Process: 182/2016-T

Date: January 5, 2017

Tax Type: IVA

Source: Original CAAD Decision

Summary

CAAD Decision 182/2016-T addresses VAT deduction rights when purchasing assets from an insolvency estate in Portugal. The taxpayer acquired vehicles and equipment from an insolvency administrator, deducting €65,803 VAT in October 2014 based on an invoice issued by the administrator. The Tax Authority challenged this deduction, arguing the invoice failed to meet Article 19(4) and Article 36(5) CIVA requirements, lacked the transferor's tax identification number, and that the taxpayer had no proof the insolvency estate had paid VAT to the State treasury at the time of deduction. The insolvency estate only paid the VAT eleven months later in September 2015. The taxpayer invoked CJEU case law principles that good faith purchasers should not lose deduction rights absent collusion or fraud, argued the insolvency administrator possessed adequate structure to issue valid invoices, and claimed the Tax Authority improperly imposed requirements beyond those in Circular 1/2010 by applying Circular 10/2015 retroactively. The taxpayer further contended that even if deduction was premature, only compensatory interest should apply since VAT was ultimately paid, not full denial of deduction rights. This case examines the tension between formal invoice requirements, proof of VAT payment obligations, EU law protection of good faith taxpayers, and the special status of insolvency administrators under Portuguese VAT law.

Full Decision

ARBITRATION DECISION

Claimant: A… S.A. – (hereinafter "Claimant")

Respondent: TAX AND CUSTOMS AUTHORITY (hereinafter "AT", "Tax Authority" and "Respondent")

1. Report

A…, S.A., with company identification number…, with registered office at Rua …, n.º…, lot…, …-… … …, hereinafter referred to as Claimant, submitted to the Administrative Arbitration Centre (CAAD) a request for arbitral ruling with a view to the annulment of the assessment of Value Added Tax (VAT), no. 2016…, concerning the period 1410, in the amount of € 33,996.24, and respective assessment of compensatory interest in the amount of € 1,378.47; VAT assessment no. 2016…, in the amount of € 8,348.06; assessment of default interest in the amount of € 450.88; VAT assessment no. 2016…, concerning period 1501, in the amount of € 16,962.46, assessment of compensatory and default interest with no. 2016…, in the amounts of € 102.23 and € 631.22, respectively; VAT assessment no. 2016…, concerning period 1503, in the amount of € 6,496.24 and assessment of default interest in the amount of € 234.88.

The Claimant bases its claim of illegality of the VAT assessment and the concomitant default and compensatory interest and the consequent annulment of these tax acts on the following arguments:

A) Non-subsumption of the facts to the provision in no. 4 of article 19 of the VAT Code (CIVA), arguing that the reasoning followed by the Tax Authority according to which the Insolvency Administrator does not have the business structure to exercise its activity and consequently to proceed with the sale of assets is erroneous, arguing instead that the insolvency administrator has all the means and structure for the performance of its functions, having issued an invoice or equivalent transfer document that complies with all legal requirements;

B) Violation of the right to deduction, as understood by the case law of the Court of Justice of the European Union (CJEU), to the extent that, in the present case, there is no evidence of collusion aimed at tax evasion, whereby the right to deduction cannot be dependent on the subsequent conduct of the transferor regarding the amount of tax paid as a result of the transaction carried out, whereby the application of no. 4 of article 19 of the VAT Code in cases of absence of collusion between acquirer and transferor violates the VAT Directive regarding the right to deduction, as understood by the CJEU case law;

C) Violation of no. 2 of article 68-A of the VAT Code, to the extent that the Tax Authority imposed, in its assessment for the deductibility of VAT, requirements not contained in the generic instruction in force (Circular no. 1/2010), requirements arising from the issuance of Circular no. 10/2015;

D) Even in the event of the existence of anticipation of the right to deduction of tax by the Claimant, only compensatory interest would be due and not the tax itself, since the VAT would always be deductible upon the payment of tax by the transferor entity;

For its part, the Tax Authority defended the total lack of merit of the claim, based on the absence of any illegality of the tax acts, arguing, in summary, that the Claimant could not deduct the tax relating to the transfer, sustaining that:

  • The Claimant did not have in its possession, at the time of the deduction of tax, proof of payment of VAT by the transferor entity;

  • The document that supported the accounting entry for the transfer of assets was not a legally sufficient document, nor was it issued in the form prescribed by no. 5 of article 36 of the VAT Code, and one cannot ignore that, in the case of a sale by judicial auction, VAT would have to be assessed in accordance with no. 5 of article 28 of the VAT Code, whereby it would have to ensure that the tax had been paid into the State treasury;

The arbitrators were appointed and nominated on 18.05.2016.

In accordance with the provision of article 11, no. 1, paragraph c) of the Rules of Tax Arbitration (RJAT), the collective arbitral tribunal was constituted on 03.06.2016.

Given the position of the parties and the non-occurrence of any of the legally established purposes, this arbitral tribunal agreed to dispense with the meeting referred to in article 18 of the RJAT and likewise the submission of arguments by the parties.

2. Procedural Matters

The collective arbitral tribunal is materially competent, in accordance with the provisions of articles 2, no. 1, paragraph a) of the Legal Regime of Arbitration in Tax Matters (RJAT).

The parties have procedural personality and capacity and have standing in accordance with article 4 and no. 2 of article 10 of the RJAT, and article 1 of Decree-Law no. 112-A/2011, of 22 March.

The proceedings do not suffer from any nullity, there are no exceptions that prevent the consideration of the merits of the case, the claim is timely, whereby the conditions are met for the pronouncement of an arbitration decision.

3. Matters of Fact

3.1. Proven Facts:

Having analysed the documentary evidence produced and the position of the parties, the following facts are considered proven and of interest for the decision of the case:

  1. The Claimant, in the fiscal period of 2014, was classified under the general regime of taxation in corporate income tax and, in terms of VAT, under the normal monthly periodicity regime.

  2. The Claimant is registered for tax purposes with the main activity of "Trade in trucks and derivatives; trade in used and new automobiles and derivatives, trade in scrap, import and export".

  3. The Claimant, in the course of its activity, acquired from the Insolvency Estate of B…, S.A. various assets seized by the insolvency administrator, namely vehicles, a forklift, equipment and other motor vehicle parts.

  4. This acquisition by the Claimant was documented by a sales document denominated "INVOICE No. 1", dated 09.10.2014, with the following description: "Purchase of assets seized according to attached list", with a price of € 286,100.00, plus VAT in the amount of € 65,803.00, totalling € 351,903.00 (see Annex 3 of the Inspection Report).

  5. The document referred to in the previous number does not contain the tax identification number (NIPC) of the issuing/transferor entity of the assets – Insolvency Estate of B…, S.A..

  6. The assets acquired by the Claimant were paid in three instalments of € 196,800.00, € 56,703.00 and € 98,400.00, on 28 and 30 July 2014 and on 9 October 2014, respectively.

  7. The Claimant proceeded with the deduction of VAT supported in the document identified in 4. With reference to the monthly period of October of 2014.

  8. The Insolvency Estate of B…, S.A., represented by the Insolvency Administrator, came to pay into the State treasury the VAT assessed in relation to such transfer, on 21.09.2015, through an electronic Form P2 (see Annex 4 of the Inspection Report).

  9. Following a discrepancy in the e-invoicing system of the period 2015/02, the Tax Authority issued an internal Service Order with no. OI2015…, on 19.11.2015, with a view to an internal and partial inspection procedure regarding VAT for the period 2014/10.

  10. Through the office issued on 24 November 2015, the Tax Authority notified the Claimant regarding the contents of the Draft Inspection Report, which did not exercise its right to prior hearing.

  11. By office of 17.12.2015, the Finance Directorate of … notified the Claimant of the contents of the Inspection Report carried out, through which the AT determined corrections in the amount of € 65,803.00 in terms of VAT.

  12. The Claimant was notified of the assessment of Value Added Tax (VAT), no. 2016…, concerning period 1410, in the amount of € 33,996.24, and respective assessment of compensatory interest in the amount of € 1,378.47; VAT assessment no. 2016…, in the amount of € 8,348.06; assessment of default interest in the amount of € 450.88; VAT assessment no. 2016…, concerning period 1501, in the amount of € 16,962.46, assessment of compensatory and default interest with no. 2016…, in the amounts of € 102.23 and € 631.22, respectively; VAT assessment no. 2016…, concerning period 1503, in the amount of € 6,496.24 and assessment of default interest in the amount of € 234.88; all with a voluntary payment deadline of 07.03.2016.

  13. On 22.03.2016, a request for ruling and constitution of arbitral tribunal was submitted by the Claimant, via IT platform, which is aimed at the tax acts contained in the preceding number.

  14. The Claimant proceeded to pay the initial and subsequent arbitration fees;

No other facts of relevance to the decision of the case were proven.

3.2. Unproven Facts

The matter established as proven proves sufficient for consideration of the issues raised in these proceedings, which are limited to questions of law, with no unproven facts relevant to the solution of the present dispute.

3.3. Reasoning of the Proven and Unproven Matters of Fact:

As regards matters of fact, the Tribunal is not required to pronounce on everything that the parties allege; rather, it has the duty to select the facts that matter for the decision and distinguish proven from unproven matters (see article 123, no. 2, of the Code of Tax Procedure (CPPT) and article 607, no. 3 of the Code of Civil Procedure (CPC), applicable by virtue of article 29, no. 1, paragraphs a) and e), of the RJAT).

In these terms, the facts relevant to the judgment of the case are chosen and delimited according to their legal relevance, which is established in light of the various plausible solutions of the question(s) of law (see article 596, applicable by virtue of article 29, no. 1, paragraph e), of the RJAT).

Regarding the fact established as proven in point 7, although the Claimant initially alleged that the deduction had been effected in period 2/2015, it came to rectify such allegation, expressly acknowledging that it occurred in period 10/2014.

4. Matters of Law:

The substantive issue submitted to this Arbitral Tribunal centres on assessing the legal-tax validity of the corrections and concomitant assessments listed above, which will necessarily involve weighing the deductibility or otherwise of VAT, in the monthly period of October 2014, relating to the tax supported in the acquisition and documented by the document identified in 4 and 5 of the facts established as proven.

The exercise of the right to deduction of VAT constitutes one of the main characteristics of Value Added Tax, in accordance with the regime established in the Sixth Directive (Directive 77/388/EEC, Council, of 17/5/1977), subsequently repealed by Directive 2006/112/EC of the Council of 28.11.2006), more precisely in its article 178, a provision that establishes the rules for the exercise of the right to deduct tax, contemplating various objective and subjective requirements for the exercise of the same deduction right.

At the domestic level, the mechanisms for tax deduction are established in articles 19 to 25 of the VAT Code (CIVA), with this tax being based on a system of fractional payments designed to tax final consumption, where the deduction of tax paid in intermediate operations of the economic cycle is essential to the functioning of this same system.

Thus, both deduction and refund itself are subject to the verification of conditions established by the legislator in the CIVA.

In the matter of VAT deduction, this consists of the right that the taxable person has to deduct from the tax levied on the taxable operations that it carried out the tax that was invoiced to it in its acquisitions of goods or services from other VAT taxable persons.

In the domestic legal order, the regime of the right to deduction is provided for in articles 19 to 26 of the CIVA, with it being important here, given its relevance, to consider the content of article 19:

For the assessment of the issue to be decided, it will be important to take into account the reasoning on which the AT based itself for the purposes of issuing the tax acts now subject to arbitral review, since it is in light of these, in confrontation with the cause of action formulated by the Claimant, that the assessment of the concrete legality of the assessments sub judice must be carried out.

The AT aligned, in defence of the non-deductibility of VAT by the Claimant in the period 2014/10, two distinct grounds: the non-existence of a supporting document for the deduction of tax and the fact that, on the basis of the insolvency situation, the insolvency estate did not have an adequate business structure capable of exercising the declared activity.

The Claimant argues, to the contrary, that it has in its possession an invoice or equivalent document capable of supporting the deductibility of the tax contained therein and, furthermore, argues for the inapplicability of no. 4 of article 19 of the VAT Code.

It is therefore necessary to analyse,

On the existence or otherwise of a document referred to in no. 2 of article 19 of the VAT Code:

In this regard, it is necessary, from the outset, to bear in mind the provision in the legal rule on which the AT based itself for the purposes of issuing the tax acts under review: no. 2 of article 19 of the VAT Code.

The said legal provision provides as follows:

"2 - Only tax mentioned in the following documents confers the right to deduction, in the name and possession of the taxable person:

a) In invoices issued in the legal form;

b) In the receipt of VAT payment that forms part of import declarations, as well as in documents issued electronically by the Tax and Customs Authority, in which the number and date of the cash movement are contained.

c) In receipts issued to taxable persons classified under the 'VAT cash accounting regime', issued in the legal form provided for in this regime."

It follows from a reading of the provision under analysis that the legislator provided for three distinct situations in which certain typified documents can support the respective deduction of tax supported by its acquirer/transferee.

Withdrawing from the present analysis the situation to which paragraph c) above refers, since nothing was proven or alleged in this matter regarding the classification of the Claimant in the 'VAT cash accounting regime', the legislator permits the right to deduction based on invoices issued in the legal form or on the receipt of VAT payment in import declarations or based on documents issued electronically by the Tax and Customs Authority, in which the number and date of the cash movement are contained.

Now, returning to the facts under analysis and having regard to the contents of the document denominated "Invoice No. 1" contained in Annex 3 to the inspection report, as regards the categorization of the document in question under one of the three referred paragraphs, it is important to assess it in light of paragraph a) of the provision in question.

The legislator requires, for the purposes of VAT deductibility, through the said paragraph a), that the taxable person have in its possession an invoice issued in the legal form, and the legislator clarifies in no. 6 of the said provision that the notion of "issued in the legal form" requires that such documents contain the elements provided for in article 36 of the VAT Code, given the manifest inapplicability of the document in question to the notion of a simplified invoice under article 40 of the said legal code, not least because the document has a value clearly exceeding the maximum limit contained in paragraphs a) and b) of its no. 1.

Not being in the situation of inclusion of that document in the category of simplified invoice referred to in article 40 of the VAT Code, it is necessary to verify whether or not such document complies with the requirements legally established so that one can be dealing with an invoice issued "in the legal form", that is, in conformity with article 36 of the VAT Code.

It follows from what is established in no. 5 of this latter legal provision, the elements that invoices must necessarily contain:

"5 - Invoices must be dated, numbered sequentially and contain the following elements:

a) The names, company names or corporate designations and the headquarters or domicile of the supplier of goods or provider of services and the recipient or acquirer, as well as the corresponding tax identification numbers of the taxable persons;

b) The quantity and usual denomination of the goods transferred or services provided, with specification of the elements necessary to determine the applicable rate; packaging not actually transacted must be the subject of separate indication and with express mention that its return has been agreed;

c) The price, net of tax, and other elements included in the taxable value;

d) The applicable rates and the amount of tax due;

e) The reason justifying the non-application of tax, if applicable;

f) The date on which the goods were made available to the acquirer, when the services were performed or when payments prior to the performance of the operations were made, if that date does not coincide with the date of invoice issuance."

Among the formal and cumulative requirements established by the legislator and now cited, it results, from the outset, what is contained in paragraph b) relating to the obligation to mention the tax identification numbers of the intervening taxable persons.

Having carefully compared the contents of the denominated "Invoice No. 1", it results that mention is made of the tax identification number of the acquirer of the assets, now the Claimant, but the same does not apply to the tax identification number of the entity issuing the invoice: the insolvent company "B…".

The declaration of insolvency does not, in itself, entail the extinction of legal personality, since such extinction only occurs with the closure of the liquidation in accordance with no. 2 of article 160 of the Commercial Companies Code (CSC), and insolvency is merely one of the forms of dissolution of the company, as follows from paragraph e) of no. 1 of article 141 of the CSC.

Thus, as long as the liquidation of the issuing company, and meanwhile insolvent, was not closed, it retained its legal personality and necessarily its company identification number (NIPC) to which correspondingly its tax identification number (NIF) also corresponds, a number which the insolvent company would have to mention when, during the liquidation period, it intended to issue an invoice.

Now, such express mention of the NIPC/NIF of the issuer in the document in question is indispensable (among other requirements) so that one can qualify, from the point of view of the regime of tax deduction in terms of VAT, as an invoice "issued in the legal form".

Such an assertion of indispensability results from the fact that such formal elements appearing on invoices constitute a true formal requirement for the purposes of the exercise of the right to deduct tax.

This understanding has uniformly emanated from the case law of the superior courts, and in this regard, among others, one may cite an excerpt from what was decided by the Supreme Administrative Court[1] (which, although referring to the wording prior to the legislative amendment brought by Decree-Law no. 197/2012, of 24 August, remains essentially the same in the wording at the date of the tax event): "Article 19, no. 1 of this legal instrument provides that, for the determination of the tax due, taxable persons deduct, from the tax levied on the taxable operations they carried out, the tax due or previously paid, namely, in the acquisition of goods and services from other taxable persons (paragraph a)).

For its part, no. 2 of the same article establishes that "only tax mentioned in invoices and equivalent documents issued in legal form, as well as in the receipt of VAT payment that forms part of import declarations, confers the right to deduction, in the name and possession of the taxable person".

And it adds in its no. 6 that "for the purposes of the exercise of the right to deduction, invoices or equivalent documents containing the elements provided for in article 35 are considered as issued in legal form."

As written in the decision of this Section of the SAC of 31/1/08, in appeal no. 902/07, "to prevent tax fraud, the legislator determined that only the tax mentioned in invoices, documents equivalent to these issued in legal form or in the receipt of VAT payment that forms part of import declarations would be deductible, and provided that such documents were in the name and possession of the taxable person.

And, mindful of that objective, the legislator was especially demanding – no. 6 of said article 19: "for the purposes of the exercise of the right to deduction, invoices or equivalent documents containing the elements provided for in article 35 are considered as issued in legal form"...

The invoice or equivalent document must be issued by the taxable person "for each transfer of goods or provision of services, as defined in articles 3 and 4 of this act, as well as for payments made to it before the date of transfer of goods or provision of services" – article 28, no. 1, paragraph b), of the VAT Code…

In fact, the formalistic character of VAT is recognized, in order in particular to prevent, as much as possible, tax evasion, whereby its respective formalities are ad substantiam, not merely ad probationem".

(…)

In fact, and repeating what we said above, the formalistic character of VAT is recognized, in order in particular to prevent, as much as possible, tax evasion, whereby its respective formalities are ad substantiam, not merely ad probationem."

Having regard to what is supported in the cited decision, which is seconded here, it is necessary to conclude that the document denominated "Invoice No. 1" does not comply with all the substantive requirements present in no. 5 of article 36 of the VAT Code.

Requirements which, when in conformity with such legal provision, allow the qualification of invoices issued for the purposes of supporting the exercise of the right to deduction provided for in paragraph a) of no. 2 of article 19 of the VAT Code.

With the non-occurrence of one of these formal and essential elements to be able to qualify the document as an invoice issued in the legal form, the Claimant's right to deduct, regarding the monthly period of October 2014, the VAT supported through that same document was prejudiced.

Faced with what has been expounded, it will remain to investigate the possible factual subsumption to the legal provision resulting from paragraph b) of no. 2 of article 19 of the VAT Code, which provides:

"2 - Only tax mentioned in the following documents confers the right to deduction, in the name and possession of the taxable person:

(…)

b) In the receipt of VAT payment that forms part of import declarations, as well as in documents issued electronically by the Tax and Customs Authority, in which the number and date of the cash movement are contained."

It is inferred from this legal provision the possibility of deduction of the VAT supported when the taxable person has in its power a receipt of VAT payment, whether in the case of importation through the respective declaration, or in the case of electronic documents issued by the AT which contain the number and date of the cash movement.

Now, as the Claimant itself came to recognize in its Request for Arbitral Ruling[2], it was aware that the Insolvency Administrator of the insolvent company would not yet have paid, in the period relating to 2014/10, the respective tax into the State treasury, relating to such transfer of goods and, objectively more relevantly, the Claimant did not have, in the tax period in which it proceeded with the deduction of VAT (the period of October 2014), the receipt of VAT payment by the transferor Insolvency Estate of the goods, a document that would allow the Claimant to proceed with the respective deduction of such tax, in accordance with article 22, nos. 2 and 3, that is, in the period in which the issuance of that document took place.

Thus, given the fact that the Claimant did not have such a document referred to in paragraph b) of no. 2 of article 19 of the VAT Code, one must conclude that it was impossible for it to proceed with the deduction of tax relating to the period of October 2014.

For the rest, from the content of no. 2 of article 19 of the VAT Code, which deals with the supporting documents necessary for the exercise of the right to deduction, it is not apparent that the criteria and legislative options in the internal legal system have established any disproportionate or unjustified restriction or even any absolute obstacle to such purpose, but rather the establishment of formal requirements in order to ensure such deduction, such as, for example, the taxable person having in its possession an invoice issued in the legal form, which would allow the immediate deduction of tax.

The CJEU decisions cited thus do not have any relevance to the present case, since it does not follow that the documentary elements required by the national legislator conflict in a disproportionate or unjustified manner with such deduction or even make the exercise of the right to deduction absolutely impossible, as is demonstrated by the situation that has been illustrated.

In fact, and as recently reaffirmed in the CJEU Decision of 15 September 2016, delivered in case C‑516/14 (Barlis Decision):

"38 The Court of Justice has repeatedly declared that the right to deduct VAT provided for in articles 167 et seq. of Directive 2006/112 forms an integral part of the VAT mechanism and cannot, in principle, be restricted. This right is immediately exercised in relation to all of the taxes that have burdened the operations carried out upstream (see, in this sense, decision of 13 February 2014, Maks Pen, C‑18/13, EU:C:2014:69, no. 24 and case law cited therein).

39 The regime of deductions aims to entirely free the businessman from the burden of VAT due or paid in the course of all of his economic activities. The common VAT system thus guarantees neutrality as regards the tax burden of all economic activities, whatever the purposes or results of those activities, provided that those activities are, in principle, themselves subject to VAT (decision of 22 October 2015, PPUH Stehcemp, C‑277/14, EU:C:2015:719, no. 27 and case law cited therein).

40 With regard to the material requirements required for the constitution of the right to deduct VAT, it follows from article 168, paragraph a), of Directive 2006/112 that the goods and services invoked to support that right must be used by the taxable person downstream for the purposes of its own taxed operations and that, upstream, those goods or services must be provided by another taxable person (see, in this sense, decision of 22 October 2015, PPUH Stehcemp, C‑277/14, EU:C:2015:719, no. 28 and case law cited therein).

41 As regards the formal requirements relating to the exercise of said right, it follows from article 178, paragraph a), of Directive 2006/112 that its exercise is subordinate to the possession of an invoice issued in accordance with article 226 of this directive (see, in this sense, decisions of 1 March 2012, Kopalnia Odkrywkowa Polski Trawertyn P. Granatowicz, M. Wąsiewicz, C‑280/10, EU:C:2012:107, no. 41, and of 22 October 2015, PPUH Stehcemp, C‑277/14, EU:C:2015:719, no. 29).

42 The Court of Justice declared that the fundamental principle of VAT neutrality requires that the deduction of this tax paid upstream be granted if the material requirements are fulfilled, even if the taxable persons have neglected certain formal requirements. Accordingly, when the Tax Administration has the necessary data to know that the material requirements have been fulfilled, it cannot impose additional conditions on the taxable person's right to deduct tax which may have the effect of eliminating that right (see, in this sense, decisions of 21 October 2010, Nidera Handelscompagnie, C‑385/09, EU:C:2010:627, no. 42; of 1 March 2012, Kopalnia Odkrywkowa Polski Trawertyn P. Granatowicz, M. Wąsiewicz, C‑280/10, EU:C:2012:107, no. 43; and of 9 July 2015, Salomie and Oltean, C‑183/14, EU:C:2015:454, nos. 58, 59 and case law cited therein)." (emphasis added).

Now, as already alluded to, the formal requirements embraced by the national legal order, in the VAT Code, analyzed above, and observed by the AT in the assessments which are the subject of the present arbitral action, do not have the effect of eliminating the Claimant's right to deduction, whose material presuppositions are incontestably verified, conditioning it only to be exercised in a different period (9/2015), in accordance with the combined provisions of articles 19.2.b) and 22.2 and 3, both of the VAT Code, and the Claimant remaining in time to submit an amended return relating to its VAT self-assessment of the correct period (9/2015), in accordance with the combined provisions of articles 59.3.b).II and 131.1 of the Code of Tax Procedure. Hence, manifestly, the conditions imposed by the Portuguese legal order and applied by the AT in the tax acts sub iudice do not have the effect of eliminating the Claimant's right to deduction.

On the other hand, in light of all that has been established regarding the documents referred to in the paragraphs of nos. 2 and 6 of article 19 of the VAT Code, the Claimant's argument regarding the violation of article 68-A of the General Tax Law cannot succeed, since, as is well demonstrated, the non-conformity of the exercise of deduction in the period in which the Claimant operated it is based, from the outset, on the violation of these same nos. 2 and 6 of article 19 and not the alleged violation of the doctrine expressed by Circular 10/2015, although it is acknowledged that the Tax Authority also made appeal to the latter in its inspection report.

Finally, having regard to the argument also put forward by the Claimant[3] to the effect that only compensatory interest would be due, considering the fact that the tax was effectively paid by the transferor of the goods in the course of 2015 and, ultimately, the VAT supported should be correctly deducted therein, such reasoning cannot merit acceptance.

This is because, if the scope of what is invoked is well understood, the Claimant would wish that the AT had proceeded to relocate the deducted VAT, transferring it from the period in which the tax was deducted to the period in which the VAT was effectively paid into the State treasury by the issuer/transferor.

Now, such a solution does not appear to have any legal basis within the functioning of the mechanisms of the right to deduction provided for in the VAT Code (a formalistic tax), nor in the European directive already identified above which underlies it, since such deduction constitutes a faculty whose exercise is exclusively the responsibility of the taxable person and not of the Tax Authority, to which is not unrelated the fact that this tax is based on the principle of neutrality and not of tax capacity (as happens, generally, in income taxes).

Thus, the AT had only the duty to assess the conformity or otherwise of the deduction of such tax in the period in which it had been deducted by the Claimant (thereby drawing the respective consequences) and not to substitute itself for the taxable person in that faculty which only to itself falls to exercise within the principle of the autonomy of its will, necessarily considering the respective applicable legal-tax framework.

Faced with the reasoning that has been put forward regarding the legal non-conformity of the VAT deduction in the period 2014/10, it becomes pointless to assess the invoked inapplicability to the present case of no. 4 of article 19 of the VAT Code, and the conduct of the Tax Authority in issuing the tax acts reviewed here merits no criticism.

5. DECISION:

In these terms and with the reasoning that is set out above, this arbitral tribunal decides:

To wholly dismiss the claim for declaration of illegality of the tax acts assessing VAT and compensatory and default interest, on the grounds of non-occurrence of any of the defects that were pointed out to it by the Claimant.

To order the Claimant to pay the costs in accordance with Table I of the Rules of Costs in Tax Arbitration Proceedings (RCPTA), calculated based on the value of the case - articles 4-1, of the RCPTA and 6, no. 2, paragraph a) and 22, no.4, of the RJAT.

Value of the case: In accordance with the provision of article 306, no. 2, of the Code of Civil Procedure and 97-A, no. 1, paragraph a), of the Code of Tax Procedure and 3, no. 2, of the Rules of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 68,600.68, to which corresponds the arbitration fee, to be paid by the Claimant, of € 2,442.00.

Let this arbitration decision be notified to the parties and, in due course, let the case file be archived.

Lisbon, 5 January 2017.

The Arbitrators

(Dr. José Pedro Carvalho) - President

(Dr. Paulo Lourenço)

(Dr. Luís Ricardo Farinha Sequeira) - Rapporteur

Text prepared by computer, in accordance with article 138, no. 5 of the Code of Civil Procedure (CPC), applicable by virtue of the referral in article 29, no. 1, paragraph e) of the Legal Regime of Tax Arbitration, with blank lines and revised.

[1] See Decision of SAC, of 15.04.2009, case no. 0951/08, available at www.dgsi.pt

[2] See paragraphs d) and e) of article 3 of the Request for Arbitral Ruling;

[3] See articles 37 to 40 of the Request for Arbitral Ruling;

Frequently Asked Questions

Automatically Created

Can a taxpayer deduct VAT on invoices issued by an insolvency administrator in Portugal?
Yes, but with conditions. Under Portuguese VAT law, taxpayers can deduct VAT on invoices issued by insolvency administrators if the invoice meets formal requirements under Articles 19(4) and 36 CIVA. However, the Tax Authority may require proof that the insolvency estate actually paid the VAT to the State treasury. The key dispute in this case was whether the administrator had adequate business structure to issue valid invoices and whether proof of payment must exist at the time of deduction or can be verified subsequently.
What are the invoice requirements under Article 19(4) of the Portuguese VAT Code (CIVA) for VAT deduction?
Article 19(4) CIVA requires that the transferor have the business structure necessary to exercise the activity and proceed with asset sales. The Tax Authority interpreted this to mean insolvency administrators lack such structure and their invoices don't satisfy deduction requirements. Additionally, invoices must comply with Article 36(5) CIVA formalities, including proper tax identification numbers. For judicial auction sales, Article 28(5) CIVA may impose special requirements ensuring VAT payment into the State treasury before deduction is permitted.
Does the lack of collusion between buyer and seller protect the right to VAT deduction under EU case law?
Yes, according to CJEU case law principles. The claimant argued that when there is no evidence of collusion aimed at tax evasion between buyer and seller, the purchaser's right to VAT deduction cannot depend on the transferor's subsequent conduct regarding tax payment. This EU law principle protects good faith purchasers from losing deduction rights due to the seller's failures, provided the buyer acted without knowledge of fraud. However, Portuguese Tax Authority requirements regarding proof of payment and invoice formalities may still apply.
Can the Portuguese Tax Authority impose additional VAT deduction requirements beyond those in Circular 1/2010?
This is disputed. The claimant argued that Article 68-A(2) CIVA was violated when the Tax Authority imposed requirements not contained in the generic instruction Circular 1/2010, but instead arising from subsequently issued Circular 10/2015. Imposing new requirements retroactively through a later circular may exceed the Tax Authority's regulatory powers and violate legal certainty principles. Taxpayers should be able to rely on instructions in force at the time of the transaction.
Are only compensatory interest due when there is early exercise of the right to VAT deduction rather than denial of the full deduction?
The claimant argued yes. Even if the exercise of VAT deduction was premature (occurring in October 2014 when the insolvency estate didn't pay VAT until September 2015), only compensatory interest for the time value of money should be due, not complete denial of the deduction itself. Since the VAT was ultimately paid by the transferor, the State suffered no loss of tax revenue, only a timing delay. Therefore, the appropriate remedy would be compensatory interest, not invalidation of the entire €65,803 deduction with additional assessments and default interest.