CAAD 201/2018-T: VAT Deduction Denied for Simulated Operations – Burden of Proof in False Invoices

Arbitral Decision

The Arbitrator Dr. Henrique Nogueira Nunes, designated by the Deontological Council of the Center for Administrative Arbitration to form the Arbitral Tribunal, constituted on 04-07-2018, hereby decides as follows:

1. REPORT

1.1

A..., with tax identification number ..., hereinafter referred to as the "Claimant", requested the constitution of the Arbitral Tribunal pursuant to Articles 2, paragraph 1, subparagraph a) and 10 of Decree-Law No. 10/2011, of January 20 (hereinafter "RJAT").

1.2

The request for arbitral pronouncement concerns the declaration of illegality of a set of VAT and interest assessment acts in the total amount of €55,507.20, requesting the annulment of the assessments in question and the reimbursement of the tax improperly paid, plus compensatory interest.

1.3

In support of its request, the Claimant alleges, in summary, that on the basis of the provisions of Article 74, paragraph 1 of the LGT, the Respondent illegally reversed the burden of proof by making an improper application of Article 19, paragraph 3 of the VAT Code applicable to simulated operations.

And that the Tax Authority did not go beyond mere suspicions or indications to legitimize its conduct based almost exclusively on the conduct of third parties, not attributable to the Claimant.

And that this does not make all the invoices they issued false, namely those which are at issue in these proceedings.

Wherefore it concludes that the Tax Authority had no right to refuse the deduction of the VAT in question in these proceedings and that in carrying out these corrections and subsequently drawing up the impugned assessments, it violated the provisions of Articles 19, paragraph 3 of the VAT Code and 74, paragraph 1 of the LGT, which, in its view, constitutes grounds for challenging the VAT assessment acts impugned in these proceedings due to improper qualification and quantification of tax facts.

It thus seeks the annulment of the tax acts and the reimbursement of the amount paid, plus compensatory interest.

1.4

The Tax Authority, for its part, comes to defend itself by opposition. It maintains that from the factual circumstances described in the Tax Inspection Report (RIT), there are indications that the invoices in question in these proceedings are false, due to false identity of the goods transmitters/service providers.

And that, once sufficient indications were verified that the invoice issuers did not correspond with the actual goods transmitter/service provider, it was incumbent upon the Claimant to demonstrate the veracity of the operations objectively considered.

And that it did not do so, wherefore the Respondent understood to disregard the tax deduction, that is, it proceeded to the additional assessments now impugned in these proceedings.

It considers that the factual circumstances described in the RIT attached to these proceedings should be taken as established for purposes of evidence.

And that, once the presumption of truthfulness of the invoices was disregarded, because there exist (in its understanding, manifest) indications that the taxable persons issuing the invoices did not transmit those goods/provide those services, it was incumbent upon the Claimant to demonstrate that the operations were genuine, which, it says, it failed to do either in the administrative procedure or in these arbitral proceedings.

And that the goods which were sold to the Claimant were sold at the VAT rate of 23% instead of at the rate of 6%.

It concludes by requesting the maintenance of the tax assessment acts impugned, and accordingly, the Tribunal should dismiss its request.

1.5

The Tribunal understood it appropriate to dispense with the holding of the first meeting of the Arbitral Tribunal in accordance with the arbitral order notified to the parties in accordance with the provisions of Article 18 of the RJAT. Both parties were likewise notified to submit Arguments, if they so wished, and both chose to do so. A deadline was set for the issuance of the arbitral decision until the end of the legal deadline.

1.6

The Tribunal was regularly constituted and is competent ratione materiae, in accordance with Article 2 of the RJAT.

The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented (cf. Articles 4 and 10, paragraph 2 of the RJAT and Article 1 of Order No. 112-A/2011, of March 22).

No procedural nullities were identified.

2. QUESTION TO BE DECIDED

The thema decidendum is to determine whether the exclusion of the right to VAT deduction effected by the Respondent and supported by the Claimant in the invoices in question in these proceedings, on the basis of the provisions of Article 19, paragraph 3 of the VAT Code for simulated operations, is lawful, or whether, as the Claimant asserts, there exists unlawfulness in the additional VAT assessments now impugned, due to error in the premises, this tax having been improperly assessed by the Respondent and the tax acts should be annulled and the amount of tax paid reimbursed to the Claimant.

3. FACTUAL MATTERS

With relevance to the appreciation and decision on the merits, the following facts are hereby established as proven:

A) The Claimant is a company engaged in "Wholesale trade in raw wood and derived products", registered in the normal monthly VAT regime (cf. RIT submitted by the Respondent in these proceedings and which is deemed to be entirely reproduced).

B) In the fiscal year 2013, the commercial activities of the Claimant consisted of the sale of wood and, on an ancillary basis, the provision of transport services for goods, loading and unloading of wood (cf. RIT submitted by the Respondent in these proceedings and which is deemed to be entirely reproduced).

C) The Claimant was the subject of an external inspection action carried out by the Tax Inspection Services of the Finance Directorate of ..., which gave rise to the additional VAT assessments impugned in these proceedings (cf. RIT submitted by the Respondent in these proceedings and which is deemed to be entirely reproduced).

D) Following that inspection action, the Respondent proceeded to assess VAT corresponding to the period from January to December 2013, in the total amount of €46,179.47, and compensatory interest in the total amount of €9,327.69, relating to the same period (cf. Documents submitted by the Claimant with the arbitral petition and identified under Nos. 1 to 22).

E) The Claimant proceeded to pay the additional VAT assessments and their respective compensatory interest, and although it did not attach the respective payment receipts, the Respondent did not oppose the configuration of the arbitral request as formulated by the Claimant wherein it petitions for the reimbursement of the amount paid in case of success, recognizing it in what it states in Article 1 of its Response.

F) The wood transmitted had two distinct origins, part of it was purchased directly by the Claimant from producers, generally standing trees, and the remainder, the vast majority, was acquired from other taxable persons. When the wood was acquired from other taxable persons, all operations (acquisition, cutting and transport of goods) were the responsibility of the supplier. It was these that delivered directly to the facilities of the Claimant's clients (B... SA and C...) the wood. In these cases, generally, the transport was at the cost of the Claimant's supplier (cf. page 7 of the RIT submitted by the Respondent in these proceedings and which is deemed to be entirely reproduced).

G) The inspection action in question in these proceedings arises following communications made by the Finance Directorate of ..., after identifying the Claimant as a client of the company D... Unipessoal, Lda ("D...") and of the company E..., Lda, which the Respondent identified as issuers of false invoices (cf. page 8 of the RIT submitted by the Respondent in these proceedings and which is deemed to be entirely reproduced).

H) The company D... began its VAT activity on January 30, 2013 under CAE 046731 - "wholesale trade in raw wood and derived products" and ceased on December 31, 2014 (cf. page 8 of the RIT submitted by the Respondent in these proceedings and which is deemed to be entirely reproduced).

I) The value shown in the invoices issued in the name of the supplying companies – D... and E... – is coincident with the value declared by the Claimant in its suppliers annex – P (cf. page 8 of the RIT submitted by the Respondent in these proceedings and which is deemed to be entirely reproduced).

J) In all invoices from the suppliers in question, VAT was charged to the Claimant at the rate of 23% (cf. RIT submitted by the Respondent in these proceedings and which is deemed to be entirely reproduced).

K) The documents evidencing the entry of wood into the facilities of the Claimant's clients do not reference any other supplier than the Claimant itself (cf. RIT submitted by the Respondent in these proceedings and which is deemed to be entirely reproduced).

L) The Respondent made the VAT corrections in question in these proceedings on the grounds that the operations documented in the invoices in question constitute "simulated operations" as to the interveners, wherefore, on the basis of paragraph 3 of Article 19 of the VAT Code, it corrected the tax deductions effected by the Claimant based on the invoices issued by its suppliers (cf. RIT on pages 35 and 36 submitted by the Respondent in these proceedings and which is deemed to be entirely reproduced).

M) The Claimant in response to a request for information requested by the Respondent in the course of the inspection action reported that there were no written contracts with any of those suppliers; that the commercial contacts with regard to company D... were made by "Normally F... (probably a Brazilian citizen)" and that the person who delivered the invoices on behalf of D... Lda and the checks for payment was "Normally F... (probably Brazilian citizen/1 or 2 times another gentleman, whose name would be uncertain G...") and that the person who established contact on behalf of E... Lda identified himself with the name of "H... – tel..." and that it would be this person who delivered the invoices and to whom the checks for payment were delivered (cf. RIT submitted by the Respondent in these proceedings and which is deemed to be entirely reproduced).

N) Authorization was requested to access the bank accounts of the Claimant's administrators, which subsequently occurred (cf. RIT submitted by the Respondent in these proceedings and which is deemed to be entirely reproduced).

O) The transport documents presented by the Claimant are reduced in relation to the total value of wood acquisitions, and the Tax Authority also detected some discrepancies related to the quantities transmitted, date of issuance of transport permits and those contained in the summary map of invoices (cf. RIT, namely on pages 18 to 23, submitted by the Respondent in these proceedings and which is deemed to be entirely reproduced).

P) Before the Claimant, the responsibility for transporting the acquired goods for delivery to its clients was assumed by the supplying companies of the goods (cf. RIT on page 7 submitted by the Respondent in these proceedings and which is deemed to be entirely reproduced).

Q) The Claimant made payment to its suppliers preferentially through bank checks drawn on company accounts (cf. RIT submitted by the Respondent in these proceedings and which is deemed to be entirely reproduced).

R) In all GEP (goods exit permits) issued by the Claimant's clients, the Claimant itself is mentioned as the only supplier of goods (cf. RIT submitted by the Respondent in these proceedings and which is deemed to be entirely reproduced).

S) From elements derived from the Tax Authority's computer system, it was possible to identify the names of the owners of the vehicles that carried out the transport of goods supplied by suppliers D... and E..., Lda to the Claimant, which are goods transport companies (cf. RIT on pages 23 and 24 submitted by the Respondent in these proceedings and which is deemed to be entirely reproduced).

T) The transport companies in question, through various statements collected by the Respondent through their representatives, identified in some cases the suppliers of the goods in question in these proceedings as being their clients and in other cases third-party companies to whom these services were billed, by requests they received to have such services (which are never questioned to have existed) billed to various companies (cf. RIT submitted by the Respondent in these proceedings and which is deemed to be entirely reproduced).

U) The sale of wood to the Claimant's clients was invoiced by it (cf. RIT on page 32 submitted by the Respondent in these proceedings and which is deemed to be entirely reproduced).

V) In gathering information by the Respondent from transport companies, it was determined that transport services were contracted by a certain "I..." and the billing of these services in many cases may have been to companies related to this gentleman (cf. RIT submitted by the Respondent in these proceedings and which is deemed to be entirely reproduced).

W) The tax corrections in question in these proceedings contained on pages 4, 35 and 36 of the RIT result from the conclusion by the Respondent that a set of invoices issued by companies D... and E..., Lda "reflect simulated business as to the supplier of the goods" (cf. RIT submitted by the Respondent in these proceedings and which is deemed to be entirely reproduced).

X) In the context of Corporate Income Tax, the Respondent expressly recognizes that the operations documented by the invoices whose deductible VAT is denied in these proceedings document operations "economically effectively occurred, and it was proven that A... Lda proceeded to deliver wood to its clients" having made no correction in the context of Corporate Income Tax.

Y) On April 20, 2018, the Claimant submitted a request for the constitution of the Arbitral Tribunal to the CAAD – cf. electronic request in the CAAD system.

4. FACTS NOT PROVEN

There are no other facts relevant to the decision on the merits of these proceedings that have not been proven.

5. GROUNDS FOR THE DECISION ON FACTUAL MATTERS

As to the essential facts, the settled matter is conformly characterized identically by both parties, and the Tribunal's conviction was formed on the basis of the documentary (official) elements attached to the proceedings and discriminated above, whose authenticity and veracity were not questioned by either party.

It should be noted that the Tribunal has no duty to pronounce on all the matters alleged, but rather the duty to select only those which are relevant to the decision, taking into account the cause (or causes) of action which grounds the request formulated by the Claimant as claimant (cf. Articles 596, paragraph 1 and 607, paragraphs 2 to 4, of the Code of Civil Procedure, as amended by Law 41/2013, of 26/6) and to establish whether it considers it proven or not proven (cf. Article 123, paragraph 2, of the Tax Procedure Code).

According to the principle of free appreciation of evidence, the Tribunal bases its decision, in relation to the evidence produced, on its intimate conviction, formed from the examination and evaluation it makes of the means of evidence brought to the proceedings and in accordance with its experience of life and knowledge of persons (cf. Article 607, paragraph 5, of the Code of Civil Procedure, as amended by Law No. 41/2013, of 26/6). Only when the probative force of certain means is pre-established in law (for example, the full probative force of authentic documents - cf. Article 371 of the Civil Code) does the principle of free appreciation not govern the appreciation of the evidence produced.

6. ON THE LAW

Before entering into the analysis of the specific case and considering the matter of law at issue in these proceedings, which concerns the denial of the right to VAT deduction by an acquirer in an alleged case of simulation, and being VAT a tax of Community matrix, it is necessary to make some preliminary considerations regarding the nature and scope of the right to deduction, considering in this analysis the rules that govern this tax according to the Law of the European Union, with its transposition at the internal level and with the administrative and judicial interpretation which has been carried out on the same, especially by the Court of Justice of the European Union (CJEU). In this regard, it will be important to analyze the question of VAT deductibility, taking into account the interpretation of the provisions of Articles 168 of the VAT Directive (VAT Directive) and Articles 19, paragraph 3 of the VAT Code.

6.1 On the Right to Deduction

As the arbitral decision of the CAAD in process No. 767/2016-T rightly stated, and quoting it:

"The right to deduction is an integral part of the VAT mechanism and cannot, in principle, be limited, being exercised immediately in relation to all VAT which has burdened upstream operations.

In this sense of the neutrality principle, the regime established by the VAT Directive allows taxable persons to deduct VAT which has burdened the acquisition of goods and services intended for taxed activity. Note that the CJEU refers to the principle of VAT neutrality in yet another sense, according to which the VAT system must not interfere with economic decisions or with price formation along the economic circuit.

Consequently, the mechanism of the right to deduction allows the taxable person to purge from its burden the VAT borne upstream, removing the cumulative effect and cascade taxation that characterized previous consumption taxation systems. Thus, the right to deduction is based on the so-called method of tax deduction, tax credit method, indirect subtractive method or invoice method.

According to this method and in accordance with the provisions of Article 19 of the VAT Code, through an arithmetic operation of subtraction, the tax determined on sales and provision of services (outputs) and identifiable in the respective invoices is reduced by the tax borne on purchases and other expenses (inputs). As determined in the second paragraph of paragraph 2 of Article 1 of the VAT Directive 'In each transaction, the VAT calculated on the price of the goods or services at the rate applicable to the said goods or services is due, with prior deduction of the amount of tax which has directly burdened the cost of the various elements constituting the price'.

As provided for in the VAT Directive, the VAT Code determines, as a general rule, the deductibility of tax due or paid by the taxable person in the acquisition of goods and services from other taxable persons.

The express situations of exclusion from the right to deduction are exceptional and refer to specific cases enumerated by the national legislator in exhaustive terms, in accordance with what is established in the VAT Directive, depending on the type of expenses involved.

The rules for the exercise of the right to VAT deduction comprise objective requirements, more linked to the type of expenses, subjective requirements, relating to the taxable person, and temporal requirements, relating to the period in which it is possible to exercise the right to VAT deduction, which must all be verified simultaneously to exercise the right to deduction.

As objective requirements for the exercise of the right to VAT deduction, we have, in particular, the fact that the tax borne must be shown in an invoice issued in the legal form (that is, it must comply, in its requirements, with the general terms provided for in the current Article 36, paragraph 5, and Article 40 of the VAT Code), that it is Portuguese VAT, and that the expense, in itself, confers the right to deduct the tax (that is, it should not be an expense excluded from the right to deduction, in accordance with the provisions of Article 21 of the VAT Code).

As subjective requirements for the exercise of the right to tax deduction, it is determined, in particular, that the goods and services must be directly related to the development of economic activity. Indeed, in accordance with the VAT Directive, in Article 168 (transposed, in part, by Article 20, paragraph 1, subparagraph a), of the VAT Code), a taxable person may deduct VAT borne in the Member State where it is established, in the transmission of goods and provision of services, as well as equivalent operations in intra-Community acquisitions of goods and in imports located there, provided that "the goods and the services are used for the purposes of its taxed operations (...)" (our emphasis).

Note that the CJEU admits the possibility of VAT deduction even if there is no actual realization of taxable operations, in the event that these operations, due to circumstances beyond the entity's control, are not effectively realized, occurring the winding up of the company. Furthermore, this provision, in accordance with the rules of European Union Law, requires that there be a causal nexus between the acquired good or service (input) and the taxed output, so that VAT is susceptible to being deductible. That is, VAT borne upstream in a given operation is only deductible to the extent that it may be related downstream to an effectively taxed operation, and the relationship should be assessed according to the reporting and inclusion of the borne cost in the price of the taxed operation.

Regarding VAT deduction regimes, the CJEU has been considering that the right to deduction is an integral part of the mechanism of the tax itself, which cannot in principle be limited, and which is exercised in relation to all taxes which have burdened operations carried out upstream, further emphasizing that "any limitation of the right to deduction affects the level of the tax burden and must be applied in the same way in all Member States. Consequently, derogations are only permitted in cases expressly provided for by the Directive".

It should further be noted that any limitation of the right to deduction must observe the principles of proportionality and equality, which presupposes a balanced weighing of the benefits derived from the measure and the sacrifice which it implies."

On the other hand, the Supreme Administrative Court, in its judgment delivered in process No. 01455/12, of 07/10/2015, came to consider that the principle of VAT deduction, as a means of implementing tax neutrality, requires that all restrictions on the right to deduction be interpreted restrictively and reduced to a minimum.

Indeed, as was well decided in that judgment:

"Now, from the combined application of all the invoked rules, it follows that the right to deduct incurred VAT is not dependent on such tax having been properly assessed by the taxable person, contrary to what the Respondent refers to. It has been unanimous jurisprudence of the higher courts that VAT improperly assessed in an invoice or equivalent document is, nevertheless, due to the State, being the responsibility of the entity issuing the document in question to hand it over to the State. Only in this way can the principle of tax neutrality be ensured, both for the interveners and for the State itself. By way of example, see the judgment of the Central Administrative Court South of 04-06-2015, delivered in proc. No. 07111/13 (available at www.dgsi.pt) in which it is concluded that '(...) each invoice with a mention of tax constitutes a true "check on the treasury", as it gives to the recipient who is a taxable person the right to deduct the VAT contained therein. Therefore, the mere mention of VAT in an invoice (even if perhaps misplaced, because there is no tax in that case, for any reason) always gives rise to the obligation to pay, regardless of the quality of the issuer, that is, whether or not he is a taxable person. It will become, by the simple fact of the mention, a "tax debtor". Only thus can it be achieved that to the right to deduction, which the invoice gives to the recipient taxable person, there always corresponds an obligation to pay and the regular functioning of the fractional payment system for VAT is ensured (cf. judgment S.T.A.-2nd. Section, 24/4/2002, rec.26636; judgment S.T.A.-2nd. Section, 26/9/2012, rec. 555/12; judgment T.C.A.South-2nd. Section, 17/1/2012, proc.4711/11; José Guilherme Xavier de Basto, The taxation of consumption and its international coordination, Lessons on fiscal harmonization in the European Economic Community, C.T.F. 362, Apr./Jun. 1991, page 42 et seq.; F. Pinto Fernandes and N. Pinto Fernandes, VAT Code Annotated and Commented, Rei dos Livros Publisher, 4th. edition, January 1997, page 51; Clotilde Celorico Palma and Others, VAT Code and RITI, Notes and Comments, Almedina, 2014, page 47).

(...) The reason for this obligation stems from the fact that such invoices contain VAT deductible by the entity to whom they were issued, and in that measure it is necessary to ensure that the tax contained therein has entered the State's coffers." (our emphasis).

This understanding of the Central Administrative Court South is supported by the Supreme Administrative Court judgment mentioned there of 26-09-2012, proc. No. 555/12 (also available at www.dgsi.pt), in which it was concluded that "(...) the mere mention of VAT in such documents, even if perhaps misplaced, because there is no grounds for it, gives rise to the obligation of tax. As was established in the Judgment of this Supreme Court of 24/4/2002, proc. No. 26636, this result stems both from the rigid and formalistic character of VAT and from the fact that the taxable person recipient of the invoice has the right to deduction thereof. In the words of XAVIER DE BASTO (Cf. "Fiscal harmonization in the EEC", Science and Technical Taxation, No. 362, p. 44.), each invoice with a mention of tax is a "check on the treasury, as it gives to the recipient who is a taxable person the right to deduct the VAT contained therein. Therefore, (...) the mere mention of VAT in an invoice (even if perhaps misplaced, because there is no grounds for tax in that case, for any reason) gives rise to the obligation to pay, regardless of the quality of the issuer, that is, whether or not he is a taxable person. It will become, by the simple fact of the mention, a "tax debtor". Only thus can it be achieved that to the right to deduction, which the invoice gives to the recipient taxable person, there always corresponds an obligation to pay. Thus the regular functioning of the fractional payment system is ensured." Applying the foregoing to the case at hand, it is verified that the claimant was not a VAT taxable person and was not obliged to issue an invoice, a copy of which appears at point c) of the proven facts. However, by doing so, the mention therein of the tax gave to the recipient (in the case of the proceedings, to B..., SA.), the right to deduct based thereon the VAT. Hence the legislator provides that the mere mention of VAT in the document in question gives rise to the obligation to pay, regardless of the quality of the issuer, who becomes a "tax debtor", as only then can it be achieved, as XAVIER DE BASTO refers, "that to the right to deduction, which the invoice gives to the recipient taxable person, there corresponds an obligation to pay", with a view to ensuring "the regular functioning of the fractional payment system" (our emphasis)."

It follows from the foregoing that the right to VAT deduction is essential to the functioning of the mechanism of this tax and can only be limited in exceptional situations.

6.2 On the Denial of the Right to VAT Deduction in Simulated Business

It results from the jurisprudence of the CJEU that it is not compatible with the VAT deduction regime to refuse that right to a taxable person who did not know and could not know that the operation in question was part of a fraud committed by the supplier or that another operation included in the chain of supply, earlier or later than the one carried out by the said taxable person, was vitiated by VAT fraud. The provisions of Articles 19, paragraphs 3 and 4, of the VAT Code are precisely intended to establish the impediment to the right to deduction resulting from fraudulent operations. First and foremost, bearing in mind that only VAT which has burdened acquisitions of goods and services intended for the exercise of the taxed activity carried out by the taxable person confers the right to deduction, paragraph 3 of Article 19 of the VAT Code makes explicit that "no deduction shall be made of tax resulting from a simulated operation or in which the price shown in the invoice or equivalent document is simulated". This legal provision, given its formulation, applies both in situations of absolute simulation, of which the so-called "false invoices" are a paradigm in the context of VAT, and in situations of relative simulation, of which one of the variants may be the simulation of the value of the operation.

In this case, we are faced with a situation in which the Tax Authority qualifies as false invoices and simulated business, resorting to the mechanism provided for in paragraph 3 of Article 19 of the VAT Code, wherefore it is on this plane and from this perspective that the corrections in question in these proceedings must be analyzed.

As regards simulated business, the jurisprudence of our higher courts has already been dealing with them and their relationship with VAT deductibility.

By way of example, see the judgment delivered in process 00030/05.6BEPNF, of the 2nd Section of Tax Proceedings, by the Central Administrative Court North and dated 14-07-2014, where it reads:

"In this regard, it is well known that, as has been uniform jurisprudence of this Central Administrative Court North, when the tax administration disregards invoices it deems to be false, the rules of the burden of proof of Article 74 of the General Tax Law apply, it being incumbent upon the tax administration to prove that the legal premises are verified that legitimize its action, that is, that there are serious indications that the operation shown in the invoice does not correspond to reality.

Once this proof is made, the burden of proof of the veracity of the transaction then falls upon the taxable person - cf. among others, Judgments of the Central Administrative Court North of 24-01-2008, process No. 01834/04 Viseu, 24-01-2008, process No. 2887/04 Viseu, 27-01-2011, process No. 455/05.7BEPNF and 18-03-2011, process No. 456/05BEPNF.

It should be noted that the tax administration does not need to demonstrate the falsity of the invoices, it being sufficient to evidence the consistency of that judgment (Judgment of the Supreme Administrative Court of 27-10-2004, process No. 810/04), invoking facts which translate a high probability that the operations referred to in the invoices are simulated, a high probability capable of undermining the legal presumption of veracity of the declarations of taxpayers and the data contained in their accounting - Article 75 of the General Tax Law.

In this domain, in principle, if the indications show that with strong probability the issuers of the invoices did not have the business capacity to sell the merchandise mentioned in the invoices, that alone would suffice to create a serious judgment that those transactions did not exist, that is, that those issuers did not sell the relevant materials to the claimant, and thus the claimant did not buy them, translating thus the invoice a simulation of transaction between the issuer and the user of the invoice.

And thus it could be said that it would suffice for the tax administration, to fulfill its burden, to carry facts relating to the issuers of the invoices indicative of their incapacity to transact the merchandise. And it would be discharged from investigating any fact in the sphere of the user of the invoices indicative of their participation or knowledge or duty to know of the falsification. It could limit itself, as happened in the case at hand, to noting in the taxable person's accounting the existence of invoices from those issuers to, without more, deem VAT improperly deducted, with the burden then falling upon the taxable person to demonstrate the veracity of the transactions.

In sum, if thus understood, the tax administration, knowing that a certain taxable person was engaged in the issuance of false invoices, could, without more, disregard the costs of any other inspected taxable person that had recorded invoices from that issuer.

Thus, the factual indicators that the invoice issuer does not have the capacity to provide the service are not sufficient, by themselves, to prevent the deductibility of the tax mentioned in that invoice, if there is no reason to question the realization of that service by a third party.

It may, at first glance, seem strange that the legislator abstained from the relationship underlying the transaction documented in the invoice, which, to be subjectively true, would have to exist between those two subjects (the invoice issuer and the invoice user). But there is a reason for this: the legislator also abstains from the underlying relationship to demand the tax from the issuer.

Indeed, under Article 2, paragraph 1, subparagraph c), of the same code, tax can also be demanded from the invoice issuer who mentions it therein improperly. Each invoice in which tax is mentioned constitutes a 'check on the Treasury' (cited José Guilherme Xavier de Basto, in 'The Taxation of Consumption and its International Coordination', Notebooks of Tax Science and Technique, 164, Center for Tax Studies 1991, p. 140). And this happens precisely because the recipient of the invoice also does not, for that reason, lose the right to use it, in the exercise of its right to deduction.

Thus, since the existence of the underlying relationship between those two subjects is not a requirement of tax deductibility, it can only be prevented by a rule of exclusion.

The VAT Code contains several rules that specially exclude the right to deduction, but we are only interested in analyzing one of them here: paragraph 3 of its Article 19. Because it was on the basis of that rule that the tax administration made the corrections impugned.

And according to this rule, no deduction shall be made of tax resulting from a simulated operation or in which the price shown in the invoice or equivalent document is simulated.

However, the VAT Code also does not tell us what should be understood as a simulated operation for the purposes of that Code, so it must be interpreted with the sense the term has in civil law - Article 11, paragraph 2 of the General Tax Law.

Now, simulation is the divergence between the real will and the declared will of the subjects of the legal transaction, by agreement between the declarant and the declaratee and with the intent to deceive third parties – Article 240 of the Civil Code. It can be absolute (when there is no intention to perform any transaction) or relative (when there is the intention to conceal another transaction). And, in the latter case, it can be subjective (when the concealed transaction is performed with another subject) or objective (when the concealed transaction has different nature or content, as occurs with the simulation of value).

Let us analyze in more detail subjective simulation (which is what is relevant to the case). For there to be simulation, there must be an agreement between the subjects, the real subjects of the operation and the interposed party (fictitious interposition). If the agreement exists only between the interposed party and one of the real subjects of the operation, acting in its own name, but in the interest and on behalf of that subject (real interposition), we are not dealing with simulation, but rather with agency without representation (cf. Articles 1180 et seq. of the Civil Code – in this sense, Carlos Alberto da Mota Pinto, in General Theory of Civil Law, 3rd. updated edition, p. 476).

Merchant commission, regulated in Articles 266 et seq. of the Commercial Code, is a type of agency without representation, with the particularity of having as its object, not the performance of legal acts, but the performance of commercial acts. Also in this case there is a real and lawful interposition of subjects (and which is opposed, for that reason, to fictitious or simulated interposition - Pires de Lima and Antunes Varela, in 'Civil Code Annotated', volume II, p. 747). That is, the transaction is actually performed between the agent or commissionaire and the recipient of the services. However, the agent is under the obligation to transfer to the principal the ownership of the rights it has acquired in execution of the agency.

It should be noted that the VAT Code expressly adopted the legal figure of merchant commission, as is evident from its Articles 3, paragraph 3, subparagraph c) (in case of interposition in the transfer of goods) and 4, paragraph 4 (in case of provision of services). Which means that, also for the purposes of this tax, the provision of services on behalf of another is not a fictitious or simulated interposition.

Thus, the interposition of a subject between the invoice issuer and its user will only be a simulated operation for the purposes of Article 19, paragraph 3, of the VAT Code and, consequently, will only exclude the right to deduction if there is agreement between them with the intent to deceive third parties, namely the tax administration.

Wherefore the existence of agreement between the true service provider and its user, to the effect of simulating the performance of the transaction between only one of them and a third party with the intent to deceive third parties (and the tax administration in particular) is an essential element of subjective simulation.

Let us move on to another question, which is whether it is incumbent upon the tax administration to prove the simulating agreement. It is the problem of the distribution of the burden of proof between the tax administration and the taxable person in assessing the legality of the exercise of deduction.

On this matter, Article 74, paragraph 1, of the General Tax Law provides with interest that the burden of proof of the facts constitutive of the rights of the tax administration or of taxpayers rests on whoever invokes them. Thus, taking as a model the procedure for the assessment initiated by the tax administration, the latter shall have the burden of demonstrating the occurrence of the facts from which the right to assessment derives (the facts-premises of the existence, qualification and quantification of the tax fact). And the taxable person shall have the burden of demonstrating the facts that impede, modify or extinguish that right.

However, the judgment of the Full Section of the Tax Proceedings of the Supreme Administrative Court of 2003-05-07 (Process No. 01026/02, available in full at www.dgsi.pt, following the understanding of the Supreme Administrative Court judgment of 2002-04-17, process No. 026635, also available there), established jurisprudence to the effect that the burden of proof of the existence of the tax facts which the taxpayer alleged as a premise of the right to VAT deduction rests with the taxpayer.

The reason for this understanding is as follows: contrary to what generally happens, in which the tax administration affirms the occurrence of the fact from which the right to taxation derives, in this case it is the taxable person who affirms the tax fact from which the right to deduction derives and the tax administration which questions its occurrence.

It should be emphasized, however, that this rule of the burden of proof only truly operates after the tax administration has gathered and invoked grounded indications that the tax fact did not occur (in the case, that it did not occur between the subjects mentioned in the invoice. That is (to use the words of the same judgment), after the tax administration has issued 'an administrative judgment of adequacy between the facts and the valuations in which the administration says, formally, to support its decision and the result of that judgment to the effect that it appears to it to have been declared a deduction greater than due and with proof before the court of the pertinence of that judgment or that is, with proof, before the court, of the existence of the elements that make it possible to consider as adequate the consideration made by it that the taxpayer declared a deduction greater than that permitted by law'.

Which, moreover, already resulted from Article 82, paragraph 1, of the VAT Code (in the wording then in force) according to which the ratification of the declarations of the taxable person would occur when the tax administration foundedly considered that they contained a tax greater than or a deduction greater than that due.

And that it could not be otherwise, because the exercise of the right to deduction is based on the declaration to which Article 28, paragraph 1, subparagraph c), of the same Code then referred. A declaration which, under Article 75 of the General Tax Law, is presumed true when presented in the terms provided by law and the data contained therein are entered in its accounting or record, which in turn is organized in accordance with commercial or tax legislation. And when someone has the benefit of a legal presumption, they do not have to prove the fact to which it leads – Article 350, paragraph 1, of the Civil Code.

Wherefore, when the right to deduction is based on the declaration of the taxable person presented in the terms of law, the tax administration which wishes to rebut the occurrence of the fact on which that deduction is based by invoking the simulation of subjects, does not have to demonstrate that the simulating agreement existed (which would be very difficult to demonstrate, in the vast majority of cases), but must gather objective indicators that such an agreement should have existed. …"

From this point, and considering the particular situation under review in these proceedings, it must be understood that for there to be simulation it would have been necessary for the tax administration to have gathered elements which linked the user of the invoices to the fraud scheme, that is, which gathered indications that the user of the invoices participated or knew or should have known that the issuer of the invoices was not the actual supplier of the merchandise in question, insofar as it may happen that the user of false invoices does not know and has no possibility of knowing of the falsity.

Indeed, it suffices that an operator, obtaining the necessary quantities of merchandise, equipping himself with an invoice book and opening a bank account in the name of the invoice holder, moves to the facilities of another reseller, offers the merchandise, agrees a price and discounts the check used as a means of payment.

To accept that the burden of the Public Treasury is satisfied with the collection of indications of falsity relating to the invoice issuers would lead to users of false invoices, who do not know they are false, being unable to deduct costs they actually incurred, without having participated in any fraudulent scheme.

It could be said that, always such innocent users could prove the veracity of the transactions - in the application of the probative framework set out above: it is incumbent upon the tax administration to demonstrate indications of falsity; once such burden is fulfilled, it then falls upon the taxpayer the burden of proof of the veracity of the transactions.

But it is easily understood that such proof, in these circumstances, of upstream fraud, which it does not know, will be impossible for the user of the invoices to prove anything beyond what results from its accounting, and which, it should not be forgotten, enjoys a presumption of veracity. If there was fraud and the user of the invoices does not know, it cannot prove that the merchandise was acquired from the invoice issuers, because it was not; nor can it prove that it acquired it from another, because for this user of invoices the merchandise was bought from the issuer, unaware of the actual seller.

What the user of invoices can do in these circumstances is only to clarify how the negotiations developed and with whom they developed.

(…)

Thus, where there are indications that the issuer of the invoices did not supply the merchandise mentioned in the invoices, it was incumbent upon the tax administration to investigate the participation of the Claimant in the simulating scheme.

Now, the tax administration does not say that the claimant knew or should have known that it was buying from a person different from the one shown in the invoice and the user of the invoice is not obliged to know the business or tax situation of the invoice issuer who delivers the merchandise to it.

To accept that a user of invoices sees costs disregarded without the tax administration in some way linking it to the fraudulent scheme would violate the principle of justice. And would put at risk the confidence in commercial relations.

This understanding is in line with that of the Court of Justice which in the Judgment of January 31, 2013, process C-642/11 - which dealt with a question of VAT deductibility, relating to cases in which irregularities occur in the sphere of issuers, pronounced itself as follows:

'47 Thus, it is for the national authorities and courts to refuse the right to deduction if it is demonstrated, on the basis of objective elements, that that right is invoked fraudulently or abusively (v., in this sense, judgment of 6 July 2006, Kittel and Recolta Recycling, C-439/04 and C-440/04, Coll., p. I-6161; and judgments, already referred to, Mahagében and David, No. 42, and Bonik, No. 37).

48 However, also according to well-established jurisprudence, it is not compatible with the right to deduction regime provided for by Directive 2006/112 to punish, with the refusal of that right, a taxable person who did not know and could not know that the operation in question was part of a fraud committed by the supplier or that another operation included in the chain of supply, before or after the one carried out by the said taxable person, was vitiated by VAT fraud (v., especially, judgment of 12 January 2006, Optigen and others, C-354/03, C-355/03 and C-484/03, Coll., p. I-483, Nos. 52 and 55; and judgments, already referred to, Kittel and Recolta Recycling, Nos. 45, 46 and 60, Mahagében and David, No. 47, and Bonik, No. 41).

49 Furthermore, the Court of Justice declared, in Nos. 61 to 65 of the judgment Mahagében and David, already referred to, that the Tax Administration cannot require in a general manner that the taxable person who intends to exercise the right to VAT deduction, on the one hand, verify that the issuer of the invoice relating to the goods and services for which the exercise of this right is sought has the quality of a taxable person, possesses the goods in question and is in a position to deliver them and complies with its declaration and VAT payment obligations, in order to ascertain that there are no irregularities or fraud at the level of upstream operators, or, on the other, possesses documents in this regard.

50 It follows that the national court which must decide whether, in a given case, there is a taxable operation, the Tax Administration having alleged in the proceedings that the existence of irregularities committed by the invoice issuer or by one of its suppliers, such as accounting omissions, must ensure that the appreciation of the evidence does not lead to emptying of meaning the jurisprudence recalled in No. 48 of the present judgment, indirectly obliging the invoice recipient to carry out verifications with its contracting party which, in principle, do not fall to it.'

And finally declared:

'(…)

2- The principles of fiscal neutrality, proportionality and legitimate expectation must be interpreted to mean that they do not preclude the right to deduct value added tax paid upstream being refused to the recipient of an invoice, due to the non-existence of an actual taxable transaction, when, in the rectification notice of taxation sent to the invoice issuer, the value added tax declared by the issuer has not been corrected. However, if, due to fraud or irregularities committed by the issuer or upstream of the operation invoked as the basis for the right to deduction, it is considered that that operation was not effectively carried out, it must be proved, on the basis of objective elements and without requiring the invoice recipient to carry out verifications which do not fall to it, that the said recipient knew or had an obligation to know that the operation was involved in a fraud regarding value added tax, which it is for the national court to verify.' (our emphasis).

(…)

In the case, it is reiterated, there being demonstrated that the Claimant acquired the merchandise in question, the tax administration would have to gather sufficient indications that the claimant knew or should have known that the person selling to it was not the person appearing in the invoices.

And having such not occurred, we conclude that the tax administration did not gather indications which legitimize its action in the sense of not accepting the VAT deduction mentioned in the invoices in question in these proceedings, that is, it did not comply with the burden which fell upon it in the sense of grounding the impugned assessments, which are thus marred by illegality, making it necessary thus to follow the decision overturned when it determined the annulment of the impugned assessments."

Emphases as in the original.

It is important to note that this Arbitral Tribunal adheres without reservation to the analysis of Law which the Central Administrative Court North formulated in the judgment of which we have above transcribed the most relevant parts.

6.3 Analysis of the Case Sub Judicio

The Tax Authority understands that the invoices issued by companies D... and E..., Lda to the Claimant do not constitute commercial transactions relevant for the purpose of allowing the deductibility of VAT incurred by the Claimant, that is, that these are simulated operations, wherefore in accordance with paragraph 3 of Article 19 of the VAT Code the Claimant could not have deducted the tax relating to these simulated acquisitions.

Let us begin by referring to the burden of proof in the context of the corrections being analyzed. As has been repeatedly and uniformly emphasized by the jurisprudence of our higher courts, to which we made exhaustive reference in the preceding section, when the Tax Authority disregards invoices it deems to be false, the rules of the burden of proof provided for in Article 74 of the General Tax Law apply, it being incumbent upon the latter to prove that the legal prerequisites are verified which legitimize its action, that is, that there are serious indications that the operation shown in the invoices does not correspond to reality, then the burden of proof as to the veracity of the transaction falls upon the taxable person.

It is on this plane that we find ourselves.

Let us see, then, not losing sight of the legal framework outlined with respect to the burden of proof and considering the facts determined in the inspection proceedings, in order to respond to the question of whether it results from the facts considered proven that the Tax Authority provided proof of the verification of indications that allowed it to conclude that the invoices with respect to which the VAT contained therein was disregarded did not have underlying any economic operations realized between these companies and the Claimant.

From the facts given as proven, the following results:

• When the wood was acquired from other taxable persons, all operations (acquisition, cutting and transport of goods) were the responsibility of the supplier. It was these that delivered directly to the facilities of the Claimant's clients (B... SA and C...) the wood. In these cases, generally, the transport was at the cost of the Claimant's supplier, but before the clients – final ones, let us call them thus – of the Claimant it was the latter who supplied the wood to them and invoiced them. It was the latter's supplier of the merchandise.

• Authorization was requested to access the bank accounts of the Claimant's administrators, which subsequently occurred, nothing having resulted therefrom, in particular that these received money flows relating to the payments they made to the supplying companies in question, allegedly perpetrators of the simulation and falsity in question here, because the Tax Authority said nothing about this in the RIT, being presumed, thus, that it found nothing, for if it had it would have said and did not say.

• Before the Claimant, the responsibility for transporting the acquired merchandise for delivery to its clients was assumed by the supplying companies of the merchandise, they were the ones who transported the wood, and if to do so they subcontracted these services to third parties that was not the responsibility of the Claimant.

• The Claimant made payment to its suppliers preferentially through bank checks drawn on company accounts, means which circulated in the financial circuit and which were analyzed by the Tax Authority.

• In all GEP (goods exit permits) issued by the Claimant's clients, the Claimant itself is mentioned as the only supplier of goods, which is factual as it was the latter who supplied (sold) the merchandise to its clients.

• The sale of wood to the Claimant's clients was invoiced by it.

• The absence of a written contract, although it is a sale of merchandise, does not constitute an indication of falsity of the underlying operations, as this is not mandatory, it is true that the apparent existence of some informality may not prove to be the most weighed in the context of a commercial relationship, but to extrapolate from there to the non-existence of a contractual relationship is something that lacks proof which the Tax Authority does not make in these proceedings.

• On the other hand, in the context of Corporate Income Tax, the Tax Authority expressly recognizes that the operations documented by the invoices whose deductible VAT is denied in these proceedings document operations "economically effectively occurred, and it was proven that A... Lda proceeded to deliver wood to its clients" having made no correction in the context of Corporate Income Tax. Now, if the Tax Authority denies the right to VAT deduction on the grounds that the operation is simulated, it is not understood how it accepts the full deductibility of the same costs in the context of Corporate Income Tax, which reveals a lack of coherence that this Tribunal qualifies as incurable.

That is, at no moment does the Tax Authority expressly come to deny that the Claimant acquired the wood in question, or proving with sufficient proof, and not merely indications and insufficient ones, that it knew or should have known that the person selling the merchandise to it was not the entity that appeared in the invoices. In fact, the overwhelming majority of the evidence carried to the tax administrative proceedings refers to facts practiced by third-party entities – the suppliers – who allegedly defrauded the State in the context of various taxes due to absolute failure to comply with their tax obligations, but at no moment linking these to the Claimant, even indirectly, proving that the latter would have to know that these were false, which, it is reiterated, in the judgment of this Tribunal, was not achieved.

No relevant indication was adduced by the Tax Authority to the effect of demonstrating that the Claimant had knowledge of the facts imputed to the companies issuing the invoices, so exhaustively described in the RIT.

The failure to comply by the Claimant or its suppliers with the legal regime established in Decree-Law 147/2003 has as a consequence the institution of the corresponding administrative offense proceedings, as provided for in that decree, in any case, and not the total loss of the right to VAT deduction supported.

Now, the Claimant is not obliged to investigate the business or tax situation of the invoice issuers that sold it the merchandise. In the case at hand, there being demonstrated that the Claimant acquired the merchandise and sold it to its clients, the Tax Authority would have to gather sufficient indications that the Claimant knew or should have known that the person selling to it was not the entity appearing in the invoices.

In sum, the conclusion which the Tax Authority drew from the indications it determined in the RIT as to the issuers of the invoices in question in these proceedings does not, without more, allow it to draw the conclusion that the operations in which the Claimant was involved are simulated and that, on that premise, it loses the right to the deduction of the tax. It had to prove it and in the judgment of this Tribunal it did not.

Finally, already in its Arguments the Respondent comes to argue that, should it be accepted that the tax is deductible, it can only be so in the amount of 6%, because the sale of the wood in question in these proceedings is subject to the VAT rate of 6% and not 23% which was what the Claimant was charged because it was thus assessed by its suppliers.

The Tax Authority argues that the tax improperly mentioned in an invoice does not confer the right to deduct the VAT supported, basing its position on the Judgment of the CJEU of January 31, 2013, delivered in the case C-643/11, LVK – 56 EOOD.

Let us see, transcribing the relevant passages of this judgment:

"59. Thus, it is for the national authorities and courts to refuse the right to deduction if it is demonstrated, on the basis of objective elements, that that right is invoked fraudulently or abusively (v., in this sense, judgment of 6 July 2006, Kittel and Recolta Recycling, C-439/04 and C-440/04, Coll., p. I-6161, No. 55; and judgments, already referred to, Mahagében and David, No. 42, and Bonik, No. 37).

1. However, also according to well-established jurisprudence, it is not compatible with the right to deduction regime provided for by Directive 2006/112 to punish with the refusal of that right a taxable person who did not know and could not know that the operation in question was part of a fraud committed by the supplier or that another operation included in the chain of supply, before or after the one carried out by the said taxable person, was vitiated by VAT fraud (v., especially, judgment of 12 January 2006, Optigen and others, C-354/03, C-355/03 and C-484/03, Coll., p. I-483, Nos. 52 and 55; and judgments, already referred to, Kittel and Recolta Recycling, Nos. 45, 46 and 60, Mahagében and David, No. 47, and Bonik, No. 41).

2. Furthermore, the Court of Justice declared, in Nos. 61 to 65 of the judgment Mahagében and David, already referred to, that the Tax Administration cannot require in a general manner that the taxable person who intends to exercise the right to VAT deduction, on the one hand, verify that the issuer of the invoice relating to the goods and services for which the exercise of this right is sought has the quality of a taxable person, possesses the goods in question and is in a position to deliver them and complies with its declaration and VAT payment obligations, in order to ascertain that there are no irregularities or fraud at the level of upstream operators, or, on the other, possesses documents in this regard.

3. It follows that the national court which must decide whether, in a given case, there is no taxable transaction, the Tax Administration having alleged in the proceedings the existence of irregularities committed by the invoice issuer or by one of its suppliers, such as accounting omissions, must ensure that the appreciation of the evidence does not lead to emptying of meaning the jurisprudence recalled in No. 60 of the present judgment, indirectly obliging the invoice recipient to carry out verifications with its contracting party which, in principle, do not fall to it.

4. With regard to the main proceedings, account must, however, be taken of the fact that, according to the order for reference, the documents presented by the recipient of the invoices in dispute, which were also vitiated by irregularities, are elements to be taken into consideration in the overall assessment to be carried out by the national court.

5. Having regard to the foregoing, the second part of the third question and the fourth, fifth and sixth questions must be answered to the effect that European Union law must be interpreted to mean that Articles 167 and 168, subparagraph a), of Directive 2006/112 and the principles of fiscal neutrality, legal certainty and equal treatment do not preclude the right to deduct VAT paid upstream being refused to the recipient of an invoice, due to the non-existence of an actual taxable transaction, when, in the rectification notice of taxation sent to the invoice issuer, the VAT declared by the issuer has not been corrected. However, if, due to fraud or irregularities committed by the issuer or upstream of the operation invoked as the basis for the right to deduction, it is considered that that operation was not effectively carried out, it must be proved, on the basis of objective elements and without requiring the invoice recipient to carry out verifications which do not fall to it, that the said recipient knew or had an obligation to know that the operation was involved in a fraud regarding VAT, which it is for the national court to verify."

Emphasis as in the original.

In the case at hand, it is verified that the jurisprudence of this judgment is not applicable to these proceedings because there was a taxable operation in the sphere of the Claimant and it was not proven that it knew or should have known that the issuers of the invoices in question were false.

Compensatory Interest

As to the right to compensatory interest, petitioned by the Claimant, it should be noted that subparagraph b), paragraph 1, Article 24 of the RJAT provides that the Arbitral Decision on the merits of the claim, against which no appeal or challenge lies, binds the Tax Administration as from the end of the deadline provided for appeal or challenge, and the latter – in the exact terms of the success of the arbitral decision in favor of the taxable person and until the end of the deadline provided for voluntary execution of sentences of tax courts – must restore the situation that would have existed if the tax act subject of the arbitral decision had not been performed, adopting the necessary acts and operations for that purpose.

This provision is in harmony with the provisions of Article 100 of the General Tax Law, applicable to the case by force of the provisions of subparagraph a), paragraph 1, Article 29 of the RJAT, in which it is established that "The tax administration is obliged, in case of full or partial success of administrative complaints or appeals, or of judicial proceedings in favor of the taxable person, to immediately and fully restore the situation that would have existed if the illegality had not been committed, including the payment of compensatory interest, in the terms and conditions provided by law."

Paragraph 1 of Article 43 of the General Tax Law provides, in turn, that "compensatory interest is due when it is determined, in a gracious claim or judicial appeal, that there was an error attributable to the services from which results the payment of the tax debt in an amount greater than legally due."

From the analysis of the evidentiary elements contained in these proceedings, it is possible to conclude that the Respondent had total and complete knowledge of the factual elements relevant to proceeding with the correct assessment of the tax, having not done so and instead choosing to maintain the assessments tainted by error in the premises, and therefore illegal, being obliged to indemnify for that reason.

Thus, given the provisions of Article 61 of the Tax Procedure Code and considering that the requirements for the right to compensatory interest are met, that is, the existence of an error attributable to the services from which results the payment of the tax debt in an amount greater than legally due, as provided for in paragraph 1 of Article 43 of the General Tax Law, the Claimant is entitled to compensatory interest, at the legal rate, calculated on the amounts already paid in the amount of €55,507.20, from the date on which payment was made until its full reimbursement.

7. DECISION

In light of the foregoing, this Single Arbitral Tribunal hereby decides:

• To uphold the claim for arbitral pronouncement, and to declare the consequent annulment, by defect of violation of law due to error in the premises of law, of the VAT assessment acts in question in these proceedings, in the total amount of €55,507.20, determining the reimbursement of the tax improperly paid and compensatory interest by the Claimant, plus the payment of compensatory interest due from the date of payment of the tax and compensatory interest until the full reimbursement of the amount paid.

The value of the case is fixed at Euro 55,507.20, in accordance with the provisions of Articles 3, paragraph 2 of the Regulations on Costs in Tax Arbitration Proceedings (RCPAT), 97-A, paragraph 1, subparagraph a) of the Tax Procedure Code and 306 of the Code of Civil Procedure.

The amount of costs is fixed at Euro 2,142.00, pursuant to Article 22, paragraph 4 of the RJAT and Table I attached to the RCPAT, borne by the Respondent, in accordance with the provisions of Articles 12, paragraph 2 of the RJAT and 4, paragraph 4 of the RCPAT.

Notification is hereby ordered.

Lisbon, December 6, 2018.

The Arbitrator,

(Henrique Nogueira Nunes)

Text prepared by computer, in accordance with Article 131, paragraph 5 of the Code of Civil Procedure, applicable by referral of Article 29, paragraph 1, subparagraph e) of the RJAT.

The wording of this arbitral decision is governed by the spelling prior to the Orthographic Agreement of 1990.

[1] Available at www.dgsi.pt

[2] Cf., among others, judgments of 12 January 2006, Optigen C-354/03, C-355/03 and C-484/03, Nos. 52 and 55 and Kittel and Recolta Recycling, Nos. 45, 46 and 60, Mahagében and David, No. 47, and Bonik, No. 41.

[3] Available at www.dgsi.pt