Process: 171/2015-T

Date: October 3, 2015

Tax Type: IVA

Source: Original CAAD Decision

Summary

This arbitral case (Process 171/2015-T) before the CAAD involves a vocational training company challenging VAT assessments totaling €79,597.82 for 2011-2012. The central dispute concerns whether subsidies received under the POPH (Operational Programme for Human Potential) are subject to Portuguese VAT. The Tax Authority assessed additional VAT arguing the subsidies fall under Article 16(5)(c) of the VAT Code as grants relevant to determining taxable value. The Claimant contested this on multiple grounds: (1) the subsidies exclusively cover pre-approved, demonstrable costs rather than constituting payment for services, thus falling outside Article 1's VAT incidence scope; (2) the grants are calculated based on costs, not service volumes or revenues, distinguishing them from taxable supplies under Articles 3-4 of the VAT Code; (3) no economic value is added since transfers merely reimburse incurred expenses; (4) calculating VAT 'inclusive' of cost-covering subsidies violates the proportionality principle; (5) the activity serves public interest in vocational training without generating added economic value; (6) the Tax Authority's decision lacked material substantiation and proper consideration of arguments presented during the hearing phase; and (7) the assessments violated principles of material truth, legality, and justice by forcing payment of VAT on amounts not received as invoiced revenues. The case raises fundamental questions about the boundary between cost-reimbursement mechanisms and taxable economic transactions, particularly for publicly-funded social programs where the subsidy structure is designed to match eligible expenses rather than remunerate services at market value.

Full Decision

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Arbitrator President), Tomás Castro Tavares and Emanuel Augusto Vidal Lima, designated by the Deontological Council of the Centre for Administrative Arbitration to form an Arbitral Tribunal, hereby decide as follows:

I – REPORT

On 13 March 2015, A…, Lda., NIPC …, with tax domicile at Rua …, no. …, …, … Ovar, 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 RJAT), seeking the declaration of illegality of the following VAT assessment acts, relating to the financial years 2011 and 2012, in the total amount of € 79,597.82:

To substantiate its request, the Claimant alleges, in summary, that its respective framework, as well as the premises that contribute to it, lead to a defect in the assessments carried out, for the following reasons:

i. The Tax Authority justified the additional VAT assessments, providing formal substantiation, but left uncovered the inconsistency of the material substantiation, a defect that results in the illegality of the corrections ascertained and constitutes grounds for their annulment;

ii. Whilst not denying that the grant is determined with reference to the training activities to be carried out, it is false that the grant is attributed with reference to the volume of services provided, because what is calculated and itemised in the submitted projects are the costs and not the revenues, or their respective prices, so we are outside the scope of the tax's incidence, in accordance with the objective incidence provided in Article 1 of the VAT Code, because the grants received under POPH are intended solely and exclusively to cover demonstrably incurred costs, which materialises a mere imputation of results, from which follows the non-existence of added value on which VAT may be levied, inasmuch as this transfer does not fall under the concepts of transmission of goods or provision of services provided in Articles 3 and 4 of the VAT Code;

iii. There is no logical or legal basis for the Tax Authority to arrogate itself the right to calculate VAT "inclusive" of the grant which it knows is intended exclusively to meet the pre-approved costs, under penalty of violation, moreover, of the principle of proportionality;

iv. Considering the absence of legal provision for taxation, arising from the concrete characteristics of the operation, as it is undeniable that there is an absence of added economic value from the claimant's activity, in the context of the development of the project …/…/…, whose objective is of public interest in vocational training, given that it benefits not only the trainees, but also society which thus has the benefit of human resources better prepared to enter the labour market and thereby leverage the productivity of companies and the country;

v. The concrete argumentation used to lead to the conclusion that we are faced with tax facts subject to VAT, by virtue of the subsumption of the grants received under the concept of grants relevant to the determination of the taxable value of the operations, in accordance with Article 16, para. 5, letter c) of the VAT Code, lacks material substantiation, which results in erroneous qualification of those facts, causing illegality;

vi. The omission of legal formality arising from the violation of the right to a hearing, founded on the failure to adequately consider the arguments presented in the course of the right to a hearing;

vii. The violation of the principle of material truth, of the inquisitorial principle and of substantiation, inasmuch as the Tax Authority showed itself blind and indifferent to the real tax situation of the company, which always maintained a stance of cooperation, tax compliance and transparency, being satisfied with the fact that internal instructions exist, incompatible with the satisfaction of the Principle of Legality, Justice and Proportionality, so as to force the company to pay VAT which was clearly not received by way of amounts invoiced to third parties.

On 16-03-2015, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.

The Claimant did not proceed to appoint an arbitrator, so, pursuant to the provisions of letter a) of para. 2 of Article 6 and letter a) of para. 1 of Article 11 of the RJAT, the President of the Deontological Council of CAAD designated the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable period.

On 06-05-2015, the parties were notified of these designations and did not express any intention to refuse any of them.

In accordance with the provisions of letter c) of para. 1 of Article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 21-05-2015.

On 25-06-2015, the Respondent, duly notified for that purpose, presented its response defending itself solely through objection.

Given that there was no need for production of additional evidence, beyond the documentary evidence already incorporated in the proceedings, nor matters of exception on which the parties needed to make submissions, and that in arbitral proceedings the general procedural principles of procedural economy and prohibition of performance of useless acts apply pursuant to letters c) and e) of Article 16 of the RJAT, the holding of the meeting referred to in Article 18 of the RJAT was dispensed with.

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

A period of 30 days was set for the pronouncement of the final decision, following the submission of arguments by the Tax Authority.

The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with Articles 2, para. 1, letter a), 5 and 6, para. 1, of the RJAT.

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

The proceedings do not suffer from nullities.

Thus, there is no obstacle to the consideration of the merits of the case.

All having been considered, it behoves to pronounce

II. DECISION

A. FACTUAL MATTER

A.1. Facts Accepted as Proven

  1. The Claimant has as its corporate purpose "vocational training in the areas of management, economics, marketing, human resources, pedagogy, languages, finance, taxation, accounting, computing, law, commercial, communication, health and safety at work, quality and environment, maintenance and industrial production, transport and logistics and engineering; consultancy in the area of human resources and event management; provision of space for training, exercise of liberal profession or businesses; execution of photocopies, preparation of documents and other specialised administrative support activities".

  2. The Claimant has been accumulating, since 2007, vast experience in its sector of activity.

  3. Such experience results from maintaining a constant flow of activity, the renewed enrolment of trainees, and the maintenance of a stable staff of trainers.

  4. The Claimant is classified for VAT purposes under the normal regime of quarterly periodicity for the exercise of the main activity of "Vocational Training" (CAE 85591) and the secondary activity of "Other activities, Consultancy for Business and Management" (CAE 70220), since the beginning of activity, which occurred on 09-04-2007.

  5. The classification under the normal regime resulted from the Claimant's situation which, at that date, was not an entity recognised in the fields of vocational training and professional rehabilitation, and was not eligible for the exemption provided in letter 10) of Article 9 of the VAT Code, so all services provided in the area of vocational training and consultancy were subject to and not exempt from tax.

  6. In June 2008, the Claimant obtained accreditation from the Directorate General for Employment and Labour Relations (DGERT) as a training entity.

  7. Following the accreditation, services provided in the area of vocational training began to benefit from VAT exemption, in accordance with the aforementioned letter 10) of Article 9 of the VAT Code, but the Claimant continued to be classified under the normal VAT regime, calculating and deducting VAT according to that regime.

  8. On 17-11-2010, the Claimant submitted a declaration of changes in which it opted for waiver of the exemption regime.

  9. Between 2010 and 2013, the Claimant provided vocational training courses in execution of project no. …/…/…, obtaining financing from POPH (Operational Programme on Human Potential) in the form of reimbursement of expenses, the total amount of which amounted to €449,991.64.

  10. Applications for POPH financing were submitted by means of the submission of a detailed project of the number of training activities and trainees involved, as well as costs calculated and itemised by headings, namely charges relating to trainees, trainers, rents, leases, amortisation of equipment allocated to the project, general expenses (electricity, water) and direct expenses (trainee manuals, teaching materials).

  11. The approval of the project by POPH includes all information relating to the cost structure of the training, equally itemised by headings, as well as the amount requested by the beneficiary entity and the respective approved amount.

  12. The decision to approve project no. …/…/… contains the start and end dates of four training activities intended for fourteen trainees, and the granting of financing implies the full compliance with the project approved by the beneficiary entity, in addition to other accessory obligations intended to monitor the accounting and technical-pedagogical execution of the subsidised training activities.

  13. The trainees of the aforementioned training activities did not have to pay any consideration for the services received and received amounts connected with attendance of the training course ("allowances for food, transport and grants").

  14. By virtue of service order no. OI2014…, the Claimant was subject to an inspection action for the financial years 2011 and 2012, in the course of which corrections were proposed in the context of VAT and Corporate Income Tax;

  15. The Claimant was notified to exercise the right to a hearing regarding the inspection report draft.

  16. In accordance with the conclusions of the Inspection Report, VAT shortfall was ascertained in the amount of €45,510.26 for the financial year 2011 and in the amount of €34,087.56 for the financial year 2012, which gave rise to the issuance of additional assessments for the periods in question.

  17. In the years in question, a substantial part of the results obtained by the Claimant (60.44% in 2011 and 56.76% in 2012) was connected with the development of training activities related to POPH, arising from the execution of project no. …/…/… - Education and Training Courses for Young People.

  18. The costs that assume the greatest relevance in the pursuit of this activity are related to labour, by means of Supplies and External Services (FSE) and Personnel Costs, associated with expenses relating to the provision of spaces suitable for the development of the activities.

A.2. Facts Accepted as Not Proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Substantiation of Proven and Not Proven Factual Matter

Regarding the factual matter, the Tribunal does not have to pronounce on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and discriminate the proven matter from the not proven (see Article 123, para. 2, of the Tax and Procedural Code and Article 607, para. 3 of the Civil Procedure Code, applicable by virtue of Article 29, para. 1, letters a) and e), of the RJAT).

In this manner, the facts pertinent to the judgment of the case are chosen and selected based on their legal relevance, which is established in light of the various plausible solutions of the legal question(s) (see former Article 511, para. 1, of the Civil Procedure Code, corresponding to current Article 596, applicable by virtue of Article 29, para. 1, letter e), of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of Article 110/7 of the Tax and Procedural Code, the documentary evidence and the administrative proceedings attached to the record, the facts listed above were considered proven, with relevance to the decision.

B. ON THE LAW

The question that arises in this proceeding is whether the grants attributed by the Operational Programme on Human Potential to the Claimant in the years 2011 and 2012 are, or are not, subject to VAT, by virtue of the provisions of para. 5, letter c), of Article 16 of the VAT Code, in the applicable wording.

As relevant factual data for the consideration of the question in issue, we have the following:

  • The Claimant is classified for VAT purposes under the normal regime of quarterly periodicity for the exercise of the main activity of "Vocational Training" (CAE 85591) and the secondary activity of "Other activities, Consultancy for Business and Management" (CAE 70220), since the beginning of activity, which occurred on 09-04-2007;

  • On 17-11-2010, the Claimant submitted a declaration of changes in which it opted for waiver of the exemption regime;

  • Between 2010 and 2013, the Claimant provided vocational training courses in execution of project no. …/…/…, obtaining financing from POPH (Operational Programme on Human Potential) in the form of reimbursement of expenses, the total amount of which amounted to €449,991.64;

  • Applications for POPH financing were submitted by means of the submission of a detailed project of the number of training activities and trainees involved, as well as costs calculated and itemised by headings, namely charges relating to trainees, trainers, rents, leases, amortisation of equipment allocated to the project, general expenses (electricity, water) and direct expenses (trainee manuals, teaching materials);

  • The approval of the project by POPH includes all information relating to the cost structure of the training, equally itemised by headings, as well as the amount requested by the beneficiary entity and the respective approved amount;

  • The decision to approve project no. …/…/… contains the start and end dates of four training activities intended for fourteen trainees, and the granting of financing implies the full compliance with the project approved by the beneficiary entity, in addition to other accessory obligations intended to monitor the accounting and technical-pedagogical execution of the subsidised training activities;

  • The trainees of the aforementioned training activities did not have to pay any consideration for the services received and received amounts connected with attendance of the training course ("allowances for food, transport and grants").

The following is the wording of para. 5, letter c), of Article 16 of the VAT Code, in the applicable wording:

"The taxable value of supplies of goods and supplies of services subject to tax includes: (...)

c) Grants directly connected with the price of each operation, considering as such those that are established based on the number of units supplied or the volume of services provided and are fixed prior to the realisation of the operations."

Having examined the facts accepted as proven and the applicable norm, it is understood that it must be concluded that it is applicable to them.

In effect, what is ascertained is that the grants granted to the Claimant are directly connected with the price of each training activity, since:

  • they were established based on the volume of services provided; and

  • they were fixed prior to the realisation of the operations.

Regarding this latter circumstance, it is clear from the proceedings – and the Claimant itself recognises this (endeavouring, however, to reverse its meaning[1]) – that the grants were fixed, according to the POPH regime, prior to the realisation of the operations.

From this, it does not follow, to the contrary of what the Claimant seems to understand, that the grant, being fixed prior to the realisation of the operations, and entering, concomitantly, at that time, into the "accounts" of the Claimant, is an input. In effect, the grant granted integrates a downstream flow, inasmuch as its cause – that which justifies its attribution (as will be seen below) – is the production of the Claimant (the provision of training services). The grant in question will not be distinguished, thus, from a price fixed, and even paid, prior to the production of the good or service that it is intended to pay for. It will not be, evidently, the chronology of the attribution and/or payment of the grant that will matter for its qualification as an output, but rather its causal relationship with the product of the activity of the taxpayer; if the grant is attributed with the purpose of enabling the taxpayer to produce, it will be an input; if the grant is attributed as consideration or condition of goods or services which the taxpayer becomes obliged to produce or provide, it will, naturally, be an output.

Moving on to the first of the above-verified prerequisites of the norm in analysis, that is, to the circumstance that the grants in question were established based on the volume of services provided by the Claimant, corroborating that they were attributed as consideration of services which the latter became obliged to provide, it is verified that, in effect:

  • Applications for the financing in question involved the submission of a detailed project of the number of training activities and trainees involved;

  • The decision to approve the subsidised project contains the start and end dates of four training activities intended for fourteen trainees;

  • The granting of financing implies the full compliance with the project approved by the beneficiary entity, including the complete execution of the subsidised training activities.

This factual framework leaves no doubt, it is judged, as to the circumstance that the grants attributed to the Claimant, and in question in this proceeding, were as specific consideration of the concrete training activities, detailed in the project presented and approved, which amounts to saying that such grants were established based on the volume of services provided.

The Claimant itself does not deny that the attribution of the grant is determined with reference to the training activities to be carried out[2], denying only that the grant is attributed with reference to the volume of services provided, because, according to it, what is calculated and itemised in the projects presented are the costs and not the revenues, or their respective prices.

Now, with all due respect, the Claimant will incur, in this respect, some confusion of concepts, given that it does not result in any way from the applicable legal regime that in order for a grant to be attributed with reference to the volume of services provided, it must include revenues, noting, from the outset, that contrary to Corporate Income Tax, VAT does not bear on those.

Rather, the subject matter of the incidence of VAT, as is known, is constituted by the operations listed in Article 1, para. 1, of the VAT Code, where are included, for what is relevant here, "services provided in the national territory, on an onerous basis".

Now, and also contrary to what appears in the Initial Request of the Claimant, there is no doubt whatsoever that the services provided by the Claimant for vocational training, which are part of the training activities included in Project No. 044279/2010/13 of POPH, and subsidised by this, are:

§ services provided;

§ occurred in the national territory;

§ on an onerous basis.

Being, minimally, not controversial in this proceeding any of the first two points, the Claimant appears to contest the onerous nature of the services provided in question, essentially based on two arguments, which are:

§ the circumstance, moreover accepted as proven, that the users of the training activities do not pay any consideration for them; and

§ the amounts granted as grants are limited to covering the expenses arising from the aforementioned training activities.

Now, with all due respect, neither of the two arguments will be capable of removing the onerous nature of the service provided. In effect, as was written, for example, in the Decision of the Supreme Court of Justice of 18-10-2012, delivered in case 624/06.2TBPRG.P1.S1[3], "the onerous or gratuitous nature results from the objective function of the act itself, as this is, or is not, a source of two reciprocal patrimonial attributions, which are opposed like the pans of a balance", there being no doubt that the approval of the Claimant's POPH project, now in question, is a source, inter alia, of the obligation of the Claimant to provide the training activities, and of the corresponding obligation of the subsidising entity to pay the Claimant the guaranteed grant, thus evidencing, from the outset, the onerous nature of the training service provided in question.

In other words: the Claimant only provided the subsidised training services because the grants in question were attributed to it, these acting, thus, as a consideration (price) of the training services provided by the Claimant.

This conclusion is not impeded by the circumstance that such price is not paid by the beneficiary(ies), but by a third party (the subsidising entity), just as, for example, the coffee that a friend pays for another does not cease to be onerous, because it was not paid by the one who consumed it.

Neither does it, in the same manner, impede the conclusion drawn, the circumstance that the grants in question are intended exclusively for the coverage of expenses, linked to the allegation (doubtful and dangerous for the interests of the Claimant itself[4]), according to which the services provided for vocational training in question are characterised by the absence of added economic value, not aimed at obtaining any profit. In effect, and from the outset, as was referred already, neither is the subject matter of the incidence of VAT profit, nor does this (profit) identify with onerous nature. Thus, and by new example, a sale (e.g. due to clearance or liquidation) at cost price or, indeed, at a loss does not cease to be an operation carried out on an onerous basis, and, as such subject to VAT, and such subjection manifestly contends nothing with its nature as a Tax on Added Value[5], as such nature is assured by the proper mechanism of operation of such tax, namely the deduction mechanism, which assures its neutrality.

Hence the only way for the operations of provision of vocational training services in question to be exempt is that resulting from the exemption referred to in letter 10) of Article 9 of the VAT Code, from which, however, and as is proven, the Claimant waived, noting that currently (and with no knowledge of whether such occurred at the date of the projects in question in this proceeding, which is, however, irrelevant), the POPH electronic page itself[6] alerts that:

"The entities holding applications for financing for the development of vocational training activities subsidised by the ESF are covered by the final part of para. 11 of Article 9 of the VAT Code. Thus, as the activity is qualified as exempt, the grants associated with it are assimilated to consideration of exempt operation, and therefore without the right to deduction. This situation justifies the consideration of VAT borne as eligible expense for the ESF, in accordance with the Correction of Regulation (EC) No. 1081/2006 of the Commission, published in OJ L 166, on 28.06.2007. Contrary interpretation must be made for the entities holding applications for financing that have waived such exemption, in accordance with Article 12 of the VAT Code."[7].

In this manner, it will not be possible to conclude in any other way than the subjection of the subsidised operations to VAT, in accordance with Article 16, para. 5, of the VAT Code, and by the non-verification of any error in the material substantiation of the tax acts in dispute, with the consequent legality of the assessments that are the subject matter of this proceeding.

Not impeding the conclusion drawn are the allegations of the Claimant, according to which there will occur:

  • violation of the principle of proportionality;

  • omission of legal formality arising from the violation of the right to a hearing;

  • violation of the principle of material truth, of the inquisitorial principle and of substantiation.

Thus, and regarding the first of those allegations, which is substantiated on the circumstance that VAT is required of a grant which is intended exclusively to meet pre-approved costs, no violation of the principle of proportionality is perceived, and the allegation in question appears, from the outset, to result, with all due respect, from the mistaken perception that the tax required is levied on the grant, when, in reality, as follows, inter alia, from Article 16/5 of the VAT Code, the tax is due for the provision of training services, the grant being only a factor in the calculation relating to the determination of the taxable value of that service provision.

As to the second of the referred allegations, which is founded on the understanding that the Tax Authority did not proceed to adequately consider the arguments presented in the course of the right to a hearing, it is disagreed, once more, with the understanding of the Claimant. In effect, whilst there is no doubt that "It constitutes a 'deficit' of instruction (procedural defect) that results in an error vitiating the decision, not only the omission or neglect of legal procedures, but also the circumstance that the facts invoked and the means of proof presented by the interested party in the exercise of the right to a hearing are not duly weighed"[8], and that "The failure to consider the new factual or legal elements invoked by the interested parties will constitute a defect of form, due to deficiency of substantiation, capable of leading to annulment of the procedure"[9], the fact is that it is understood, in accordance with abundant and reiterated case law of our superior courts[10], that the duty of substantiation (whether judicial or administrative) implies the obligation to give a response to all the questions raised, but not to pronounce on all the arguments deployed, regarding each of the questions. Being this the case, it is judged that the illegality raised by the Claimant, now under consideration, is also to be rejected.

Finally, it is judged that the last of the listed allegations of the Claimant, relating to the violation of the principle of material truth, of the inquisitorial principle and of substantiation, is also to be rejected.

Such allegation, which is founded, in sum, on the understanding that the Tax Authority showed itself blind and indifferent to the real tax situation of the company, which always maintained a stance of cooperation, tax compliance and transparency, being satisfied with the fact that internal instructions exist, incompatible with the satisfaction of the Principle of Legality, Justice and Proportionality, so as to force the company to pay VAT which was clearly not received by way of amounts invoiced to third parties, lacks sustainability in the reality ascertained.

In effect, the assessments against which the Claimant rises are founded on the Law, namely on Article 16/5 of the VAT Code, interpreted by the Tax Authority in terms which, in the case, are judged to be correct. Such assessments are in conformity with the real tax situation of the company, which was shaped by its own choice to waive the right to the exemption arising from letter 10) of Article 9 of the VAT Code. Naturally, the stance of cooperation, generic tax compliance and transparency cannot – by lack of legal support – justify the exemption from payment of taxes which, in light of the law duly interpreted and applied – as is the case – are due. Also the circumstance of not having received the VAT to which the services provided by it are legally subject will not legitimate the Claimant to be exempted from its payment, such claim likewise lacking legal basis, including in the principles it invokes.

C. DECISION

In view of the above, this Arbitral Tribunal decides to declare the arbitral claim filed as wholly unfounded and, consequently, to absolve the Respondent thereof.

D. Value of the Proceedings

The value of the proceedings is fixed at €79,597.82, in accordance with Article 97-A, para. 1, a), of the Tax and Procedural Code, applicable by virtue of letters a) and b) of para. 1 of Article 29 of the RJAT and para. 2 of Article 3 of the Regulations of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is fixed at €2,448.00, in accordance with Table I of the Regulations of Costs in Tax Arbitration Proceedings, to be paid by the Claimant, since the claim was wholly unfounded, in accordance with Articles 12, para. 2, and 22, para. 4, both of the RJAT, and Article 4, para. 4, of the cited Regulations.

Let notice be given.

Lisbon

3 October 2015

The Arbitrator President

(José Pedro Carvalho - Rapporteur)

The Arbitrator Member

(Tomás Castro Tavares)

The Arbitrator Member

(Emanuel Augusto Vidal Lima)

[1] See Article 31 of the Initial Request.

[2] See Article 52 of the Initial Request.

[3] Available for consultation at www.dgsi.pt.

[4] Doubtful because the Claimant is not, in principle, a charitable organisation, but an entity having as its purpose the practice of commercial acts (see Article 1, para. 2 of the Commercial Societies Code), onerous by definition. Dangerous, because such, if true, would imply that, for example, the costs borne by the Claimant with these activities could not be deducted from its taxable profit, because they are not directed to the obtaining of revenues (see Article 23 of the Corporate Income Tax Code).

[5] To the contrary of what the Claimant alleges; see Article 62 of its Initial Request.

[6] http://www.poph.qren.pt/content.asp?startAt=2&categoryID=393&newsID=1152.

[7] Emphasis ours.

[8] Decision of the Administrative Supreme Court of 09-06-2010, delivered in case 0330/10, available at www.dgsi.pt.

[9] Jorge Lopes de Sousa, "CPPT – Annotated and Commented", Vol. I, Áreas Editora, 2006, p. 398.

[10] See, inter alia, Decision of the Administrative Supreme Court of 16-02-2006, delivered in case 0684/05, available at www.dgsi.pt.

Frequently Asked Questions

Automatically Created

Are subsidies received under the POPH program subject to IVA (VAT) in Portugal?
Under Portuguese VAT law, subsidies received under POPH are subject to VAT only if they constitute consideration for taxable supplies of services. The key distinction is whether the subsidy is directly linked to the price of specific services (making it part of taxable value under Article 16(5)(c) of the VAT Code) or merely reimburses demonstrable costs without constituting payment for services. Cost-covering subsidies that exclusively fund pre-approved eligible expenses, calculated based on costs rather than service volumes, may fall outside VAT incidence under Articles 1, 3, and 4 of the VAT Code if they don't represent added economic value from service provision.
Can the Portuguese Tax Authority (AT) calculate IVA 'from within' a subsidy that only covers approved costs?
The Portuguese Tax Authority's ability to calculate VAT 'from within' cost-covering subsidies is legally contentious and subject to challenge. The practice is disputed on grounds that: (1) it violates the principle of proportionality by taxing amounts exclusively designated for approved costs; (2) it contradicts the legal framework requiring VAT to apply only to consideration for taxable supplies; and (3) it creates an obligation to pay VAT on amounts not received as invoiced revenues. Taxpayers can challenge such calculations before CAAD arbitral tribunals arguing the Tax Authority exceeded its legal mandate when the subsidy structure demonstrates no link between grant amount and service pricing.
What is the difference between a cost-covering subsidy and a taxable supply of services under Portuguese VAT law?
The critical difference lies in the subsidy's purpose and calculation method. A cost-covering subsidy reimburses specific, pre-approved eligible expenses and is calculated based on demonstrable costs incurred, functioning as a mere imputation of results without creating added economic value. A taxable supply of services under Articles 3-4 of the Portuguese VAT Code involves provision of services for consideration, where payment is linked to the service volume or value provided. If the subsidy amount is determined by eligible cost categories rather than service pricing or volumes delivered, and exists solely to enable public-interest activities (like vocational training) without profit margins, it may not constitute taxable consideration under VAT incidence rules.
How does the principle of proportionality apply to IVA taxation of public training subsidies?
The proportionality principle applies as a constraint on Tax Authority powers when assessing VAT on public training subsidies. Calculating VAT 'inclusive' of subsidies designed exclusively to cover approved costs may violate proportionality by: (1) imposing tax obligations that exceed what's necessary to achieve VAT collection objectives; (2) creating disproportionate burdens on entities providing social-utility services; (3) forcing payment of VAT on amounts that represent cost reimbursement rather than economic gains; and (4) undermining public policy objectives by reducing funds available for training activities of public interest. Taxpayers can invoke this principle to argue that VAT assessment on cost-covering subsidies constitutes excessive intervention lacking logical or legal justification.
What are the legal grounds for challenging additional IVA assessments on subsidies before the CAAD arbitral tribunal?
Legal grounds for challenging additional IVA assessments on subsidies before CAAD include: (1) lack of material substantiation—arguing the Tax Authority failed to properly justify why subsidies constitute taxable consideration; (2) incorrect legal qualification—demonstrating subsidies don't meet Article 16(5)(c) criteria or Articles 3-4 definitions of taxable supplies; (3) violation of hearing rights—showing arguments weren't adequately considered; (4) breach of material truth and inquisitorial principles—proving the Authority ignored actual facts about subsidy structure; (5) violation of legality and proportionality principles—establishing assessments exceed legal authority or impose disproportionate burdens; and (6) demonstrating absence of added economic value—proving the activity generates no taxable value since subsidies merely reimburse costs for public-interest purposes.