CAAD 176/2018-T: VAT Exemption Waiver on Real Estate Operations and Right to Deduction under Article 12(4) CIVA

ARBITRAL DECISION

The arbitrators Dr. Alexandra Coelho Martins (arbitrator-president), Prof. Dr. Pedro Soares Martínez and Dr. Filipa Barros (arbitrator members), designated by the Deontological Council of the Administrative Arbitration Centre ("CAAD") to form the present Arbitral Tribunal, constituted on 18 June 2018, agree as follows:

Report

A..., Lda., taxpayer number..., with registered office at Rua..., n.º ... ..., ...-... Odivelas, hereinafter designated as "Applicant", presented a request for constitution of a Collective Arbitral Tribunal and for arbitral pronouncement, under articles 2 and 10, both of the Legal Regime for Arbitration in Tax Matters ("RJAT"), approved by Decree-Law no. 10/2011, of 20 January, and hereby files an application for annulment relating to the act of dismissal of the request for VAT refund for the period of December 2016 and, likewise, to the related VAT assessment act no. 2018..., in the amount of € 197,962.43 (one hundred and ninety-seven thousand nine hundred and sixty-two euros and forty-three cents), giving rise to an allegedly improper correction in the value of the carry-forward excess existing in its VAT current account.

The Applicant further requests the condemnation of the Tax Authority to restitution of that amount, plus payment of compensatory interest, in accordance with the terms provided for in articles 43 and 100 of the General Tax Law ("LGT") and article 61 of the Code of Tax Procedure and Process ("CPPT").

The Tax and Customs Authority ("AT") is the Respondent.

As a basis for the application for annulment, the Applicant alleges several vices, of both formal and substantive nature, which are hereinafter summarized.

From the formal perspective, the Applicant raises a defect of reasoning. It considers that the Tax Inspection Report ("RIT") does not clearly, sufficiently and consistently explain the factual and legal reasons underlying the VAT corrections made, in accordance with articles 268, no. 3 of the Constitution ("CRP") and 77, nos. 1 and 2 of the LGT. It further contends that the RIT does not contain the detail of the total corrected value, which includes VAT deducted in expenses incurred with a property that was not subject to correction in the RIT – the property of ... – whereby, with respect to this, the defect of reasoning is one of absolute lack.

Regarding substantive vices, the Applicant alleges error in the assumptions, on the understanding that the waiver of VAT exemption was exercised in compliance with legal requirements, having requested and obtained the corresponding certificates prior to the execution of the financial lease contracts for the properties of..., of ... and of..., as provided for in Decree-Law no. 21/2007, of 29 January[1] ("Waiver Scheme") and in article 12, no. 4 of the VAT Code, in transposition of article 137 of Council Directive 2006/112/CE, of 28 November 2006, OJ L 347 of 11 December 2006 ("VAT Directive").

According to the Applicant, the following requirements were, in particular, observed:

• Regarding the activity of the Applicant, whose corporate purpose encompasses the acquisition of property for sale or lease with a habitual character, having recorded, in the years 2015 and 2016, a deduction percentage of 95% and 100%, respectively (article 3, nos. 1 and 3 of the Waiver Scheme);

• Regarding the properties that are the subject of the financial lease contracts, which (i) concern the entirety of urban land (... and ...) or autonomous units thereof (...); and (ii) were intended for the exercise of economic activities taxable under VAT, through the transfer of their operation for warehousing and logistics activities.

It alleges that the transfer of operation of the three properties was made to a properly identified company that develops transport and logistics activities, whereby it is to be ruled out that there was no tenant. It further notes that it would not even be necessary, contrary to what the AT claims, to have a specific tenant. The intention to use the property in a taxable activity would suffice. Some contracts were not reported to the AT, because they do not constitute lease or sublease contracts, despite being denominated as "sublet" according to the financial lessor's model. Thus, they do not fall within the disclosure obligation provided for in article 60 of the Stamp Duty Code, the non-compliance with which, if it existed, would not in any case have any implications for VAT.

Since the properties are equipped for the exercise of the activities (warehousing and logistics) pursued by the transferee entity, the operation of transfer in question extends beyond the concept of "lease of immovable property" and its corresponding VAT exemption provided for in article 135, no. 1, letter l) of the VAT Directive and article 9, no. 29 of the VAT Code, and is therefore automatically subject to tax, without the need for prior waiver of exemption.

As for the property of..., which constitutes a property in full ownership, the fact that in the request for issuance of the waiver certificate, by oversight, one of the units of independent use – the "ARM-A" (warehouse A) – was indicated as a "Fraction" does not entitle the AT to conclude that the waiver is invalid.

It is apparent from reading the lease contract that the operation covered the entirety of the property of ... and not one of its parts, the rent entered in the certificate request being that which in the contract corresponds to the lease of the entire property, whereby it is merely a formal discrepancy concerning the certificate that does not give rise to invalidity.

Furthermore, if only the entirety of a property and not one of its parts can be subject to waiver, the AT's information system should not have permitted the issuance of a waiver certificate concerning a unit of independent use. Thus, it was the deficiency of the AT's system that made it possible to exercise the waiver with respect to an independent part with the Applicant's typing error. If, in these circumstances, after issuing the certificate, the AT considers it invalid, this constitutes a situation of venire contra factum proprium violating the principle of cooperation (articles 59 of the LGT and 48 of the CPPT).

With respect specifically to the property of..., despite being classified on the date of lease to the Applicant as "land for construction," the actual reality was different, namely that of a completed property suitable for the pursuit of an economic activity (since 2007). The circumstance that, in this case, it was, incidentally, marked with the option "Transfer" instead of "Lease" in the certificate issuance request, cannot invalidate the waiver of exemption effected.

The Applicant concludes by seeking annulment of the act of dismissal of the request for VAT refund and consequent recognition of the VAT credit carried forward in the VAT declaration concerning the fourth quarter of 2016, with condemnation of the AT to restitution of the amount of € 197,962.43, plus compensatory interest, in accordance with articles 43 and 100 of the LGT and article 61 of the CPPT. It attached 23 (twenty-three) documents and requested witness testimony.

The request for constitution of the Arbitral Tribunal was accepted by the President of the CAAD and followed its normal procedure, in particular with notification to the AT.

In accordance with articles 5, no. 3, letter a), 6, no. 2, letter a) and 11, no. 1, letter a), all of the RJAT, the Deontological Council of the Administrative Arbitration Centre ("CAAD") designated as arbitrators of the Collective Arbitral Tribunal the signatories, who communicated acceptance of the appointment within the applicable time period, in accordance with the terms of article 6, no. 2, letter a) and article 11, no. 1, letter a), both of the RJAT.

The parties, duly notified of this designation, did not object in accordance with the combined terms of articles 11, no. 1, letters b) and c) and 8 of the RJAT and articles 6 and 7 of the CAAD Code of Ethics.

The Collective Arbitral Tribunal was constituted on 18 June 2018, as communicated by the President of the Deontological Council of the CAAD.

The Respondent presented its response and attached the administrative file ("PA"). It seeks dismissal and consequent absolution of the arbitral claim, on the grounds that the legal prerequisites for waiver of exemption in the financial lease operations in question are not fulfilled.

In the case of the property of..., the AT considers that waiver and notification of the lease of only a part, the independent unit "ARM-A" (warehouse A), took place. It contends that the condition required in articles 2, no. 1, letter c), 3, no. 1, letter a) and no. 2, and 9 of the Waiver Scheme, according to which the operation must concern the entirety of the property, has not been satisfied. The said notification cannot be regarded as a lapsus, because it does not have a manifest character and because constitutive effects of rights were attributed with respect to that fraction, which would imply inadmissible legal uncertainty.

Regarding the property of ... which, according to the lease contract, has as its object land for construction, no waiver of VAT exemption was requested in the operation of lease, nor was a certificate issued by the AT for this purpose, whereby a condition indispensable for the valid exercise of the option for the respective taxation (of the lease) under VAT has not been satisfied. The waiver certificate exhibited by the Applicant relates to a transfer operation which is not the one in issue here.

On the other hand, the Waiver Scheme only permits the option for taxation in lease operations of urban properties or autonomous units thereof and not of land for construction. With respect to these, waiver of exemption is only admitted when it concerns transfer of property.

The Respondent also contends that there is no defect of lack of reasoning, having given the Applicant knowledge of the process that led to the final decision.

Lastly, it requests the dispensing of witness testimony production.

Following an order determining the examination of witnesses, with a view to ascertaining the material truth, the meeting provided for in article 18 of the RJAT took place on 15 October 2018, at which the witnesses indicated by the Applicant, B... and C..., were heard.

The Tribunal notified the parties for successive written submissions and set 17 December 2018 as the deadline for pronouncement of the arbitral decision. Finally, the Applicant was warned to, by that date, proceed to payment of the subsequent arbitral fee, in accordance with the provisions of article 4, no. 3 of the Schedule of Costs in Tax Arbitration Proceedings and notify CAAD of the payment.

The Applicant presented its written submissions, maintaining, in essence, the arguments contained in the request for arbitral pronouncement, which it considers reinforced by the evidence produced, while the Respondent opted not to do so.

Preliminary Ruling

The Tribunal was regularly constituted and is competent ratione materiae, given the configuration of the object of the case (cf. articles 2, no. 1, letter a) and 5 of the RJAT).

The request for arbitral pronouncement is timely, having been presented within the time period provided for in letter a), no. 1, of article 10 of the RJAT.

The parties possess legal personality and capacity, have standing and are regularly represented (cf. articles 4 and 10, no. 2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).

The case does not suffer from nullities, no objections having been raised.

Reasoning

Matter of Fact

With relevance to the decision, the following proven facts are important to consider:

A. A..., Lda., herein Applicant, is a company that was incorporated on 10 November 2015 and has as its corporate purpose the purchase, sale and lease of property, warehousing services, provision of consulting services, logistics and real estate brokerage, as well as provision of related services (CAE 68100) – cf. Tax Inspection Report ("RIT") attached as document 4 to the request for arbitral pronouncement ("ppa") and contained in the PA.

B. The Applicant is registered in the VAT register under the normal monthly periodicity regime, provided for in article 41, no. 1, letter a) of the VAT Code – cf. RIT and document 20 attached to the ppa.

C. On 5 February 2016, the Applicant concluded with C..., S.A. (as lessor and hereinafter designated as "Bank") the contract for assignment of contractual position and amendment to the financial lease contract for real property no..., hereinafter referred to as "Contract of...", through which the former [the Applicant] occupied the contractual position of lessee in the financial lease contract originally concluded, on 26 October 2000, between the Bank and another company – cf. documents 7 and 12 attached to the ppa and PA.

D. This contract for assignment of contractual position identifies as the object of the financial lease contract lot no. 1, originating from a collection of 8 rural and urban properties (in the latter case, land for construction), located in..., in the..., parish of..., municipality of..., with a total area of 8,780.12m2, following the Authorization for Division contained in the Division Permit no. .../2006, approved by the resolutions of the City Council of ... dated 12 July 2005 and 22 November 2005, registered in the urban property register of the union of parishes of ... and ... under article ... – cf. documents 7 and 12 attached to the ppa and PA.

E. A waiver certificate relating to exemption was requested by the lessor and issued by the Tax Office of Porto..., on 6 January 2016, regarding the property of ... under the denomination of "Certificate of Waiver of VAT Exemption in Transfer of Immovable Property" which certifies that the Bank "manifested the intention, under nos. 5 and 6 of article 12 of the VAT Code, to waive the exemption from value added tax provided for in item 30) of article 9 of the VAT Code, declaring that it meets the conditions established for this purpose in the mentioned provisions of article 12 of the VAT Code and in the Regime for waiver of VAT exemption in operations relating to immovable property, approved by Decree-Law no. 21/2007, of 29 January, with reference to:

Property Identification

Parish: ...– ...

Article: ...

Identification of Acquirer

Name: A... LDA NIF: ...

Address: RUA..., ... ...-... ODIVELAS

Other data

Value of Transfer: 2,506.41€

[…]"

– cf. documents 7 and 15 attached to the ppa and PA.

F. Clause Ten of the Contract of..., under the heading "Waiver of VAT Exemption," states that the Applicant intends to opt for taxation of the contract under VAT and that it meets all the legal conditions for this purpose. No. 6 of this Clause Ten further mentions that "attached hereto is a Certificate issued on 06 January 2016, by the Tax Office Porto–..., evidencing that the Lessor waived the exemption from Value Added Tax – VAT, in accordance with nos. 4 and 6 of art. 12 of the Value Added Tax Code." – cf. document 7 attached to the ppa and PA.

G. At the date when the Applicant assumed the position of financial lessee in the Contract of ... (5 February 2016), the municipal procedure for obtaining a permit for use of a construction implanted on Lot no.... had not been initiated, nor had the registration of any urban property been effected in the registration of Lot no. 1 at the Property Register Office, nor in the corresponding property register, the property being classified and described as land for construction (lot) in the Property Register and in the cadastral register of the Tax Authority – cf. documents 7 and 14 attached to the ppa and PA.

H. On 5 February 2016, the Applicant concluded with the Bank (as lessor) the contract for assignment of contractual position and amendment to the financial lease contract for real property no..., hereinafter referred to as "Contract of...", through which the former [the Applicant] occupied the contractual position of lessee in the financial lease contract originally concluded, on 10 September 2002, between the Bank and another company. Pursuant to the contract for assignment of contractual position, the leased property concerns the autonomous fraction designated by the letter A, corresponding to a warehouse intended for industry with 3 areas and entrance at no..., described in the ... Property Register Office of ... under no. ... – ..., and registered in the urban property register of the parish of..., under article..., with Certificate of Use no..., issued on 12 July 2002, by the City Council of ... – cf. document 8 attached to the ppa.

I. A waiver certificate relating to exemption was requested by the lessor and issued by the Tax Office of Porto..., on 6 January 2016, regarding the property of ... under the denomination of "Certificate of Waiver of VAT Exemption in Transfer of Immovable Property," which certifies that the Bank "manifested the intention, under nos. 5 and 6 of article 12 of the VAT Code, to waive the exemption from value added tax provided for in item 30) of article 9 of the VAT Code, declaring that it meets the conditions established for this purpose in the mentioned provisions of article 12 of the VAT Code and in the Regime for waiver of VAT exemption in operations relating to immovable property, approved by Decree-Law no. 21/2007, of 29 January, with reference to:

Property Identification

Parish: ...– ...

Article: ...

Identification of Lessee

Name: A... LDA NIF: ...

Address: RUA..., ... ...-... ODIVELAS

Other data

Value of Transfer: 3,390.06€

[…]"

– cf. document 8 attached to the ppa.

J. Clause Ten of the Contract..., under the heading "Waiver of VAT Exemption," states that the Applicant intends to opt for taxation of the contract under VAT and that it meets all the legal conditions for this purpose. No. 6 of this clause further mentions that "attached hereto is a Certificate issued on 06 January 2016, by the Tax Office Porto–..., evidencing that the Lessor waived the exemption from Value Added Tax – VAT, in accordance with nos. 4 and 6 of art. 12 of the Value Added Tax Code." – cf. document 8 attached to the ppa.

K. On 1 March 2016, the Applicant concluded with the company E..., Lda., which is engaged in warehousing and logistics activities, a contract denominated as "Sublease," the object of which is, according to clause one, the property of the Contract of..., with the counterpart being payment of a monthly rent in the amount of € 7,500.00 – cf. documents 16 and 13 attached to the ppa.

L. Following an initiative developed by the Applicant with the municipal authorities after the conclusion of the Contract of..., the Certificate of Use no.../2016 was issued on 19 October 2016, by the Municipality of..., approved by an order of 6 September 2016, which authorizes the use for warehouse of the urban property of the parish of ... registered in the register under article..., which constitutes the object of that contract, which corresponds to the Building Permit no..., issued on 16 July 2008, in favor of the previous lessee – cf. document 14 attached to the ppa.

M. On 29 December 2016, the Applicant (in its capacity as lessee) concluded with the Bank the financial lease contract for real property no..., hereinafter referred to as "Contract of...", through which it leased, with an option to purchase, the urban property in the regime of full ownership, intended for warehouses and industrial activity, situated at Place of..., parish of..., municipality of..., described in the ... Property Register Office of ... under the number ... of that parish and registered in the urban property register under article ... of the union of parishes of ... and..., with the certificate of use issued by the City Council of ... under no. .../2003, intended for industry – cf. documents 6, 9 and 10 attached to the ppa and PA.

N. The urban property that is the object of the Contract of ... is composed of 8 units with independent use, identified in the property register corresponding to article no.... in the following manner:

• ARM-A, Allocation; warehouses and industrial activity; Millage 203.3554

• ARM-B, Allocation; warehouses and industrial activity; Millage 203.3554

• ARM-C, Allocation; warehouses and industrial activity; Millage 203.3554

• ARM-D, Allocation; warehouses and industrial activity; Millage 203.3554

• ESC.A, Allocation; Services; Millage 44.1026

• ESC.B, Allocation; Services; Millage 49.1866

• ESC.C, Allocation; Services; Millage 49.1866

• ESC.D, Allocation; Services; Millage 44.1026

– cf. document 9 attached to the ppa and PA.

O. The Contract of ... was concluded for a period of 7 years, the first rent being in the amount of € 875,000.00, plus VAT at the applicable legal rate, and the subsequent monthly rents of € 9,403.10, also plus VAT – cf. document 6 attached to the ppa and PA.

P. The certificate of waiver of exemption requested by the lessor with reference to the Contract of ... was issued by the Tax Office of Porto..., on 28 December 2016, under the denomination of "Certificate of Waiver of VAT Exemption in Lease of Immovable Property" and certifies that the Bank "manifested the intention, under nos. 4 and 6 of article 12 of the VAT Code, to waive the exemption from value added tax provided for in item 29) of article 9 of the VAT Code, declaring that it meets the conditions established for this purpose in the mentioned provisions of article 12 of the VAT Code and in the Regime for waiver of VAT exemption in operations relating to immovable property, approved by Decree-Law no. 21/2007, of 29 January, with reference to:

Property Identification

Parish: ...– ... and ...

Article: ... Fraction: ARM-A

Identification of Lessee

Name: A... LDA NIF: ...

Address: RUA..., ... ...-... ODIVELAS

Other data

Monthly Rent Value: 9,403.10€

[…]"

– cf. documents 6 and 11 attached to the ppa and PA.

Q. According to clause 14 of the particular conditions, under the heading "Waiver of VAT Exemption," "a Certificate issued on 28 December 2016, by the Tax Office Porto–..., evidencing that the Lessor waived the exemption from Value Added Tax – VAT, in accordance with nos. 4 and 6 of art. 12 of the Code [...]" was attached to the Contract of ... – cf. document 6 attached to the ppa and PA.

R. The AT's computer system, when filling out the electronic form for requests for VAT exemption waivers relating to properties in full ownership, composed of units with independent use, presents a field to indicate the "fraction," and in the specific case of the Contract..., the mention "ARM-A" (warehouse A) was entered, by an employee of the lessor, to fill the said field – cf. testimony of witness B....

S. On 2 January 2017, the Applicant concluded with the company E..., Lda. a contract denominated as "Sublease," the object of which is the urban property in full ownership of ... above identified, with the counterpart being payment of a monthly rent in the amount of € 15,000.00 – cf. document 6 attached to the ppa.

T. The contract of "Sublease" identified in the preceding letter was reported by the Applicant to the AT, through Model 2 declaration of the Stamp Duty, with mention of article register no.... and to fraction ARM-A – cf. RIT.

U. Between March and December 2016, the Applicant accumulated a VAT credit of € 193,962.43 originating from expenses incurred with the financial lease contracts for real property, mainly from the first rent owed under the Contract of..., the VAT deducted from which amounted to € 201,250.00, according to the invoice of 30 December 2016, in accordance with the breakdown of the following table – cf. documents 17 and 18 attached to the ppa and PA:

V. To recover the deducted and credited VAT, the Applicant requested the respective refund (of € 193,962.43) in the declaration concerning the period (month) of December 2016 – cf. document 18 attached to the ppa and PA.

X. Following the request for VAT refund, an inspection action was initiated with respect to the Applicant, pursuant to Service Order no. OI2017..., of 3 July 2017, from the Finance Directorate of Lisbon – cf. RIT.

Z. The Applicant was notified, by Letter no..., of 27 November 2017, of the Draft Tax Inspection Report, with the proposal for total dismissal of the request for VAT refund for the period 201612T, in the amount of € 197,962.43, on the grounds of failure to meet the legal requirements for waiver of VAT exemption with respect to the Contracts of ... and of ... – cf. document 2 attached to the ppa and PA.

AA. The Applicant exercised the right of hearing on 15 December 2017, having attached various documents – cf. document 2 attached to the ppa and PA.

BB. Subsequently, on 27 December 2017, the Applicant was notified, by Letter no... from the Finance Directorate of Lisbon, of the Tax Inspection Report or RIT, which maintained the projected decision of complete dismissal of the refund request, in the amount of € 193,962.43, with an agreeing order by the Head of Division, in substitution, by sub-delegation of the Deputy Finance Director, of 20 December 2017, based on the grounds transcribed below:

"Following the analysis of the present refund, documents were requested on the basis of article 85 of the VAT Code, through letters and emails of 04/04/2017, 26/04/2017; 23/06/2017 and by telephone, namely, photocopy of analytical trial balances for periods 16.12t, Photocopy of cost documents, of higher amounts, relating to acquisition of items of tangible fixed assets and other goods and services, which conferred the right to deduction in accordance with arts. 19 and 20 of the VAT Code, the respective account statement, relating to operations entered in fields 24 of the D.P.'s filed.

From the analysis carried out of the VAT periodic declarations, elements of the IT System and documents sent by the taxpayer, it was verified that the taxpayer waived the exemption of the following properties:

1 – Real Property Financial Lease Contract no...; concerning article...: of the Municipality of...; Parish of ...; with the certificate of waiver of VAT exemption and the lease contract and the respective notification to the Tax Authority.

2 – Real Property Financial Lease Contract no...; Relating to article...: of the Municipality of...; Parish of...; with the certificate of waiver of VAT exemption. In this property (land for construction), according to information from the taxpayer, warehousing and logistics services are being provided in accordance with invoices without attachment.

3 – Real Property Financial Lease Contract no...; of the urban property, corresponding to Warehouses, described in the ... Property Register Office of..., under the number ..., and registered, in the urban property register under art. no..., of the Municipality of...; Parish of ... and ... ; with the certificate of waiver of VAT exemption. This property was leased from 01/01/2017; as per contract and the respective notification to the Tax Authority in attachment.

Analyzing the situations where we detected irregularity:

A – With respect to article...; of the Municipality of...; Parish of ... and ... the following is stated:

On 29 December 2016, the company concluded a financial lease contract for real property with Bank C..., and the lessor, through the certificate of waiver of VAT exemption, manifested the intention under nos. 4 and 5 of art. 12 of the VAT Code, to waive the exemption from value added tax provided for in item 29) of art. 9 of the VAT Code, of article no. ... fraction ARM A, as stated in the certificate of 28/12/2016 Code, Validation ...

In the urban property register, article no. ... is described as property in full ownership with floors or units of independent use, identifying as floor or unit with independent use the following:

ARM-A, Allocation; warehouse of industrial activity; Division 1; Millage 203.3554

ARM-B, Allocation; warehouse of industrial activity; Division 1; Millage 203.3554

ARM-C, Allocation; warehouse of industrial activity; Division 1; Millage 203.3554

ARM-D, Allocation; warehouse of industrial activity; Division 1; Millage 203.3554

Office-A, Allocation; Services; Division 1; Millage 44.1026

Office-B, Allocation; Services; Division 1; Millage 49.1866

Office-C, Allocation; Services; Division 1; Millage 49.1866

Office-D, Allocation; Services; Division 1; Millage 44.1026

Plot area: 10,000m2; Building footprint: 3400.m2; Gross private area: 3934.m2.

On 04/01/2017, the taxpayer notified the Tax Services in its area through Model 2 declaration, of Stamp Duty (Lease Contract Notifications), identifying the property to be leased as being article...; fraction ARM A and the lessee as the company E... Lda. NIPC...

This asset is "financed" through the item "Shareholders (Partners)

With respect to this property registered in matrix no... the taxpayer only waived and notified the lease of warehouse A, with no verification of compliance with the condition required in letter c) of no. 1 of art. 2, letter a) of no. 1 and no. 2 of art. 3 and art. 9 of the Regime for Waiver of VAT Exemption in Real Property Operations, approved by Decree-Law no. 21/2007, of 29/1, for the purposes of admissibility of the request for waiver of exemption, provided for in no. 4 of art. 12 of the VAT Code.

B – With respect to the property registered in the property matrix under article...: of the Municipality of ...; Parish of ...;

The taxpayer, through the certificate of waiver of VAT exemption, manifested the intention under nos. 4 and 5 of art. 12 of the VAT Code, to waive the exemption from value added tax provided for in item 29) of art. 9 of the VAT Code, in this property (land for construction, as per property register), according to information from the taxpayer, warehousing and logistics services from taxpayer E... Lda. NIPC... are being provided, in accordance with invoices in attachment.

stating that there is no contract nor the respective notification to the Tax Authority.

From the above, the waiver of exemption can only be effected in operations of lease of urban properties or autonomous units, and in transfer of urban properties or autonomous units or land for construction, by taxpayers who perform such operations in favor of other taxpayers who use the properties, in whole or in part, in activities that confer the right to deduction.

Given that the taxpayer had no known tenant and it being a necessary condition for waiving the exemption (opting for taxation) the existence of a tenant who uses the property, wholly or predominantly, in taxable activities and conferring the right to deduction, pursuant to no. 4 of art. 12 of the VAT Code, not knowing it, the necessary conditions for such waiver do not exist.

Given that the property is intended for lease, an activity which is exempt in accordance with item 29) of art. 9 of the VAT Code, which does not confer the right to deduction, this also prevents the possibility of there being a waiver of exemption in the lease, in accordance with no. 4 of art. 12 of the VAT Code.

Waiver of exemption with the objective of lease can only be carried out if, at the same time, one opts to waive exemption in the lease, the lessee, provided that the conditions for this are met and, obviously for this reason needs to have a known tenant.

It is important to note that the waiver of exemption, both in lease and in transfer, is carried out case by case and, to produce effects, the transferor or lessor must have in their possession the certificate of waiver for the transfer or for the lease, as appropriate, on the date of the deed of transfer or of the respective lease contract.

For the facts described above, there is no compliance with the condition required, in the waiver of VAT exemption, manifested in accordance with no. 4 of art. 12 of the VAT Code, to waive the exemption from value added tax provided for in item 29) of art. 9 of the VAT Code, for the property registered in the urban property matrix under article no. ... and the waiver of the property registered in the urban property matrix under article no. ...

The refund amount now requested, of 197,962.43 €, results from gradual accumulations of deducted tax, from period 16.03t to 16.12t, originating from the tax deducted in the financial lease contracts for real property (tangible fixed assets) and the sum total of tax borne by the taxpayer with respect to Other Goods and Services, mentioned above.

The deduction of the amounts mentioned above is not permitted, in accordance with the rules provided for in art. 19 and 20 of the VAT Code.

Violations Verified

[...]

Right of Hearing

Having been notified, by registered letter dated 27/11/2017, in accordance with Arts. 60 of the L.G.T., as well as of the R.C.P.I.T.A., the Taxpayer exercised its right of hearing, on 15/12/2017, having requested the revision of the content of the project of conclusions and proposed complete dismissal of the refund request, claiming that all legal requirements are met, relating to the waiver of IVA exemption, based on the following arguments

A) That in the case of article..., states that the facts invoked in the project of corrections of the report do not correspond to reality, claiming that:

–"From the said certificate of waiver of IVA exemption, the identification of the property in question is stated, by the indication of the article register:..., as well as the reference to fraction: ARM – A, when the intention was always to indicate the entirety of the fractions (ARM: A, B, C and D and ESC: A, B, C and D), but these are not fractions (art. 10)

– Moreover, the Lessor and Lessee intended to subject the financial lease contract for real property concluded on 29 December 2016 to VAT, so that such option for subjection to VAT can only encompass the entirety of the property in full ownership and never one of the parts/units, even if it has independent use within the property in question. (art. 12)

– Given the foregoing, only by absurdity could it be stated that the waiver of VAT exemption, in operations relating to immovable property, could be exercised individually for each of the autonomous parts/units of independent use of the property in question (in this case, the "ARM-A") – thus obtaining eight certificates for this purpose. (art. 22)

– In addition, the Applicant presented, on 12.07.2017, a request to the Tax Office of Porto..., requesting the production of effects for the entirety of article no...., and the said Office informed by order" (Doc.6). (art. 26)"

For the arguments referred to in the right of hearing presented by...s, Lda., that it intended to indicate the entirety of the fractions (ARM: A, B, C and D and ESC: A, B, C and D) and to have requested from the Tax Office of Porto..., the production of effects for the entirety of article no.... in the course of the inspection action and the request having been dismissed

We should state that indeed, the request for waiver of exemption in question, as the taxpayer itself confirms, does not concern the entirety of article..., but only the fraction "ARM-A".

This fact is so recognized by the taxpayer that it had the need to request the Tax Services Porto ... to produce effects for the entirety of the article.

Furthermore, its request to the Tax Services of Porto... to broaden the request for waiver to all fractions was dismissed.

This demonstrates that the certificate of VAT exemption waiver and the notification of the lease to the Tax Services was exercised for "ARM-A".

In this way, compliance with the condition required in letter c) of no. 1 of art. 2, letter a) of no. 1 and no. 2 of art. 3 and art. 9 of the Regime for Waiver of VAT Exemption in Real Property Operations, approved by Decree-Law no. 21/2007, of 29/1, for the purposes of admissibility of the request for waiver of exemption, provided for in no. 4 of art. 12 of the VAT Code, is not verified.

B) That in the case of article... states that the facts invoked in the project of corrections of the report do not correspond to reality, since:

Notwithstanding the fact that the property register refers to land for construction, the reality is quite different, given that this fact was known from the outset of the analysis of the refund request, based on the documents exhibited by the applicant, so this article... is only now, wrongly, being subject to attempted correction of the waiver of VAT exemption, because it is, in fact, an urban property and not land for construction (Doc. 10). (art. 34)

The contract in force between the parties involved, lessee (applicant) and sub-lessee (E..., Lda) is a lease contract concluded on 1 March 2016, on the same terms as the other contracts that form the basis of the tax credit to be recovered and which gave rise to the refund request in question (Doc. 11). (art. 36)

The taxpayer in this right of hearing attaches a sublease contract with E..., Lda, which had not been presented in the course of the inspection action.

With respect to this article register, the taxpayer attaches to the right of hearing the lease contract between A... and the Bank (attachment Doc. 10) to prove that it is, in fact, an urban property and not land for construction, thus confirming that it appears in the property register as land for construction

However, as stated in the excerpt of the urban property deed, the article register no...., in question here, (attachment 01), was only deactivated on 31/12/2016 and still as land for construction, the reason for such deactivation being related to the elimination of the article by passage of land for construction to building.

The date of effects is 31/12/2016, subsequent to the date of the period of the refund request.

It should also be noted that what is already established in the Project of Corrections is that the sublease contract in analysis has no legal basis in the provisions of letter a) of art. 2 of Dec. Law 21/2007, of 29 January, insofar as at the date of its execution (01/03/2006) it did not correspond to an urban property or an autonomous unit of urban property.

It should be noted that for the purposes of waiver of VAT exemption of land for construction, it must necessarily be a transfer, which is not the case.

Finally, in accordance with Normative Order no. 18-A/2010 of 01 July, for the purposes of verifying the legitimacy and correct determination of tax, the competent services must have knowledge of all accounting and tax elements of the taxpayer, necessary for that analysis, namely those referred to in no. 3 of the said decree.

It is stated that all elements referred to in the Correction Project and in this Tax Inspection Report were made available by the Taxpayer, and the taxpayer cannot invoke ignorance of the elements referred to.

It should also be noted that all arguments invoked in the Project were reported to the Taxpayer throughout the analysis of the refund request.

It was communicated to the taxpayer that after analysis and consideration of all elements, at the end, in accordance with the law, (art. 60 of L.G.T., and arts. 60 of R.C.P.I.T.A.), the taxpayer would be notified of our Draft Report.

Given what was stated and bringing no new elements that could alter the content of the project, it results in the understanding that complete dismissal of the present request for VAT refund, in the amount of 197,962.43 €, should be maintained" – cf. RIT.

CC. On 5 February 2018, the Applicant was notified of the VAT assessment statement no. 2018..., concerning period 201612T, which contains a correction to the value of the carry-forward excess (VAT credit) existing in the current account for VAT, in the total amount of € 197,962.43, giving rise to the elimination of the entirety of the VAT credit in favor of the taxpayer – cf. document 5 attached to the ppa and PA.

DD. In disagreement with the decision to dismiss the request for VAT refund and with the consequent elimination of the VAT credit to which it was entitled, the Applicant presented in the CAAD computer system, on 5 April 2018, the request for constitution of the Collective Arbitral Tribunal that gave rise to the present case.

MOTIVATION AND UNPROVEN FACTS

The facts pertinent to the judgment of the case were chosen and selected in accordance with their legal relevance, in light of the plausible solutions of the legal issues, in accordance with the combined application of articles 123, no. 2, of the CPPT, 596, no. 1 and 607, no. 3 of the Code of Civil Procedure ("CPC"), applicable by operation of article 29, no. 1, letters a) and e) of the RJAT.

With respect to the proven facts, the arbitrators' conviction was based on the positions assumed by the parties combined with critical analysis of the documentary evidence attached to the file.

In general, the testimony of the witnesses examined, B..., employee of the Bank, and C..., certified accountant of the Applicant, was not decisive, either because the matters of which they had direct knowledge were contained in documents, or because the reason for knowledge was merely indirect, as in the case of Dr. B... regarding the requests for waiver certificates that were requested by other Bank employees, having only directly proved, after the fact, the manner in which the electronic form for the request for waiver is submitted and the content of the fields that must be completed, or in the case of Dr. C..., as to the property of..., which the witness never visited, so they do not have direct knowledge of the condition in which it found itself at the date of contract execution.

Regarding the unproven facts, it was not demonstrated that the construction of the building of ... was completed in 2007 (31st), with the building permit (which is obtained before the start of construction) having been issued at a later date (16 July 2008). It was also not demonstrated the state of construction on the date of execution of the Contract of ... (33rd), which does not result from the photographs attached to the file whose date is unknown.

Similarly, it was not proven that the Contract of ... was subject to waiver of VAT exemption and that the certificate was obtained for the lease operation in question here (36th and 37th), since the waiver certificate mentions the option for taxation of a transfer operation and not of a lease operation (despite the value of the operation being that which corresponds to the rent of the lease contract); or that it was incidentally selected in the electronic form for the waiver request the option "transfer" instead of "lease" (38th).

It became clear, on the contrary, that the selection of the option "transfer" instead of "lease" was due to an attempt to obtain a waiver certificate when the conditions for doing so were not met, because the property was classified as land (plot) for construction – before the municipal, registry and tax authorities – so the Applicant would not have obtained any certificate of waiver of VAT exemption if it had identified the operation as a lease, while the legal tax status of the property was not changed to urban property, given that the Waiver Scheme does not permit the option for VAT taxation for lease operations (financial or otherwise) of land for construction, but it does permit it in the context of transfer.

With relevance to the decision, there are no other alleged facts that should be considered unproven.

On the Law

2.1. Delimitation of the Issues to be Decided

At issue is the need to evaluate and decide the alleged defect of lack of reasoning of the act dismissing the VAT refund and the material vices relating to the fulfillment of the legal prerequisites for waiver of VAT exemption provided for in the respective Code and in the Waiver Scheme, with respect to the financial lease contracts. In the event of full or partial success, it further falls to determine whether the Applicant has the right to compensatory interest.

2.2. Defect of Lack of Reasoning

According to the Applicant, the act dismissing the VAT refund lacks adequate reasoning and does not allow a reasonable person to understand the factual and legal reasons underlying its origin.

It is relevant in this regard to note that the duty to state reasons constitutes a guarantee for taxpayers and is transversal to all administrative activity, benefiting from constitutional protection, in accordance with the provisions of article 268, no. 3 of the Constitution of the Portuguese Republic ("CRP"), which provides that administrative acts "require express and accessible reasoning when they affect rights or legally protected interests."

This duty performs the primary function of allowing the recipient of the act to become aware of the reasons underlying the administrative decision, permitting control of its validity, through analysis of its respective prerequisites, and access to contentious guarantee. The new Code of Administrative Procedure densifies, in its extent and requirements, the duty to state reasons (articles 152 to 154) which, in tax matters, is specifically regulated by article 77 of the LGT, as follows:

"Article 77

Reasoning and Efficacy

1 - The decision of a proceeding is always reasoned by means of a brief statement of the factual and legal grounds that motivated it, the reasoning being able to consist of mere declaration of agreement with the grounds of earlier opinions, information or proposals, including those that comprise the report of the tax inspection.

2 - The reasoning of tax acts may be done summarily, and must always contain the applicable legal provisions, the qualification and quantification of the tax facts and the operations for determining the taxable matter and the tax. […]"

Furthermore, reference should be made to the provision of article 62, no. 3 of the RCPITA, which establishes that the Inspection Report must describe the facts that form the basis of the alteration of declared values, with mention and attachment of the means of proof and legal justification in support of the corrections effected.

Following the jurisprudence of the Supreme Administrative Court ("STA"), reasoning is a relative concept that varies depending on the type of legal act and aims to respond to the needs to clarify the taxpayer, permitting them to understand the reasons, of fact and law, that determined its performance and why a decision was made one way and not another (cf. Judgment of the STA, case no. 01114/05, of 2 February 2006).

Reasoning may be succinct and per relationem, provided that the function is guaranteed of making known the cognitive and evaluative process of the act. An act is sufficiently reasoned whenever a reasonable person, faced with it, can be apprised of the reasons supporting the decision made therein (cf. Judgment of the STA, case no. 42180, of 20 November 2002). And further that an act is properly reasoned when it contains, directly or by reference, a contextual indication of the motives of fact and law that permit its reasonable recipient to grasp the decision-making reasoning, the causes and the direction of the decision (cf. Judgment of the STA, case no. 46796, of 14 March 2001).

Examining the arbitral file, it is evident that even in the Draft stage, the Inspection Report already contained with clarity and sufficient detail the arguments, of fact and law, on which the AT based its proposal for correction of the VAT credit, making express reference to the applicable legal rules. So much so that the Applicant exercised the right of hearing, in which it explained the reasons for its disagreement and attached the documents it deemed pertinent.

The arguments invoked by the AT are the invalidity of the VAT exemption waiver certificates of the Contract of ... and the Contract of ... . In the first case, because the certificate does not concern an urban property or autonomous unit, but a part thereof (unit of independent use). In the second case, for the reason that the property constitutes land for construction, for which waiver is inadmissible (having been requested and issued a certificate for a transfer operation and not a lease operation), in addition to not having a known tenant and, consequently, not being devoted to a taxable activity.

The alleged deficiencies pointed out by the Applicant to the reasoning of the Tax Inspection Report are therefore not evident – insufficiency, obscurity, or incongruence.

In the arguments put forward in the ppa it became evident that the Applicant understood this reasoning, following the cognitive and evaluative process of the Report. It understood the facts and the technical framework advocated by the AT, understood its meaning and scope.

It is worth noting that the duty to state reasons, whose pretermission generates a vicious formal defect invalidating, is not extensible to matters that are not corrected (nor, likewise, to favorable acts) as occurs with the Contract of ... . The AT does not have to reason the "non-corrections," which is why it did not breach that duty, since it made no adjustment to the deductible VAT attributable to this contract, which is therefore not, consequently, in issue in the present arbitral proceedings, not forming part of its object.

In fact, on this point, the incongruence does not arise in the position of the AT, but in that of the Applicant, which claims that it is evident from the AT's position that it agreed with its characterization of the Contract of ... (therefore making no correction – 72nd), and then invokes the fact, untrue, that the corrected value (of € 197,962.43), object of the refund request, includes VAT deducted "in expenses incurred with a property that was not even subject to correction by the AT – the property of...".

First, if the corrected value of € 197,962.43 contained deductible VAT relating to the property of..., it could in no way be considered that no correction had been made to the Contract of ... and the combination of both allegations would be inept. However, the said value (€ 197,962.43) contains no VAT incurred in relation to the Contract of..., as is evident from analysis of its breakdown brought to the file by the Applicant itself.

The VAT incurred in the Contract of ... in the period in question was fully deducted by subtraction from the VAT charged on the rents of its "sublease," with nothing to recover by way of refund, which is what is at issue in the impugned tax act.

The deducted VAT whose refund was requested by the Applicant is that which it was unable to absorb from the VAT charged, and concerns the Contract of..., the Contract of ... and general activity. The Contract ... has purely and simply no deductible VAT that forms part of the tax credit whose refund was requested. The reference to the VAT of the "Property of ..." that appears in the breakdown of the tax credit in question is to the VAT charged (stated with a minus sign "–") which does not form part of the cause of action, which concerns solely the deductible VAT.

In these terms, it is reiterated that there is no correction by the AT that has as its object the Contract of ... or that has restricted the right to deduction of VAT incurred relating to this contract.

Furthermore, it should be noted that the entirety of the refund request (€ 197,962.43) was dismissed, so there is no doubt about the value of the correction or its provenance, the allegation concerning the lack of detail of the corrected VAT being unfounded, which the Applicant itself provides and which is indicative of its full comprehension.

A distinct question is whether the Applicant disagrees with the reasoning because it does not consider the premises for taxation retracted therein to be verified or demonstrated. In this case it is not a matter of evaluating the formal defect of lack of reasoning, but the substantive validity of the tax act, which is hereinafter evaluated.

For the reasons set forth above, the invocation of the defect of lack of reasoning raised by the Applicant is unsuccessful.

2.3. Material Vices

2.3.1. The Waiver of Exemption Scheme

The VAT Directive establishes the exemption regime without the right to deduction as the standard regime for lease operations of immovable property, including financial leases. Simultaneously, the European legislation provides for the possibility for Member States to grant their taxpayers the right to opt for taxation, in which case it is incumbent upon the States to determine the rules for exercise of the right of option, being able to mold and restrict it.

Article 137, no. 2 of the VAT Directive grants Member States broad discretionary power that permits them to determine the modalities of exercise of the right of option and even to suppress it (cf. Judgment of the CJEU, of 28 February 2018, case C-672/16 – Imofloresmira, p. 48 and jurisprudence cited therein). The margin granted to the state legislator as to the extent of the right of option thus depends on criteria of convenience and opportunity applied by the Member States. A distinct question, and not in issue, is that of the consequences of the "valid" exercise of that right.

In the same vein, the jurisprudence of the Court of Justice ("CJEU") provides that European law does not preclude a Member State that has exercised the option to grant its taxpayers the right to opt for taxation of lease of immovable property from making the application of the tax dependent upon prior authorization of the option, when the authorization procedure aims to verify that the legal conditions are met and is intended, in particular, to prevent cases of fraud or abuse (cf. Judgment of the CJEU, of 9 September 2004, Objekt Kircheberg, C-269/03) and, further, that legislative changes introduced within a national legal system, even with the objective of eliminating the right to waive VAT exemption on lease of property, do not violate the principles of neutrality and proportionality (cf. Judgment of the CJEU, of 3 December 1998, BelgoCodex, C-381/97). In the sense of conformity of the requirement for issuance of a certificate of waiver within the broad margin of maneuver available to the state legislator, the Judgment of the STA, case no. 486/09, of 25 November 2009, also pronounces itself.

The regime for waiver of VAT exemption in lease operations results from the provisions of articles 135, no. 1, letter l), 137, no. 1, letter d) and no. 2, and 168 of the VAT Directive, which the Portuguese legislator transposed to articles 9, no. 29 and 12, nos. 4 to 7 of the VAT Code, exercising the prerogative of granting to taxpayers of this tax the option for taxation in lease operations of immovable property, the terms and conditions of which it regulated autonomously in the Waiver Scheme[2].

In this context, article 9, 29) of the VAT Code provides that the following are exempt from the tax:

"29) The lease of immovable property. This exemption does not cover:

a) The provision of accommodation services effected within the framework of hotel activities or other activities with similar functions, including camping sites;

b) The lease of areas for collection or collective parking of vehicles;

c) The lease of machines and other items of fixed installation equipment, as well as any other lease of immovable property which results in the paid transfer of the operation of a commercial or industrial establishment;

d) The lease of safe-deposit boxes;

e) The lease of space for exhibitions or advertising;"

The option for taxation appearing in article 12:

"Article 12

Waiver of Exemption

1 – […]

4 - Taxpayers who lease urban properties or autonomous units thereof to other taxpayers, who use them, wholly or predominantly, in activities that confer the right to deduction, may waive the exemption provided for in no. 29) of article 9.

5 - Taxpayers who effect the transfer of the right to ownership of urban properties, autonomous units thereof or land for construction in favor of other taxpayers, who use them, wholly or predominantly, in activities that confer the right to deduction, may waive the exemption provided for in no. 30) of article 9.

6 - The terms and conditions for the waiver of exemption provided for in nos. 4 and 5 are established in special legislation.

7 - The right to deduction of the tax, in these cases, is subject to the rules contained in articles 19 et seq., except as provided for in special regulatory provisions."

From the analysis of the legal text it results that the national legislator made taxation of lease operations dependent upon: (i) the prior exercise of an express option by the lessor taxpayer, subject to additional confirmation by the lessee, and (ii) the compliance with various objective, subjective and formal requirements that serve the eminently preventative and anti-abusive purpose stated in the preamble of the Waiver Scheme.

With particular relevance to the situation at hand, the following are highlighted:

• The property subject to lease must constitute an urban property or an autonomous unit thereof, and cannot correspond to land for construction (cf. article 2, no. 1, letter a) of the Waiver Scheme).

Note that we are dealing with legally defined concepts – those of urban property and autonomous unit – which delimit the normative provision and fix its scope of application. Thus, a part (unit) of a property in full ownership, even if it displays all the characteristics from an urban planning perspective that would allow it to be qualified as an "autonomous unit," is not eligible for the option for VAT taxation, due to lack of conformity with the cited rule which specifically requires the legal concept of autonomous unit. To access this regime, "independent units" must be constituted under the horizontal property regime.

Similarly, the existence of constructions in progress on land cannot and should not be considered as if it concerned an urban property (built), ignoring the municipal licensing, registry and cadastral processes that are involved in its formal constitution, without which, moreover, it is not possible to carry out the transfer or lease operation (of the urban property) to which the waiver of VAT exemption is directed.

• The contract must have as its object the entirety of the immovable property.

• The property must be devoted to activities that confer the right to deduction of VAT borne in acquisitions; and the parties involved – lessor and lessee – must be VAT taxpayers who develop a real estate activity with a habitual character, or whose deduction level exceeds 80%.

• A request for a certificate must be submitted by the lessor to the Directorate-General of Taxation, electronically, in which it is essential, in addition to the identification of the parties and the property involved, the identification of the type of operation, that is, whether it is a transfer or a lease and the respective value.

The exercise of VAT exemption waiver without the respective constitutive conditions provided for in the Waiver Scheme being met, or without the lessor being in possession of a valid certificate for the specific operation (which, it should be noted, expires within six months from the date of its issuance if not used – cf. article 4, no. 5 of the Waiver Scheme) simply produces no tax-law effects.

2.3.2. Concrete Evaluation – regarding the Contract of ...

The Applicant seeks to have waived VAT exemption in a financial lease operation in which it is the lessee, relating to the Contract of..., presenting for this purpose a certificate of "Waiver of VAT Exemption in Transfer of Immovable Property." The certificate mentions reference to the legal provisions corresponding to transfer operations of immovable property, articles 9, 30) and 12, nos. 5 and 6 of the VAT Code, and contains no reference to the provisions concerning lease, namely articles 9, 29) and 12, no. 4, both of the VAT Code.

In these circumstances, the certificate in question does not concern a lease operation, so it does not appear to be capable of producing any effects regarding this.

With respect to the Applicant's allegation that the reference to "Transfer" was accidental, i.e., by error, when it intended to declare "Lease," not only was this not demonstrated, but, if it had been, it would not have achieved the result desired by the Applicant, namely the taxation under VAT of the Contract of (Lease) of....

This is because if a request for a certificate had been submitted for the waiver of exemption in the financial lease operation of the Contract of ... (and note that it was not), this could not have been issued, because the property in question did not meet, at that time, the legal conditions for this purpose, since from all perspectives – registry, cadastral and urban planning – it remained classified as land for construction and land for construction is not eligible for waiver of exemption in lease contracts; it is only in the case of transfer.

It appears that there was no accidental error in completing the VAT exemption waiver form, but that an attempt was made to circumvent the legal impossibility of waiver in the specific situation (because not all its prerequisites were met), obtaining issuance of a certificate for the operation in which it was admissible (but which was not the one in which it was used), and using it in another, regarding which the law did not permit its issuance, maintaining the appearance of compliance with the formal requirements that the law demands for the issuance of a waiver certificate so that the operation (of lease of immovable property, typically exempt) could be subject to VAT taxation. Such an outcome, in light of the law, must be rejected.

It was also not demonstrated that the factual reality differed from the classification of the property at the date of lease, due to lack of evidence of the existence of a fully completed property suitable for the pursuit of an economic activity.

Nor was any fact or impediment alleged that would justify, had the property been completed (not having been demonstrated that it was), the registry, cadastral and urban planning situation not having been regularized prior to the lease, and the initiatives to obtain a certificate of use with the Municipality of ... only occurred after execution of the Contract of..., this having been issued on 19 October 2016, 7 months after the lease to the Applicant (on 5 February) and 8 months after issuance of the request for certificate (on 6 January of the same year).

It is relevant to note that even in the circumstance that the property was completed, its urban planning, registry and cadastral classification as land for construction (plot) would always constitute a formal obstacle to obtaining the waiver certificate, which, for understandable reasons of control, must be based on the legal status of the property and not merely factual. In this matter, it is within the power of the Member States, and therefore the Portuguese legislator, to define the scope of the option for VAT taxation of "real estate" operations, provided that the parameters of the principle of proportionality are observed, which, in this context, do not appear to be disrespected.

The formal character of the prerequisites for exercise of VAT exemption waiver is confirmed by STA jurisprudence regarding the use of the expression "public deed," in the Judgment handed down in case no. 464/11, of 16 May 2012, within the context of earlier legislation, comparatively less demanding than the current Waiver Scheme. According to the STA, "it is the express reference to public deed for the case of transfer of property, which also shows that the legislator intended to link the exercise of the right to deduction to compliance with formal requirements of validity of the legal transactions referred to in the rule, «making relevant the legal form of the tax fact as required by private law, and which, being so for transfer acts, equal interpretation is required regarding the lease contracts in question, since the law makes exercise of the right to deduction dependent upon execution of the lease contract of immovable property and, from a civilian perspective, which is that used by the rule, the same would only be valid if executed by public deed.»"

It should be noted that there is no evidence, nor was it alleged in the file, of any difficulty or impediment that would condition or limit the obtaining from the competent authorities of the certificate of use of the urban property or its registration and cadastral inscription as urban property (built) before execution of the Contract of.... Thus