessments made by the Claimant in the statements to which article 29/1/c) of the VAT Code refers, but of the charges made by the Claimant itself in the invoices it issued, in compliance with the provisions of article 37/1 of the VAT Code, charges whose correction was incumbent on the claimant itself, in accordance with the above exposition".

23. Indeed, and citing the decision of the Central Administrative Court of the South (TCA Sul), of 2000-07-04, in case no. 1525/98:

"1. The VAT debt of each taxable person is found by deducting from the total amount of tax mentioned in the invoices processed to its clients the tax borne in the invoices for the acquisition of goods and services intended for its production, all reported to a certain period of time;

1. If there is a change in the taxable value of goods or services, the taxable person may proceed to its correction, being the same optional if the tax mentioned in the invoice is higher, and mandatory, if such tax is lower:

2. In case of tax mentioned in the invoice of an amount higher than that due, while not rectified, the same is due, and it is incumbent on the Tax Administration to charge it additionally, in the event that the taxable person does not do so:

3. (...);

IV - RIGHT TO PRIOR HEARING

1. Pursuant to letter a) of point 3 of Circular no. 13, of 1999-07-08, from the Directorate of Tax Justice Services, there may be a waiver of hearing taxpayers when the tax administration only assesses the facts that were given to it by these, limiting its decision to the interpretation of the legal norms applicable to the case.

2. Verifying that the administration is limited to concluding, in light of the elements invoked by the Claimant and the applicable legislation, by the unfoundedness of the present request for review of tax acts, we are of the opinion that prior hearing should be waived.

V - CONCLUSION

1. Having regard to the aforesaid, it is proposed that the present request for review of tax acts be rejected.

zz) On 17-03-2016, the Claimant submitted the request for constitution of the arbitral tribunal that gave rise to the present proceedings.

3.2. Unproven Facts

There are no facts relevant to the decision of the case that have not been proven.

3.3. Justification of the Decision on Matters of Fact

The facts were given as proven on the basis of the documents attached with the request for arbitral determination and which are contained in the administrative file, which were affirmed by the Claimant and are not questioned by the Tax Authority and Customs Authority.

3. MATTERS OF LAW

3.1. Issues that are the Subject of the Proceedings

It is contended by the Claimant and accepted by the Tax Authority and Customs Authority that, in the 2nd, 3rd and 4th quarters of 2009 and in the months of January 2010 to January 2011, inclusive, VAT was charged by the Claimant to Club members at the normal rate.

However, being services of accommodation in a hotel-type establishment, the reduced rate was applicable, in accordance with the provision in item 2.17 of List I attached to the Value Added Tax Code (VAT Code), in conjunction with article 18, no. 1, letter a), of the same Code, which has support in point 12 of Annex III of Directive no. 2006/112/EC of the Council, of 28-11-2006, which recognizes Member States of the European Union the faculty of applying a reduced rate to "accommodation in hotels and similar establishments, including holiday accommodation and the use of camping sites and caravan parks".

The Tax Authority and Customs Authority, in the decisions of the official review requests, did not base the rejection on disagreement with the Claimant's thesis that the reduced rate should be applied, but rather, in short, on the following:

– it is not VAT borne by the Claimant, but tax that this passed on and received from its clients;

– article 97, no. 3, of the VAT Code, determines that "charges can only be annulled when it is proven that the tax was not included in the invoice issued to the purchaser in accordance with article 37";

– if it were considered that the reduced rate is applicable to services invoiced to Club members, the only legal solution for the case would be a regularization of tax, pursuant to the provisions of article 78 of the VAT Code;

– no. 3 of article 78 of the VAT Code determines that, "in cases of inaccurate invoices that have already given rise to the registration referred to in article 45, the correction is mandatory when there is tax charged too little, being able to be effected without any penalty until the end of the period following that to which the invoice to be corrected relates, and is optional, when there is tax charged in excess, but may only be effected within a period of two years";

– no. 5 of the same article establishes that, "when the taxable value of an operation or the respective tax suffer correction for less, the regularization in favor of the taxable person can only be effected when this has in its possession proof that the purchaser was made aware of the correction or that was reimbursed of the tax, without which the respective deduction is considered undue";

– in the case of the taxable value of an operation or the respective tax suffering correction for less, the taxable person should be enabled to prove that the purchaser was reimbursed, without which the respective deduction will be considered undue;

– in the case that is not proven in the present proceedings, that the Claimant acted in conformity with the mentioned provisions of article 78 of the VAT Code, within the legal period of two years, it is concluded that the present request for review of tax acts cannot be accepted, due to lack of legal basis.

The tax arbitration procedure, as an alternative means to the judicial impugnation procedure (no. 2 of article 124 of Law no. 3-B/2010, of 28 April), is, like this, a procedural means of mere legality, in which the aim is to eliminate the effects produced by illegal acts, annulling them or declaring their nullity or non-existence [articles 2 of the RJAT and 99 and 124 of the CPPT, applicable by force of the provisions of article 29, no. 1, letter a), of that instrument].

For this reason, the legality of acts must be assessed in light of their justification, and the tribunal cannot, in the face of the verification of the invocation of an illegal ground as the basis of the administrative decision, assess whether its action could be based on other grounds. [1]

Also for this reason, the fact that an arbitral decision has been handed down, having become final, in case no. 78/2014-T, regarding the same substantial legal situation, relating to a certain period of time activity, does not imply for the Tax Authority and Customs Authority the obligation to comply with the understanding adopted in that arbitral decision regarding other periods of time, even if it adopts the justification that was considered illegal, because the binding force of that decision is restricted to the acts that were its subject matter, in the terms and with the justification with which they were practiced. Namely, as the Tax Authority and Customs Authority correctly refers in its Response, there is no "cause-effect link between the different tax acts, in the sense that the annulment of one must necessarily have an impact on the validity of the other".

Furthermore, in the matter in question, it is verified that the Tax Authority and Customs Authority, in the decision rejecting the official review requests, invokes grounds that were not invoked in the decisions that were the subject matter of case no. 78/2014-T.

In truth, in the decision rejecting the administrative appeal that was the immediate subject matter of case no. 78/2014-T, only one ground for rejection was invoked: that in the period in question "the taxpayer delivered to the State the VAT charged at the normal rate to its club members, for which reason, having not borne any additional VAT, it shall also not be entitled to reimbursement or deduction of any amount, since it merely delivered the tax charged to its clients, and no accounting entries are known, in accordance with the information from the Inspection Services, already referred to above, relating to regularizations in favor of the taxable person (by correction of tax for less), nor were the requirements required by article 78, namely in its no. 5, of the VAT Code, met".

The Arbitral Tribunal, in that case no. 78/2014-T, understood, in short, that it was the Claimant who had borne the VAT and, such proof having been made, there was no obstacle to it being reimbursed for what it had charged in excess nor was there room for the application of the regime of article 78, no. 5, of the VAT Code.

In the matter in question in the present proceedings, the Tax Authority and Customs Authority invokes other grounds, so it is in light of the justification invoked that the legality of the decisions of the official review requests must be assessed, bearing in mind that, when in an administrative or tax act several autonomous grounds for rejection are invoked, each with the potential to, on its own, ensure the legality of the rejection, it is sufficient that one of them has legal foundation, because "the tribunal, to annul or declare the nullity of the questioned decision, issued in the exercise of bound activity of the Administration, cannot be satisfied with the verification of the insubsistence of one of the invoked grounds, because it is only after verification of the unfoundedness of all of them that the tribunal is enabled to invalidate the act". [2]

Thus, it is important to assess all the invoked grounds.

As we are dealing with a tax of European origin and subject to European Union regulation, we must respect the jurisprudence of the Court of Justice of the European Union (CJEU) on this matter, which is a corollary of the obligation of preliminary referral, provided for in § 3 of article 267 of the Treaty on the Functioning of the European Union and, if necessary, a referral will be made, as the Claimant requests.

3.2. Consideration of the Issue

For the reasons stated, it is established that, and is not questioned by the Tax Authority and Customs Authority, that the self-assessments whose official review was requested by the Claimant indeed suffer from illegality.

3.2.1. The Obstacle to the Granting of the Request Arising from the VAT Having Been Passed On to the Claimant's Clients

The first argument used by the Tax Authority and Customs Authority to reject the official review requests is that it is not VAT borne by the Claimant, but tax that this passed on and received from its clients.

As can be seen from the decision of the official review request, the legal basis for this understanding would be article 97, no. 3, of the VAT Code which establishes that "charges can only be annulled when it is proven that the tax was not included in the invoice issued to the purchaser in accordance with article 37".

This obstacle to granting the request for official review is based on the possible enrichment that the right to receive the VAT that was included in the invoices paid by clients could generate for the Claimant.

But, while it is true that there are situations of this type in which an unjust enrichment situation can be configured that justifies the non-recognition of legitimacy to challenge charges of taxes passed on to third parties, there are also situations in which this does not occur and normally will not occur.

As well demonstrated by FRANCISCO GERALDES SIMÕES and JOÃO G. GIL FIGUEIRA, in "The Pass-On of Wrongful VAT and Unjust Enrichment" [3], the economic incidence of VAT in the provision of services does not coincide with its legal incidence, as economic agents will tend to practice the maximum price increased by the tax that most of their clientele will accept to pay, being the final price with the tax included that permits them to optimize their income.

Thus, as those Authors state:

– "the price established by the taxable person with its end clients for the services it provides or the goods it transfers is always a final price, naturally with VAT included" and "any tax determined, whether or not it proves to be due, is contained and incorporated in that price and runs at the cost and risk of the taxable person and not of the respective consumers";

– "if it charges tax higher than due, the taxable person will see its margin reduced or its clientele disappear; if it charges tax lower than due, the taxable person will have to bear the additional portion, without being able to require it from its client";

– "the VAT wrongfully included in the price will always be 'borne' by the taxable person, whether through reduction of its margin or through reduction of its sales. One should not wish to attribute to the State the portion of tax charged in excess with the argument that its return to the taxable person would imply its unjust enrichment";

– "one should not wish to feign that the taxable person can (...) preserve the bases included in its remuneration taxed at 13% and increase them by tax of 23%, without that causing any consequence in its business".

It is known that tax law attaches more importance to economic reality than to legal reality, as can be inferred from the interpretative principle stated in article 11, no. 3, of the LGT and is a corollary of the constitutional principle of equality in the distribution of public charges (article 13 of the CRP).

For this reason, the norm of article 97, no. 3, of the VAT Code, which is justified to prevent unjust enrichment of the taxable person who did not bear the VAT, should be interpreted restrictively, in accordance with the limits of its legal purpose [4], as applying only to cases in which it is demonstrated that, receiving VAT included in invoices, the taxable person obtains unjustified enrichment.

It is, moreover, essentially in this sense that the Court of Justice of the European Union (CJEU) has been pronouncing itself, as can be seen from the decision of 18-05-2013, handed down in case no. c-191/12 (Alakor Gabonatermelő és Forgalmazó Kft), which specifically on VAT reaffirms prior jurisprudence on this matter, namely the decision of 19 July 2012, Littlewoods Retail, case no. C-591/10 and jurisprudence referred to in its point 24.

It is stated in this Alakor decision:

22 It should be recalled in this regard that it is settled law that the right to obtain a refund of taxes charged in a Member State in breach of the rules of EU law is the consequence and complement of the rights conferred on persons by the provisions of EU law, as interpreted by the Court of Justice. Member States are thus, in principle, obliged to repay taxes charged in breach of EU law (see, in particular, the decision of 19 July 2012, Littlewoods Retail and others, C-591/10, no. 24 and jurisprudence referred to). [5]

23 Therefore, the Member State must, in principle, reimburse the entire VAT that the taxable person was prevented from deducting in breach of EU law.

24 From this it follows that the right to repayment of wrongful payment is intended to resolve the consequences of the incompatibility of the tax with EU law, neutralizing the economic burden that wrongfully burdened the operator who, after all, actually came to bear it (decision of 20 October 2011, Danfoss and Sauer-Danfoss, C-94/10, Coll., p. I-9963, no. 23).

25 However, by way of exception, that reimbursement may be refused when it would lead to an unjust enrichment of the holders of the right. The protection of rights guaranteed in this matter by the legal order of the Union does not require the reimbursement of taxes, charges and fees collected in breach of EU law when it is proven that the taxable person responsible for the payment of those charges actually passed them on to other persons (decision of 6 September 2011, Lady & Kid and others, C-398/09, Coll., p. I-7375, no. 18).

26 In the absence of EU regulation on requests for the reimbursement of taxes, it is incumbent on the legal system of each Member State to provide the conditions under which they may be made, without prejudice, however, to respect for the principles of equivalence and effectiveness (decision Danfoss and Sauer-Danfoss, already referred to, no. 24 and jurisprudence referred to).

27 In this respect, taking into account the purpose of the right to repayment of wrongful payment, as recalled in no. 24 of this decision, respect for the principle of effectiveness requires that the conditions for the exercise of the action for repayment of wrongful payment be fixed by the Member States in accordance with the principle of procedural autonomy, so that the economic burden of the wrongful tax can be neutralized (decision Danfoss and Sauer-Danfoss, already referred to, no. 25).

(...)

30 The question of whether the reimbursement claimed in the dispute in the main proceedings is intended only to neutralize the economic burden of the wrongful tax or would, conversely, result in an unjust enrichment of the taxable person is a question of fact which is within the competence of the national judge, who freely assesses the elements of proof submitted to him following an economic analysis that takes into account all the relevant circumstances (see, in this sense, decision of 2 October 2003, Weber's Wine World and, p. C-147/01, Coll., p. I-11365, nos. 96 and 100). [6]

Thus, it must be concluded that article 97, no. 3, of the VAT Code, is incompatible with EU law if interpreted as an absolute prohibition on reimbursement of VAT wrongfully paid or as establishing an irrebuttable presumption of unjust enrichment.

There being explicit jurisprudence of the CJEU on VAT and which is stated as constant (point 22 transcribed), it must be applied.

Thus, it must be concluded that article 97, no. 3, of the VAT Code, is incompatible with EU law if interpreted as preventing reimbursement of wrongfully paid tax merely because it was formally passed on to third parties or containing an irrebuttable presumption of enrichment.

In the factual context described by the Claimant, which is not questioned by the Tax Authority and Customs Authority, it was the Claimant itself that ultimately bore the difference between VAT at the normal rate and VAT at the reduced rate, in the periods in question.

In truth, the Claimant charged all its clients an identical price, with VAT included, which meant that, when it wrongfully charged VAT at the normal rate, the Claimant obtained for the services provided income lower than what it earned when it applied the reduced rate.

In any case, we are, at least, in a situation of founded doubt regarding the pass-on of VAT to third parties, which should be valued procedurally in favor of the Claimant, by force of the provisions of article 100, no. 1, of the CPPT.

In these circumstances, it must be concluded that for purposes of the present proceedings, the consequences of the illegality of the VAT charging fell upon the Claimant and not upon the club members to whom it charged VAT at the normal rate, because these members benefited from a reduction in the Claimant's income, in an amount equal to the difference between the normal rate and the reduced rate of VAT, so that the price they paid for the services would not exceed what was paid by the general public, relative to the same services.

Being thus, the reimbursement to the Claimant, as a consequence of the illegality of the charging, of the value of the VAT borne in excess will not imply a situation of unjust enrichment, because, despite the apparent pass-on of that excess to client club members, the reality is that it was the Claimant that bore it, which becomes evident when it is verified that the price paid by club members was annual and fixed, not having been altered in the months in which the Claimant began to charge VAT at the reduced rate to all clients.

3.2.2. The Obstacle to Granting the Request Arising from the Failure to Effect Correction of Invoices, in Accordance with Article 78, nos. 3 and 5, of the VAT Code

No. 7 of article 29 of the VAT Code establishes that "when the taxable value of an operation or corresponding tax are altered for any reason, including inaccuracy, a corrective invoice document must be issued".

No. 3 of article 78 of the VAT Code establishes that, "in cases of inaccurate invoices that have already given rise to the registration referred to in article 45, the correction is mandatory when there is tax charged too little, being able to be effected without any penalty until the end of the period following that to which the invoice to be corrected relates, and is optional, when there is tax charged in excess, but may only be effected within a period of two years".

No. 5 of the same article 78 establishes that, "when the taxable value of an operation or the respective tax suffer correction for less, the regularization in favor of the taxable person can only be effected when this has in its possession proof that the purchaser was made aware of the correction or that was reimbursed of the tax, without which the respective deduction is considered undue".

In the matter in question, the Claimant did not proceed to the regularization of invoices.

The Tax Authority and Customs Authority understood in the decisions of the official review requests that "in the case of the taxable value of an operation or the respective tax suffering correction for less, the taxable person should be enabled to prove that the purchaser was reimbursed, without which the respective deduction will be considered undue" and that "in the case that is not proven in the present proceedings, that the Claimant acted in conformity with the mentioned provisions of article 78 of the VAT Code, within the legal period of two years, it is concluded that the present request for review of tax acts cannot be accepted, due to lack of legal basis".

The Claimant argues that we are not in a situation of "inaccurate invoices" that can be framed in article 78, no. 3, of the VAT Code, arguing that this concept encompasses cases of material errors and not errors of legal classification and that, the regime of that norm not being applicable, the general regime on this matter contained in article 98, no. 2 of the VAT Code will apply, which stipulates a limit of four years for the official review and exercise of the right to reimbursement of tax delivered in excess.

There is no legal definition of the concept of "inaccurate invoices", used in no. 3 of article 78 of the VAT Code, but the terminology used clearly points to the intention to have in view the veracity of the elements that must appear on invoices, in accordance with article 36, and not questions of legal classification, normally of complex solution dependent on the application of deep legal knowledge, which does not accord with the imposition of appropriate resolution by the generality of VAT taxable persons.

Moreover, in the matter in question, it was the Tax Authority and Customs Authority itself that indicated in administrative decisions the legal understanding to adopt on the rate to apply, which it confirmed in binding information, specially issued for the situation in question, so it is not conceivable, in light of a perspective that bears in mind the unity of the legal system and the constitutionally recognized right to contentious impugnation of all harmful acts, inherent to the fundamental right to effective judicial protection (articles 20, no. 1, and 268, no. 4, of the CRP) that the law simultaneously provides for the duty of the Tax Authority and Customs Authority to inform taxpayers on their obligations [article 59, no. 1, letter m), of the LGT] and, as a condition for impugnation, imposes on it that it act in dissonance with what is informed, practicing what, from the perspective of the Tax Authority and Customs Authority, is an illegality.

If the law provides for the obligation of the Tax Authority and Customs Authority to inform taxpayers on their tax duties, it cannot penalize compliant citizens with the loss of a constitutionally recognized right by the fact that they act in harmony with what is informed, nor is it conceivable in light of the principle of the Rule of Law (article 2 of the CRP) that citizens must practice acts that the Administration understands to be illegal, subjecting themselves to the negative consequences that result therefrom, to ensure constitutionally recognized rights.

Thus, beyond article 78, no. 3, of the VAT Code not having application in cases in which the taxpayer understands that there is an error in the legal regime applicable, the failure to regularize invoices cannot be an obstacle to the official review provided for in article 98, as, moreover, results from the express contents of no. 1 of article 98 when it establishes "when, for reasons attributable to the services, tax superior to that due has been charged, official review proceeds in accordance with article 78 of the general tax act".

In the situation in question, in which it is to be considered proven that it was the Claimant that bore the VAT wrongfully charged, there is no place for the requirement made in article 78, no. 5, of the VAT Code, which establishes that, when the "tax suffer correction for less, regularization in favor of the taxable person can only be effected when this has in its possession proof that the purchaser was made aware of the correction or that was reimbursed of the tax, without which the respective deduction is considered undue".

In truth, the norms on the correction of invoice inaccuracy apply in cases in which the corrections are effected by the taxable person itself, which has not occurred.

But, if the taxable person does not effect the correction, favorable or unfavorable to its interests, there is no obstacle, in a Rule of Law, to the restoration of legality in favor or against the public treasury, through administrative or jurisdictional decision.

The rules on the correction of invoice inaccuracy, "the issuance of credit notes and new invoices (with the fields of taxable value and tax due correct in light of the new applicable rate), in accordance with articles 29, no. 1 and 7, 36, 44, 45 and 78 of the VAT Code", which the Tax Authority and Customs Authority refers to in its Response, apply in those situations in which the taxable person has the initiative of the correction, but not in cases in which the assessment of the existence of an irregular situation is recognized through administrative or jurisdictional means, situations in which the verification of illegality has as a corollary the reconstitution of the substantive tax situation that would exist if the illegal act had not been practiced [articles 100 of the LGT and 24, no. 1, letter b), of the RJAT], regardless of whether the purchaser of the goods or services was made aware of the existence of an illegality and whether new invoices or other documents have been issued or accounting correction effected, both in cases in which there was a charging of tax too little, as in cases in which it was charged in excess.

Thus, in a situation in which the taxable person is requested by the Tax Authority and Customs Authority to proceed with official review of VAT self-assessment acts, what is at issue, in light of article 98, no. 1, of the VAT Code, is to verify whether or not tax superior to that due has been charged for reasons attributable to the services: if it is verified that tax superior to that due has been charged and the wrongful charging was effected for reasons attributable to the services, "official review proceeds in accordance with article 78 of the general tax act", as the imperative terms of that no. 1 of article 98 of the VAT Code require, independently of the correction of invoices and accounting elements.

As for the rules on the deduction of VAT invoked by the Tax Authority and Customs Authority in its Response, they have no relevance to the consideration of the case at hand, as we are not in the presence of a claim for the exercise of deduction right by the Claimant.

This regime has evident reasonableness and justice, because, if an error that prejudiced the taxpayer is attributable to the Tax Administration, the State should bear the consequences of the error of its officials or agents and not the taxpayer, to whom it is not attributable, which is in harmony with the fundamental right to reparation for harm caused by actions or omissions practiced in the exercise of public functions and by reason of that exercise proclaimed by article 22 of the CRP.

In the matter in question, the evidence of the prevalence of these constitutional rights over the pecuniary interests of the State is highlighted by the fact that we are not even in the case of a legal fiction of attributability of errors to the Tax Administration, as was provided for in no. 2 of article 78 of the LGT (revoked by Law no. 7-A/2016, of 30 March), but rather in a situation in which it was the Tax Administration itself that, through administrative decisions, induced taxpayers to adopt the wrong behavior in the issuance of invoices.

Thus, it must be concluded, as results linearly from no. 1 of article 98 of the VAT Code, that the right to official review of VAT charging acts which had as an effect that, "for reasons attributable to the services, tax superior to that due has been charged" is not conditioned by the regularization of invoices provided for in article 78, no. 3, of the same Code. [7]

Thus, from a perspective that bears in mind the constitutional right to effective judicial protection, one cannot fail to conclude that, even if it were understood that the expression "inaccurate invoices" encompassed situations of error of legal classification, the non-use of the means provided for in article 78, nos. 3 to 6, would not remove either the duty of the Tax Administration to effect official review in a situation in which, by error attributable to it, VAT was charged in an amount superior to that due, nor the Claimant's right to contentious impugnation.

For this reason, this ground invoked by the Tax Authority and Customs Authority to reject the official review requests does not proceed.

3.3. Request for Preliminary Referral

Article 267 of the Treaty on the Functioning of the European Union establishes the competence of the Court of Justice of the European Union, regarding decisions on the validity and interpretation of acts adopted by the institutions, bodies or organizations of the Union, providing that "whenever a question of this nature is raised before any judicial body of a Member State, that body may, if it considers that a decision on that question is necessary to the judgment of the case, request the Court to pronounce itself on it".

As the Court of Justice of the European Union has come to understand, when the interpretation of European Union Law already results from previous decisions, it is not necessary to proceed with this consultation.

Thus, in the decision of 06-10-1982, Case Cilfit, handed down in case no. C-283/81, the Court of Justice of the European Union understood that preliminary referral must be made when the question is impertinent, when EU law is clear and when there is already a precedent in European jurisprudence, even when the questions to be considered are not strictly identical (doctrine of the clarified act), and when the correct application of European Union Law is so obvious that it leaves no room for any reasonable doubt as to the manner of resolving the question of EU law raised (doctrine of the clear act).

In the matter in question, it already results from the decisions of the Court of Justice of the European Union that were cited the regime applicable to the right to reimbursement of wrongfully paid tax in situations in which it is not demonstrated that this results in an unjust enrichment of the taxable person, namely in the matter of VAT.

On the other hand, as regards the rule of burden of proof to be applied regarding the verification or not of a situation of undue enrichment, it is not necessary to make a referral, because, in the case in question, the proof produced allows for the conclusion that the reimbursement of wrongfully paid VAT does not cause a situation of enrichment of the Claimant, which is inferred from the fact that it applies a single price to its clients for the same services, irrespective of whether the rate is the normal rate (applied to club members) or the reduced rate (applied to the general public).

For this reason, we are not in a situation of non liquet regarding this point, from which it follows that it is not necessary for the decision of the case to make the referral to the Court of Justice of the European Union.

Accordingly, there is no justification for effecting the preliminary referral to the Court of Justice of the European Union.

4. DECISION

In these terms, the Arbitrators agree in this Arbitral Tribunal in:

a) Judge the exception of incompetence of the Arbitral Tribunal to be unfounded;

b) Judge the request for arbitral determination to be well-founded;

c) Declare the partial illegality of the VAT self-assessment acts practiced by the Claimant in the period of September 2001 to April 2013, in the part in which VAT was charged at the normal rate instead of VAT at the reduced rate, in the global amount of € 771,212.06;

d) Declare the illegality of the decision of the order of 01-11-2013, which rejected the administrative appeal no. ...2013... .

5. VALUE OF THE PROCEEDINGS

In accordance with the provisions of article 315, no. 2, of the Code of Civil Procedure and 97-A, no. 1, letter a), of the General Tax Procedure Code and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at € 771,212.06.

Lisbon, 07-12-2016

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(João Taborda da Gama)

(António Carlos dos Santos)
(dissenting as per attached declaration)

DECLARATION OF DISSENTING VOTE

To indicate, even if succinctly, the reasons for my dissenting vote implies, in some way, returning to the foundations of VAT, as, in my understanding and subject to better opinion, they are put into question by the present impugnation. This is what I shall attempt to do below.

VAT is a tax on consumption, based on a European model, characterized by strong harmonizing intensity, which aims mainly to tax the final consumer and not intermediate consumption. This fact is inherent to the very logic of VAT operation, which is not intended to be a tax on profits, but on expenditure. For this reason, the VAT Consolidation Directive no. 2006/112/EC, of 28.11 (VAT Consolidation Directive) requires that on the invoice, the taxable value figure for each rate or exemption, the applicable VAT rate and the amount of VAT payable (article 226, nos. 8 to 10). As it requires delivery to the Tax Administration (TA) of the VAT mentioned on the invoice (article 203 of the VAT Consolidation Directive), be it due or undue. In turn, the VAT Code (VAT Code) specifies that individuals or legal entities that wrongfully mention VAT on an invoice are taxable persons subject to the tax (2/1/c VAT Code). VAT wrongfully charged on an invoice is thus mandatory to deliver.

The calculation underlying the charging of VAT thus presupposes a taxable value, an applicable aliquot ("normal" or "reduced"), as well, in the case of taxable persons (in the broad sense, encompassing what the VAT Consolidation Directive designates as tax debtor) the deduction of VAT borne upstream. The VAT Consolidation Directive provides for a general right of taxable persons to regularization of tax deduction (article 184), being the regime of this regularization delineated by Member States. What it does not provide for is a general right of regularization of tax charged in excess, only contemplating some specific situations (and only these) of regularization in its article 90, whose contents are the following: "In the event of cancellation, rescission, resolution, non-payment in full or in part or reduction in price after the operation has been effected, the taxable value is reduced accordingly, under the conditions laid down by the Member States". Note that the norm concerns the taxable value and not the tax rates. Fact which is understood because VAT is due by all persons who mention that tax on an invoice (203 VAT Consolidation Directive).[8]

This is so because, in the European model, VAT - it can never be said too often - has always been conceived as a general tax on consumption, apt to be applied up to the retail stage, inclusive. This tax, as it is characterized in no. 2 of article 1 of the VAT Consolidation Directive, in the wake of the Second VAT Directive of 1967, is exactly "proportional to the price of goods and services, whatever the number of transactions occurring in the process of production and distribution before the stage of taxation". The VAT charged does not thus depend on the size of the chain of operations: the amount to be collected by the State corresponds to the application of the applicable rate at the last operation (retail sale) to the value of the goods or services in question (neutrality). In order for this to be possible, VAT, unlike cascade multi-phase taxes, rests on the right to deduction: "In each operation, VAT, calculated on the price of the good or service at the rate applicable to the said good or service, is chargeable, with prior deduction of the amount of the tax that has directly affected the cost of the various components of the price".

In other words: VAT is not, nor is it intended to be, a direct tax on companies, it is not, in the European model, a tax on profits. It is an indirect tax because it is integrated in the price of goods and services and, for this reason, in accordance with the national accounting criterion, is deducted from national product for the purpose of ascertaining national income. It is also an indirect tax because, as a general consumption tax, VAT is subject to pass-on in the price of goods and services supplied to the final purchaser of these. Pass-on which is not a merely economic phenomenon (as, for example, occurs with Corporate Income Tax), but a legal phenomenon desired by the community legislator itself. In summary: pass-on is a matter of law and not of fact, inherent to the very logic of VAT as a general consumption tax which aims, in the final analysis, to tax the final consumer and not intermediate consumption and, much less, the profits of economic operators, VAT taxable persons.

There is indeed a formal obligation of VAT pass-on in almost all taxable operations. Among us, it is expressly enshrined in article 37, no. 1, of the VAT Code (VAT Code), in the following terms: "The amount of the tax charged must be added to the amount of the invoice, for purposes of its demand from the purchasers of the goods or recipients of the services". This obligation is in accordance with the provisions of article 226, no. 10 of the VAT Consolidation Directive, which requires that on invoices there appear "the amount of VAT payable, except in the case of application of a special regime for which the present directive excludes such mention" and also with the provisions of nos. 8 to 10 of article 226 of the same directive which requires that on the invoice there appear the taxable value for each rate or exemption, the applicable VAT rate and the amount of VAT payable. As it requires delivery to the Tax Administration (TA) of the VAT mentioned on the invoice (article 203 of the VAT Consolidation Directive), be it due or undue. Fact which is an object of specification by the VAT Code when it provides that individuals or legal entities that wrongfully mention VAT on an invoice are taxable persons subject to the tax (2/1/c VAT Code). VAT wrongfully charged on an invoice, for whatever reason (including of course the application of a higher rate than due), is thus mandatory to deliver. It is understood that it should be so, as VAT is an indirect tax whose vocation is to be passed on to the final consumer.[9]

From this it can, from now on, be concluded that the charging effected by the Applicant in the invoice and the monthly statement filed with the TA (to which article 29, no. 1, letter c) of the VAT Code refers), are not subject to illegality, the same occurring with the collection of tax operated by the TA. On the contrary: its demand is inherent to the nature and to the very logic of operation of the tax itself. This position was, moreover, well expressed in the arbitral decision handed down within case no. 63/2015 of the CAAD (relating to errors in invoicing), to whose grounds reference is made,[10] and in the decision of the TCA-South, of 04.07.2000, where it is expressly stated that "in the event of tax mentioned in the invoice of an amount higher than that due, while not rectified, the same is due, and it is incumbent on the Tax Administration to charge it additionally, in the event that the taxable person does not do so".

Sérgio Vasques synthesizes well the reasons for this understanding: "Pass-on constitutes an essential mechanism for the proper management of indirect taxes and for a neutral and equitable distribution of the burdens that these contain. Indeed, the typical function of indirect taxes is in burdening the buyer, and not the seller, as in a transaction it is the buyer's spending that reveals taxpaying capacity".[11] Indeed - adds the same author (ibidem) - "the modus operandi of indirect taxes rests on a judgment of probability regarding pass-on, in which the legislator not only admits but intends and presumes that the burden of the tax be transferred by the seller to the buyer". Presumption this with effects not only in the case of charging, but also in the case of deduction and exemptions from tax which, the same author appropriately emphasizes, "only make sense when it is presumed that the burden of the tax is passed on by the seller to the buyer" (op. cit, p. 386, n. 15). The CJEU has, moreover, assumed the legality of pass-on by affirming in various of its decisions that VAT is constructed so that "the final burden of the tax be, in the end, borne by the consumer" (Ac. Banca Popolare di Cremona, C-475/03, of 03.10.2006, in particular nos. 28 and 32 to 35).

The legal (or statutory) pass-on is not to be confused with the economic pass-on of the tax. Strictly speaking, this (or its absence) is a matter of fact: it depends, at the micro level, on the business strategies, including marketing, of economic agents in search of the greatest possible profit and, at the macro level, on the elasticity of demand. There exists in EU and national law a formal obligation of pass-on that aspires to become a material obligation of pass-on, so as to guarantee that it is the purchasers of goods and recipients of services (that is, those to whom the tax is passed on who may or may not be VAT taxable persons) that bear the value of the tax (Ac. of 24.10.1996 of the CJEU, proc. C-371/94 Elida Gibbs). The mechanism provided for this is the requirement of VAT mentioned (albeit wrongfully) on the invoice, without which, moreover, the taxable person (in practice an intermediary in the collection of the tax) will not be able to demand from the person to whom the tax is passed the amount of the tax charged.[12] This mechanism aims to ensure that VAT is, in fact, a tax on consumption and not on income, namely a tax on profits. For this reason, it is repeated, if a natural or legal person wrongfully mentions VAT on an invoice, such fact automatically constitutes it as a taxable person subject to tax (article 2, no. 1, letter c)), with the consequence arising therefrom: it must deliver to the State the VAT charged, even if that VAT is undue, perhaps non-existent. [13]

It is true that the (formal) pass-on in the case of VAT, while having a legal nature, may in practice not occur, due, as was said previously, to market conditions or to sales and marketing strategies of economic operators which may, depending on the case, be forced or prefer to bear the tax themselves without passing it on to the consumer. If this be a final consumer, without right to deduction, everything will, for the Administration, occur as if the latter bore it. If it is the intermediate consumption of a taxable person, this maintains, in principle, the right to deduction, even not bearing the burden of the tax. The State (and the European Union, given that VAT serves as the basis of calculation for its own resource) is satisfied, in this case, with the fact that the tax enters the coffers of the treasury, irrespective of who actually bears the burden. There does not exist, however, in this mechanism, any enrichment of the State at the expense of others. There exists rather, inherent to the phenomenon of pass-on, a legal presumption that pass-on was effected.[14] This means that the burden of proof of non-pass-on rests on the taxable person, moreover, the one who is in the best position to know its business.

There may, thus, occur the dissociation between legal pass-on and economic pass-on[15], this dissociation may result, for example, from contracts (formal or informal) between the parties. But this fact does not alter the nature of the tax. VAT is always, in the legal model of the EU, a tax on consumption (even if for such it must resort to fictions, or rather, presumptions, moreover, common in any branch of law), and not, as the Applicant claims, a tax on profits. It is a tax on consumption and this has legal consequences. One of them is the disregard, by tax law, of the contractual arrangements of the parties involved (in most cases, mere adhesion contracts) that intend to alter the nature and the logic of operation of VAT. This is not within the disposal of the parties, just as it is not altering the essential elements of the tax legal relationship which is, by definition, an obligation ex lege and not a private obligation, or, equally, obliging the Administration to accept the qualification of the legal transactions effected by the parties, principles received in the LGT which are logical corollaries of the indisposability of the tax credit. Neither must the State bear the risk that the Applicant does not wish to run of seeing its clientele moved away by having to alter the price of a service contracted at a constant annual price, even if circumstances were verified later that would justify the alteration of the contractual terms (for example, change in law as to applicable rates). As if private interest were to be superimposed on public interest, the contract on the law and the construction of the legal relationship by the parties on the nature of the very tax itself.

In any case, it should be emphasized that this is not even what would occur in the present case, as contrary to what the Applicant affirms, the risk runs at the account of the person to whom the tax is passed on, who benefits in no way from the lowering of the tax rate. Indeed, it is enough to recall that VAT began to be charged by the Applicant at the normal rate and, consequently, this was the circumstance taken into consideration in the fixing of the constant price (costs of production + profit margin + VAT at the normal rate shown on the invoice). Only later (without resorting to the regularization mechanisms provided for in law) did the Applicant understand that it would charge VAT at the reduced rate (production costs + profit margin ...

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