VAT Self-Assessment Error: Revision of Tax Act and Refund of Excess VAT Paid by Public Entity (CAAD 203/2015-T)

ARBITRAL DECISION

CLAIMANT: A…

RESPONDENT: TAX AND CUSTOMS AUTHORITY

I – REPORT

A) The Parties and Constitution of the Arbitral Tribunal

1. A…, a legal person under public law with Tax Identification Number (NIPC) …, with registered office at Building …, represented by the President of the Municipal Council, hereinafter referred to as "Claimant", filed a request for constitution of a singular Arbitral Tribunal, under the terms provided in Article 2, No. 1, paragraph a), Article 10 and subsequent of Decree-Law No. 10/2011, of January 20th, hereinafter referred to as "RJAT" and of Ordinance No. 112-A/2011, of March 22nd, regarding the decision dismissing the request for review of the tax act, issued by the Tax and Customs Authority (ATA), seeking the annulment of the ATA's decision that dismissed the request for official review of the tax act and the declaration of illegality of the VAT self-assessment act, reflected in the December 2010 declaration, and consequently condemning the ATA to reimburse the VAT supported in excess by A… in the year 2010, in the amount of €30,737.01.

2. The request for constitution of the Arbitral Tribunal was filed by the Claimant on March 20, 2015, was accepted by the Illustrious President of CAAD and notified to the Tax and Customs Authority on March 23, 2015.

3. The Claimant opted not to appoint an arbitrator, whereby, under the terms provided in No. 1, Article 6 of RJAT, the undersigned was appointed by the Ethics Council of the Administrative Arbitration Centre as singular arbitrator and the parties were notified of this appointment on May 15, 2015.

4. Thus, the appointment accepted, in accordance with the provision of paragraph c), No. 1, Article 11 of Decree-Law No. 10/2011, of January 20th, as amended by Article 228 of Law No. 66-B/2012, of December 31st (RJAT), the Singular Arbitral Tribunal was constituted on June 17, 2015. On June 18, 2015, the ATA was notified, under the terms and for the purposes of the provisions of Nos. 1 and 2 of Article 17 of RJAT, to file its response, which was filed in the case on August 3, 2015.

5. On August 5, 2015, an arbitral order was issued designating September 7, 2015 for the holding of the meeting provided for in Article 18 of RJAT, at 3:15 p.m. On the date indicated, the meeting was held, with the objective of proceeding to hear the parties on the questions mentioned in paragraphs a) and b) of Article 18, and possible production of oral submissions. The parties stated that they had nothing to propose with respect to paragraph a), and regarding the provision of paragraph b), the parties expressed preference for the production of written submissions. Accordingly, the Tribunal granted the parties' request and set a period of 20 days, equal and successive, for the presentation of their respective written submissions. The Tribunal set November 17, 2015 for the pronouncement of the arbitral decision and notified the Claimant to, by that date, proceed to payment of the subsequent arbitral fee. The Claimant and Respondent filed their Submissions within the period determined by the Tribunal, respectively, on September 25, 2015 and October 13, 2015, in which the Claimant responds to the exception raised by the Respondent and, in essence, both reinforce their respective positions already set forth, respectively, in the arbitral request and Response attached to the case.

6. The Arbitral Tribunal is regularly constituted.

7. The Parties enjoy legal personality and capacity, are legitimate and are legally represented (See Articles 4 and 10, No. 2 of Decree-Law No. 10/2011 and Article 1 of Ordinance No. 112/2011, of March 22nd).

8. The proceedings do not suffer from defects that would invalidate it.

B) THE REQUEST FORMULATED BY THE CLAIMANT:

1. The Claimant formulates the present request for arbitral pronouncement seeking the declaration of illegality of the dismissal of the request for official review of the tax act of VAT self-assessment, with reference to the year 2010, given that it suffers from manifest error, from which resulted a VAT value that A… liquidated and paid but which was not due. It alleges that A… is a legal person under local public law, whose activity consists of the pursuit of its municipal attributions in the most diverse areas of activity, being classified, for VAT purposes, under the normal monthly regime.

In the pursuit of its attributions, the claimant performs a vast set of operations, within the scope of its powers of authority, which are excluded from VAT subjection under the provision of No. 2 of Article 2 of the VAT Code, but also performs a set of operations, whether transfers of goods or provision of services, which are not included within the scope of its powers of authority, and are therefore subject to VAT under the general terms of the VAT Code (water distribution and concession of the Camping Park of …) operations exempt from this tax (rental of social housing, operation of sports facilities by the municipality).

It so happened that, in the course of an internal review of procedures for the year 2010, the claimant verified that, in its activity, it supported VAT in excess, in that it only deducted the tax incurred in the acquisition of resources associated with water distribution, through the application of the real allocation method. Specifically, A… conducted a review of the deduction methods applied in 2010, from which the following changes resulted, in its favor:

a) Possibility of full deduction (through the application of real allocation) of VAT on resources associated with the performance of taxable operations (European Championship of ..., Camping Park of …, sale of bags at the … Fair, sale of hay and provision of water distribution services, as it is, in this case, some resources whose VAT had not yet been deducted, despite being related to water distribution);

b) Possibility of partial deduction (through the application of real allocation with criteria) of VAT on resources simultaneously allocated to the provision of water distribution services (taxable operations conferring the right to deduction) and wastewater treatment (non-taxable operations not conferring the right to deduction);

c) Possibility of partial deduction (through the application of the pro rata method) of VAT incurred on resources of "mixed" use (i.e., resources used indiscriminately for the activity of A… as a whole, whether taxable or non-taxable under VAT, commonly also designated as "common resources").

1. Following the review of procedures conducted, the Claimant determined VAT supported in excess (i.e., not deducted) in the amount of €30,737.01. In order to recover the VAT supported in excess, the Claimant submitted, in May 2014, a request for official review requesting authorization from the tax authority to effect the adjustment/deduction of the VAT supported in excess during the year 2010, in the total amount of €30,737.01.

It invokes, in summary, that the error committed is an error of law attributable to the services, under the terms provided in No. 2 of Article 78 of the LGT. It alleges that the rule contained in No. 2 of Article 98 of the VAT Code is applicable to the situation in question, whereby the right to deduction or reimbursement of excess tax paid may be exercised until the expiry of 4 years after the birth of the right to deduction or excess payment of tax, with the tax in question (year 2010) still within the said time limit, at the time of filing the request for official review. It further alleges that no material error or calculation error occurred susceptible to subsumption in No. 6 of Article 78 of the VAT Code, and that, even if the Claimant had committed an error classifiable in the said normative provision, it could still request official review from the TA under the terms of Articles 98 of the VAT Code and 78 of the LGT.

1. This request for review was dismissed, with the Claimant being notified on December 30, 2014, through office no. …, of December 26, 2014. It is this act of dismissal of the review request that gave rise to the present arbitral request.

C – THE RESPONDENT'S RESPONSE

1. The Respondent, duly notified to that effect, filed a Response in the present proceedings, in which it contests the present arbitral request, by exception and by impugnation, alleging in summary the following:

a) That the present arbitral request should fail, first of all, for a reason of procedural nature, given that the present arbitral instance is materially incompetent to hear the request formulated in the present proceedings, for several reasons. It thus alleges the exception of material incompetence in virtue of the legality of a liquidation act not having been appraised, given that the act that constitutes the object of the request for arbitral pronouncement consists of the decision dismissing the request for official review of the tax act, in which the Claimant requested, only, that his claim be granted "in the sense of authorizing the deduction, under the provision of Article 98 of the VAT Code and Article 78 of the General Tax Law, of the VAT incurred by A… in the acquisition of resources of mixed use, in the amount of €30,737.01, resulting from the application of the pro rata deduction methods and real allocation with objective criteria, calculated under the terms of Article 23 of the VAT Code." That is, according to the ATA, the Claimant, in the requests for official review in question, did not request the annulment of any self-assessment act, whereby the decision dismissing the matter at issue was motivated by the subsumption of the concrete case to the discipline of No. 6 of Article 78 of the VAT Code, having consequently concluded that the two-year period for adjustments by the taxpayer was not complied with.

Thus, in the perspective of the ATA, the methods and deduction criteria referred to in Article 23 of the VAT Code cannot be altered beyond the period provided in No. 6 of that article, that is, after the declaration of the last period to which it relates (December 2010). Having the Claimant filed, in March 2014, the request for official review where it requests the "additional" deduction of tax supported in 2010, the period for the exercise of that right has been exceeded. That is, the legality of any tax liquidation act was not appraised. It further alleges that, in fact, only in the arbitral proceedings does the Claimant petition for the declaration of illegality of the self-assessment act. The request for arbitral pronouncement has, thus, as its immediate object the decision dismissing the official review, not having as its mediate object any tax liquidation act, since in the official review procedure, the legality of any liquidation act was not appraised, especially since only in the course of arbitral pronouncement did the Claimant adduce such request. Therefore, in the ATA's view, we are dealing with an administrative act in tax matters which, by not appraising or discussing the legality of the liquidation act, cannot be subject to judicial impugnation under the terms provided in paragraph a) of No. 1 of Article 97 of CPPT, but rather through a special administrative action, as follows from the provision of No. 2 of this Article 97, as it would be an act that does not appraise the legality of a liquidation act. The tax arbitral process is established by reference and with an object entirely similar to the judicial impugnation process, in relation to which it "must constitute an alternative procedural means". The said circumstance results unequivocally from the provision in the Legislative Authorization Act under which tax arbitration was constituted "as an alternative form of jurisdictional resolution of conflicts in tax matters" (cf. Nos. 1, 2 and 4, paragraph a), of Article 124 of Law No. 3-B/2010, of April 28th). Thus, the review of the act in question is outside the scope of matters susceptible to appreciation in the arbitral proceedings, as follows from Article 2 of RJAT, and as, moreover, has been affirmed in extensive arbitral case law of arbitral tribunals operating at CAAD in situations quite similar (namely, Municipalities that seek, through the request for official review, to recover allegedly overpaid VAT). It invokes the arbitral case law established in case numbers 244/2013-T, 249/2014-T, 299/2013-T and 613/2014-T to conclude seeking the sustaining of the exception of material incompetence of this Arbitral Tribunal to appraise the legality of the act dismissing the official review. "Thus, it must be concluded that the act dismissing the requests for official review does not entail the appraisal of the legality of the self-assessment acts, since nowhere is it stated whether the corrections the Claimant intended to make have support in substantive law, with the dismissal based only on the lack of legal rule providing for the possibility of exercising the right to deduction at the moment the Claimant intended to exercise it. Being thus, given what was said above about the limitation of the competence of arbitral tribunals operating at CAAD to the appraisal of the legality of acts deciding requests for official review that entail the appraisal of the legality of liquidation acts, it must be concluded that this Arbitral Tribunal is incompetent to appraise the legality of the act dismissing the requests for official review."

Embodying, according to the ATA, a dilatory exception that translates into the tribunal's incompetence, which prejudices knowledge of the merits of the case, it should determine the dismissal of the Respondent Entity from the instance, mindful of the provision of Articles 576, No. 1 and 577, paragraph a) of CPC, applicable ex vi Article 29, No. 1, paragraph e) of RJAT.

b) Moreover, for the ATA, the request deduced by the Claimant is, further, untimely, in that, even if one admits that the object of the request is the request for annulment of the said self-assessment act, as it petitions the tribunal to "declare illegal the self-assessment act in question (i.e. reflected in the December 2010 declaration)", it is beyond the legally defined period for the impugnation of such act in the arbitral proceedings. Article 10 of RJAT establishes, as to liquidation/self-assessment acts, that the period for filing the request for arbitral pronouncement is 90 (ninety) days, referring, as to the moment of counting commencement, to what is provided in Article 102, Nos. 1 and 2 of the Code of Tax Procedure and Process (CPPT). Thus, the request in question, filed only in 2015, is untimely and the tribunal cannot hear it. The ATA concludes that the arbitral request is untimely by considering that the period for direct impugnation of the VAT self-assessment act (that is, of the primary act) has been exceeded. This conclusion is based on the allegation that the "timeliness" of the request could only be based on the existence of any means of gracious impugnation of the self-assessment act where a decision had been rendered denying/dismissing, totally or partially, the claims formulated therein by the tax payer (which would constitute an act of second degree). However, since it considers that in official review, the Claimant only requested authorization for the deduction of supported tax, not having sought the (i) legality of any self-assessment act, there is no support that could establish the timeliness of the request and, consequently, the possibility of the Tribunal appraising the request formulated regarding the self-assessment acts. It invokes to this purpose the arbitral case law contained in case No. 244/2013-T. "In summary, resulting, clear and unequivocally, from the learned initial pleading the direct impugnation of what is said to be a VAT self-assessment act, the request formulated (leading to its declaration of illegality) must be declared devoid of merit, as untimely and, consequently, the Respondent Entity absolved from the instance – cf. paragraph e), of No. 1, of Article 278 of CPC, applicable ex vi Article 29, No. 1, paragraph e), of Decree-Law No. 10/2011, of January 20th."

c) The ATA further invokes the exception for material incompetence due to the lack of mandatory precedence of gracious reclamation, which it considers to be indispensable in the present case, by virtue of the provision of Articles 2, No. 1, paragraph a), and 4, No. 1, both of RJAT, and in Articles 1 and 2, paragraph a), both of Ordinance No. 112-A/2011, of March 22nd. Once again, the exception of material incompetence of the present Arbitral Tribunal to appraise and decide the above-mentioned request is verified [cf. Articles 576, Nos. 1 and 2. From the factuality exposed in the present proceedings, it always followed that the mandatory precedence of gracious reclamation was required. The equating of the request for official review of the act to administrative reclamation is legally prohibited in the arbitral proceedings, being excluded from the material competence of arbitral tribunals the appraisal of claims relating to the declaration of illegality of self-assessment acts that have not been preceded by recourse to the administrative means under the terms of Articles 131 to 133 of CPPT. It further alleges that Article 2, paragraph a), of Ordinance No. 112-A/2011, literally excludes from the scope of the ATA's binding to arbitral jurisdiction claims relating to the declaration of illegality of self-assessment acts that have not been preceded by recourse to the administrative means, under the terms of Articles 131 to 133 of CPPT, with no reference therein to the official review provided for in Article 78 of the LGT. In this sense, the ATA understands that in the drafting given to the said legal provision, the legislator chose to restrict knowledge in arbitral jurisdiction to claims that, being related to the declaration of illegality of self-assessment acts, have been necessarily preceded by the gracious reclamation provided for in Article 131 of CPPT. In this regard, it cites the case law of the decision of the Supreme Administrative Court issued in case No. 0532/07, of November 28, 2007. But if, hypothetically, one intends to include in the authorization granted the administrative procedure of official review, such formulation appears manifestly illegal due to violation of the principles that should guide the interpretation of the tax legal norm, namely, the provision of Article 11, No. 1, of the LGT. It invokes in defense of this position the Arbitral Decision issued in case No. 51/2012-T. If the legislator did not provide, in Article 2 of the Binding Ordinance, the official review procedure as equivalent to recourse to the administrative means, especially to gracious reclamation, for the purposes of accessing the request for arbitral pronouncement, it certainly was because it did not intend to do so. It concludes that, by virtue of what is established in Article 2, paragraph a) of Ordinance No. 112-A/2011, disputes having as their object the declaration of illegality of self-assessment acts are excluded from the material competence of arbitral tribunals if they are not preceded by gracious reclamation under the terms of Article 131 of CPPT. A conclusion that is also required by virtue of constitutional principles of the Rule of Law and Separation of Powers (cf. Articles 2 and 111, both of the CRP), as well as Legality (cf. Articles 3, No. 2, and 266, No. 2, both of the CRP), as a corollary of the principle of Indisposability of Tax Credits inherent in Article 30, No. 2 of the LGT, which bind the legislator and all activity of the ATA. In this sense, it invokes the conclusions reached in the scope of tax arbitral case No. 236/2013-T. Being a unilateral binding, which implies a waiver of the common forum – the tax courts – the declaration would always be interpreted literally, that is, strictly, as all acts of waiver, which corresponds to a general principle of law, addressed, for example, in Article 237 of the Civil Code. "In conclusion: We are facing a reservation of the administration as follows from the regulation mentioned above. The reservation of the administration means that the judicial power (through the common courts or arbitral tribunals) must strictly respect the decisions of the Administration. (…) In accordance, the collective understood in the arbitral decision issued in the scope of case No. 303/2013-T: 'The ATA only bound itself to having claims relating to the declaration of illegality of self-assessment acts, tax withholding acts and payment on account acts appreciated by CAAD, provided that preceded by administrative means (broad concept), but only, among these, those referred to (more restricted scope) in Articles 131 to 133 of CPPT. Had the legislator wanted the ATA to bind itself to impugnations of second-degree acts, consisting of dismissals of official review, it would necessarily have had to say so in that legal provision, which it did not.'"

Not to be understood in this manner, the interpretation is not only illegal, but manifestly unconstitutional, due to violation of constitutional principles of the Rule of Law and separation of powers (Articles 2 and 111 of the CRP), as well as legality (Articles 3, No. 2 and 266, No. 2, also of the CRP), as a corollary of the principle of indisposability of tax credits (Article 30, No. 2 of the LGT).

d) Finally, should the Tribunal consider itself competent to appraise the merits of the dispute in question, which is admitted with caution and by duty of representation, the fact is that it can never "condemn the tax authority to reimburse the VAT supported in excess by A… in the year 2010, in the amount of €30,737.01", as the Claimant petitions. This is because the request formulated by the Claimant is directed to the condemnation of the Tax Administration to the recognition of the right to restitution of VAT liquidated and paid in excess, a request that has no place in the present arbitral instance. Once again, because within the scope of competence of arbitral tribunals established under the provision of Decree-Law No. 10/2011, of January 20th (RJAT), does not contemplate the possibility of appreciation of requests tending to the recognition of rights in tax matters. This circumstance is rooted in the letter of No. 1 of Article 2 of RJAT which, as is known, defines the types of claims that can be appraised by arbitral tribunals in tax matters. From the comparison between the legislative authorization law under which tax arbitration was instituted "The tax arbitral process must constitute an alternative procedural means to the judicial impugnation process and to the action for the recognition of a right or legitimate interest in tax matters" (cf. Nos. 2 and 4, paragraph b) of Article 124 of Law No. 3-B/2010, of April 28th) – and what, in fact, came to be established in RJAT. From this resulting, unequivocally, that the legislator chose not to contemplate (in RJAT) the possibility of appreciation of requests tending to the recognition of rights in tax matters.

e) Once again, it invokes the arbitral case law issued in case No. 244/2013-T, arguing that: "In truth, although it has been understood, in harmony with the long case law of the Supreme Administrative Court, that, following the declaration of illegality of liquidation acts, issued in judicial impugnation proceedings, decisions condemning the payment of compensatory interest may be issued, as well as, by virtue of Article 171, No. 1 of CPPT, condemnation in the payment of indemnities for undue guarantee, the fact is that there is no legal support to permit that condemning decisions of other types be issued, even if they are consequences, at the executive level, of the declaration of illegality of liquidation acts." It concludes, therefore, that also by this means, the existence of dilatory exception of material incompetence of the arbitral tribunal is verified, which prevents knowledge of the request, and therefore should determine the dismissal of the Respondent Entity from the instance, mindful of the provision of Articles 576, No. 1 and 577, paragraph a).

1. With caution, by impugnation, the ATA invokes that in the information of the VAT Department, which supports the decision dismissing the review request and to which it refers in its entirety, it concludes that even so the Claimant's claim must fail because official review of a VAT liquidation cannot prejudice the imperativeness of the rules that establish the periods for the exercise of the right to deduction. The rules of the institute of official review cannot prevail over those provided in the VAT Code for the exercise of the right to deduction, otherwise these would be emptied of content and, consequently, of effectiveness. In other words, the right to deduction ceases to exist if the formal requirement of timeliness is not observed. According to the ATA, the Claimant "does not have freedom to choose, within the period referred to in No. 2 of Article 98 of the VAT Code, the moment to materialize the right to deduction of tax. Only in cases where the VAT Code does not establish a special period is the right to deduction able to be exercised within the period provided in No. 2 of Article 98 of the VAT Code." Having the Claimant legitimately chosen not to deduct the tax and this choice being within the scope of the autonomy of action permitted by the tax and materialized in the self-assessment made by the taxpayer, it is not legitimate for it to come invoke the existence of an error when it chose not to deduct VAT that could eventually deduct. It adds that the methods and deduction criteria referred to in Article 23 of the VAT Code cannot be altered beyond the period provided in No. 6 of that article, that is, after the declaration of the last period to which it relates (December 2010). Having the Claimant filed, in March 2014, the request for official review where it requests "additional" deduction of tax supported in 2010, the period for the exercise of that right has been exceeded.

It further adds that No. 6 of Article 78 of the VAT Code establishes a special two-year period for adjustments in favor of the taxpayer, which after being exceeded leads to the preclusion of that right, "reason for which the tax now determined by the method of direct allocation (Article 20 of the VAT Code), incurred on inputs affected exclusively to taxable operations, although the existence of error is recognized, can no longer be adjusted […]"

1. But, according to the ATA, the Claimant has no reason. The mechanism of VAT deductions is provided for in Articles 19 to 26 of the VAT Code and is part of the essence of the tax itself, with Article 19 referring to that, for the determination of the tax due (self-assessment), taxpayers deduct from the tax charged on taxable operations in a given period, the tax that was invoiced to them in the acquisition of goods and services by other taxpayers, mentioned in invoices or equivalent documents issued in legal form, in the same period, a situation that should be reflected in the periodic declaration referred to in paragraph c) of No. 1 of Article 29 of the VAT Code. According to No. 1 of Article 22 of the VAT Code.

For all the reasons set forth in its Response, to which it refers and which is given as fully reproduced, the ATA understands that, as to the underlying material question, the Claimant has no right to come claim the annulment of the self-assessment act and petition the return of the VAT in question, reiterating, to that effect, all argued in the decision dismissing the review request, as is now explained. The rules that stipulate special periods would have no useful meaning, as the rule establishing the general four-year period would always supersede them, in manifest violation of the provision of No. 3 of Article 7 of the Civil Code.

In practical terms, from the interpretation advocated by the Claimant it would result that a taxpayer who makes a mistake in introducing a datum in a periodic declaration would have less favorable treatment than another taxpayer who, for an alleged error in interpretation of the law, did not deduct tax in the manner to which he was obliged or in the manner permitted to him. In the concrete case, it is manifest that the facts must be subsumed to the discipline contained in Article 78, No. 6, of the VAT Code, there is no legal provision that can be interpreted as permitting the taxpayer the exercise of the right to deduction at times subsequent to those resulting from Article 22 of the VAT Code, in cases where he comes to detect that he had the right to deduction at a time later than that in which he should have effected it. In this manner, official review of a VAT self-assessment cannot, in any case, be conducted to the prejudice of the imperativeness of the rules that, in the VAT Code, establish special periods for the exercise of the right to deduction.

1. Finally, it adds, without conceding, that the Respondent at no time validated the amounts allegedly deducted in default by the Claimant, since that question was prejudiced by the understanding that the right to deduction would have been precluded, the two-year period provided for in No. 6 of Article 78 of the VAT Code having been exceeded, whereby no fact-finding measures were undertaken by the ATA tending to the determination of the facts supporting the request. All the more so that, what is observed, in the case of these proceedings, is that the Claimant does not attach proof of the right that it claims, namely, the amounts of tax that it alleges are deductible, as was incumbent upon it under the terms of Article 74 of the LGT, a circumstance that, immediately, would always have to be determined against the invoices in question and other accounting documents, mindful of the formalistic character of the tax in question. In any case, the fact is that, mindful of the contentiousness of legality and the decision dismissing sub judice, the arbitral decision to be issued can only have as its object the appraisal of the possibility of deducting the tax within the four-year period, provided for the official review, as invoked by the Claimant. That is, the present arbitral decision can only have as its effect, at most, to oblige the ATA to appraise the merits of the request filed, taking as established its timeliness, a task for which the analysis of the accounting documents supporting the claim now adduced will be essential.

2. In such terms, it concludes for the sustaining of the exceptions alleged, with the consequent dismissal from the instance, or if not understood thus, for the failure of the request for arbitral pronouncement, as unproven, and, consequently, the Respondent absolved of all requests with the legal consequences.

II - FOUNDATION OF FACTS

A) Established Facts

1. As relevant factual matter, the present tribunal establishes as proven the following facts:

a) A… (hereinafter designated as A… or claimant) is a legal person under local public law, whose activity consists of the pursuit of its municipal attributions in the most diverse areas of activity, being classified, for VAT purposes, under the normal monthly regime.

b) In the pursuit of its attributions, the claimant performs a vast set of operations included within the scope of its powers of authority (e.g. fixing traffic signs, organization of works, etc.), which are excluded from VAT subjection, under the provision of No. 2 of Article 2 of the VAT Code (VAT Code).

c) But it also performs a set of operations, whether transfers of goods or provision of services, which are not included within the scope of its powers of authority, and are therefore subject to VAT under the general terms of the VAT Code, such as water distribution and concession of the Camping Park of ….

d) It also performs operations exempt from this tax such as rental of social housing and operation of sports facilities by the municipality.

e) Throughout the periods of the year 2010, the Claimant submitted its periodic VAT declarations, in which it did not proceed to any deduction of the amount of VAT relating to goods of mixed use, which are used indiscriminately for the performance of operations that confer and do not confer the right to deduction of the tax.

f) In the course of an internal review of procedures for the year 2010, the claimant verified that, in its activity, it supported VAT in excess, in that it only deducted the tax incurred in the acquisition of resources associated with water distribution, through the application of the real allocation method.

g) A… then conducted the aforementioned review of the deduction methods applied in 2010, from which resulted, in view of the non-deduction of VAT with respect to goods of mixed use, a value of tax in excess paid to the State;

h) In the course of this internal procedure, the Claimant determined that, due to error in the application of the VAT deduction methods, it determined VAT supported in excess (i.e., not deducted) in the amount of €30,737.01, with reference to the year 2010.

i) This value of tax not deducted, thus paid in excess to the state, results from documents Nos. 1 to 4 attached by the Claimant to its request for official review filed, in which it explains how it arrived at the determination of all those values, namely:

 i. Water distribution: A…, within its activity, liquidates VAT in the water distribution activity to citizens, and given that this activity is taxed, the VAT incurred in the acquisition of the respective resources is fully deductible (100%), whose VAT had not been deducted, determining a value of VAT to be deducted in the amount of €10,686.11, the recovery of which was requested in the said review request;

 ii. During the year 2010, the Automobile Track of … was subject to tests for the European Championship of ..., with A… being the entity responsible for the organization of the said event, the respective revenue (admission tickets) being taxed in VAT, as follows from the applicable rules, whereby it could have proceeded to the full deduction of VAT relating to resources allocated to the event in question, which amounted to €2,345.41;

 iii. In 2010, the Camping Park of … was under concession to a third party, the revenue obtained from the said concession being taxed under VAT, under the terms of the applicable rules, whereby, as it is an activity fully taxable, A… could have fully deducted the VAT relating to resources allocated to the Camping Park, in the amount of €551.64;

 iv. Within the scope of the … Fair held in the Municipality of …, A… acquires plastic bags, which it subsequently sells to Fair visitors, liquidating VAT on the sale of the same, whereby, since the sale of the plastic bags in question is taxed in VAT, the VAT supported in the purchase of the same could have been fully deductible, in the amount of €109.00;

 v. In 2010, A… proceeded to the sale of hay, having liquidated the VAT due, whereby the tax incurred in the acquisition of resources necessary for this activity is fully deductible (e.g. advertising for the sale of hay). The value of VAT supported in excess during the year 2010, related to these resources, the recovery of which was requested from the tax authority, amounted to €24.96;

 vi. By application of the real allocation method, A… detected the following VAT values that it could have deducted, associated with water distribution and branch construction, given the total revenue obtained in the water distribution and wastewater treatment activities.

 vii. Thus, for the year 2010, the proportion referred to above amounted to 55%, considering the revenues associated with the taxation of water and sanitation, resulting from the application of this criterion a value of VAT to be recovered of €1,211.94;

 viii. As to resources associated, simultaneously, with water distribution, wastewater treatment and solid waste treatment, A… defined a deduction criterion to apply to the VAT incurred in the collection services provided by EDP Commercial Solutions, SA that did not consider the correct deduction percentage, which should have been 49%, whereby a value of VAT to be recovered was determined in the amount of €3,587.09;

 ix. From the application of the pro rata deduction method, applied to the so-called "common resources", the percentage determined under the terms of Article 23 of the VAT Code, allowed to determine a deductible VAT in the amount of €12,220.86. (see Documents Nos. 1 to 4 attached to the official review request and contained in the case file attached to the proceedings)

j) In order to recover the VAT supported in excess, determined as described above, the Claimant filed, in May 2014, a request for official review "requesting authorization from the ATA to effect the adjustment/deduction of the VAT supported in excess during the year 2010, in the total amount of €30,737.01."

k) In the request for official review filed, the Claimant presents four documents, already referred to above, in which it explains the claimed values and informs the ATA that all corresponding invoices (the same ones that served as the basis for its filed declarations) are available in A…'s archives and available for consultation by the ATA, if it so wishes (see for example Articles 50 and 54 of the review request).

l) On December 30, 2014, the Claimant was notified, through office no. …, of December 26, 2014, of the dismissal of the request for official review filed.

m) As follows from the content of the dismissal order notified to the claimant (see Doc 1 attached to the arbitral request and case file attached by the Respondent), the ATA knew of the review request presented by A…, which it considered classifiable under Article 78 of the LGT, legitimate and acceptable provided it was exercised within four years counted from the birth of its right;

n) Citing case law of the Supreme Administrative Court, the dismissal decision that appraised the request formulated by Claimant A…, analyzed the applicable legal rules and invoked in the review request, which came to be dismissed for having considered that it was not an error attributable to the services but only an option of the claimant, who freely chose not to deduct the values in question;

o) From the dismissal order, results, in summary, as grounds for dismissal, that the ATA considers that:

 i. "Given the four-year period provided in No. 1 of Article 78, in conjunction with No. 7 of the same article and also according to the cited case law of the Supreme Administrative Court, it is all too clear that, having the review request been entered in the TA services on May 6, 2014 and the request being reported to the year 2010, this is presented as timely (...)";

 ii. "The rule contained in No. 1 of Article 98 of the VAT Code is applicable to the situation in question, which provides that when, for reasons attributable to the services, tax superior to that due has been liquidated, official review proceeds under the terms of Article 78 of the General Tax Law"; as well as the provision of No. 2 of Article 98 of the VAT Code, "the right to deduction or reimbursement of excess tax paid can only be exercised until the expiry of four years after the birth of the right to deduction or excess payment of tax, respectively", and also the provision of No. 1 of Article 78 of the LGT, under the terms of which "the review of tax acts by the entity that performed them can be conducted by initiative of the taxpayer, within the reclamation period and on the grounds of any illegality, or, by initiative of the tax administration, within four years after liquidation or at any time if the tax has not yet been paid, on the grounds of error attributable to the services."

 iii. It further concludes that "under the case law of the Supreme Administrative Court in these cases the ATA is bound to hear the formulated request, in that the request for official review now under analysis configures the appropriate means to recover the VAT supported in excess during the year 2010 and was filed in a timely manner;

 iv. As to the concept of "error in self-assessment," provided in No. 2 of Article 78 of the LGT, the ATA in the dismissal order cites various case law of the Supreme Administrative Court to conclude that "error in self-assessment comprises the possible error of accounting committed in the taxpayer's records and not only the error of transcription of the accounting to the declaration where the self-assessment is made (…)"; it also mentions the decision of March 22, 2011, relating to case No. 01009/10, where the Supreme Administrative Court qualifies as being error attributable to the services "errors directly related to the activity of the Administration, such as errors of fact, operational or material, and also errors of law."

 v. However, all seen and analyzed, it concludes for the dismissal of the review request of the tax act, for considering that, in the case in question, there is no error, but rather "a conscious and legitimate option of the taxpayer" and thus that there is no error attributable to the services; that is, "having the Claimant legitimately chosen not to deduct tax, finding this option within the scope of autonomy of action for the tax and materialized in the self-assessment made by the taxpayer, it is not legitimate for it to come invoke the existence of an error (…)"

 vi. Finally, although it admits as possible the recourse to official review of the tax act under VAT, given the regulatory content of Article 78 of the LGT and Article 98 of the VAT Code, it concludes that such possibility must be reconciled with the specific rules of the tax, under penalty of uselessness of the special provisions provided within the scope of VAT. Thus, recourse to the mechanism of official review cannot, in any case, set aside the imperativeness of the rules that establish special periods applicable under VAT. In the case, the claimant's claim could only be given a hearing within the period provided in Article 98, No. 2 of the VAT Code, within the scope of tax adjustment and, even then, if the provisions of Articles 22 and 23 of the VAT Code were complied with. Being, in the case under analysis, already exceeded the periods for the exercise of the right to deduction established in Articles 22 and 23 of the VAT Code, the correction of tax deducted can only be admitted on the basis of No. 6 of Article 78 of the VAT Code. No. 6 of Article 78 of the VAT Code establishes a special two-year period for the exercise of the right to deduction for adjustments in favor of the taxpayer, which after being exceeded leads to the preclusion of that right. Having the claimant filed, in May 2014, the request for official review where it requests additional deduction of tax supported in 2010, the period for the exercise of that right has been exceeded. (...)."

p) Following the dismissal of the review request filed by the claimant, the claimant filed the present arbitral request, on March 20, 2015.

B) UNPROVEN FACTS

1. There are no unproven facts with relevance for the decision to be issued.

C) FOUNDATION OF ESTABLISHED FACTS

1. The facts described above, established as proven, follow from the factual matter accepted by the parties and contained in the respective procedural documents, in the documents that the Claimant attached to the proceedings, in the annex to the Arbitral Request, as well as the documents attached to the request for official review of the self-assessment act that make up the Administrative Case, attached to the proceedings by the Respondent.

III – QUESTIONS TO BE DECIDED AND LEGAL FOUNDATION

1. It is necessary, therefore, to appraise and decide the questions to be resolved, just as they are configured by the parties in the present proceedings, with it being necessary, in the first place, to address the exception of material incompetence of the arbitral tribunal, a question necessarily prior to the appraisal of the merits of the case.

A) Decision on the Question of Incompetence Based on Article 2 of RJAT and Paragraph a) of Article 2 of Ordinance No. 112-A/2011 (Binding Ordinance)

1. The Respondent ATA alleges that "the present arbitral instance is materially incompetent to hear the request for several reasons."

The first question raised by the ATA concerns the scope of the competence of arbitral tribunals regarding the hearing of challenges to self-assessment acts, considering that such competence is not contained in the letter of the law, considering the provision of RJAT and the Binding Ordinance. In fact, the competence of arbitral tribunals operating at CAAD is found, in the first place, limited to the matters indicated in Article 2, No. 1, of RJAT and, in the second place, by the terms in which the Tax Administration was bound to this jurisdiction by Ordinance No. 112-A/2011, of March 22nd.

The Binding Ordinance of the ATA to the jurisdiction of arbitral tribunals establishes limitations, namely, in terms of the type and maximum value of the disputes covered. Given this second limitation of the competence of tax arbitral tribunals operating at CAAD, even if one is facing a situation classifiable under Article 2 of RJAT, if it is not covered by the Binding Ordinance, the possibility of the dispute being jurisdictionally decided by this Arbitral Tribunal will be ruled out.

Given this, it follows from paragraph a), of Article 2 of the Binding Ordinance that it is within the jurisdiction of arbitral tribunals operating at CAAD "claims relating to the declaration of illegality of self-assessment acts, tax withholding acts and payment on account acts that [have been preceded by] administrative means under the terms of Articles 131 to 133 of the Code of Tax Procedure and Process".

The express reference to Articles 131 to 133 of the Code of Tax Procedure and Process refers to gracious reclamation, in cases where it is mandatory and a prior condition for recourse to the judicial impugnation means. In the cases provided for therein, gracious reclamation is provided as a prior administrative reaction means, on which will depend the future possibility of judicial impugnation. Very well, it is understandable that, also in cases where the taxpayer chooses to resort to the arbitral instance, such requirement is imposed, but, note well, only and solely in the exact terms in which the CPPT provides it as a prerequisite for judicial impugnation.

Such prior reclamation is not mandatory in all cases. Whereby, also in determining the competence of the arbitral tribunal, prior administrative impugnation or reclamation is only required in the same cases provided under Article 131 of the CPPT, in the same terms as it is a prerequisite for judicial impugnation by resort to administrative and tax courts.

1. In the case in question, the declaration of illegality of the decision dismissing the request for official review of the tax act is requested with the objective of declaring illegal the VAT self-assessment act, relating to the year 2010, with its consequent annulment and recognition of the Claimant's right to deduct excess VAT and be reimbursed therefor. Thus, the request for annulment of the act dismissing the request for official review is instrumental in obtaining the true claim of the Claimant, that is, the annulment of the VAT self-assessment act in question in these proceedings. As follows from the factual matter established, the self-assessment had as its premise an interpretation by the Claimant itself regarding the legal criteria applicable to the right to deduction of tax, due to misinterpretation of the legal provisions in force. It was not based on generic guidance from the administration but rather on the Claimant's interpretation of the criteria for determination or deduction of tax. The question that arises, therefore, is whether, being thus, this would not be a case of mandatory administrative reclamation prior to contentious impugnation, under the terms provided in Article 131 of the CPPT.

Article 131 of the CPPT provides, under the heading "Impugnation in Case of Self-Assessment":

"1-In case of error in self-assessment, impugnation shall necessarily be preceded by gracious reclamation directed to the head of the regional peripheral body of the tax administration, within two years after the filing of the declaration"

2-(…)

3-Notwithstanding the foregoing, when its grounds are exclusively a matter of law and the self-assessment was made in accordance with generic guidance issued by the tax administration, the period for impugnation does not depend on prior reclamation and shall be filed within the period of No. 1 of Article 102."

1. In paragraph a), of Article 2 of this Ordinance No. 112-A/2011, it is expressly excluded from the scope of the binding of the Tax Administration to the jurisdiction of arbitral tribunals operating at CAAD "claims relating to the declaration of illegality of self-assessment acts, tax withholding acts and payment on account acts that have not been preceded by recourse to administrative means under the terms of Articles 131 to 133 of the Code of Tax Procedure and Process".

Now, if it is true that in the concrete case no prior gracious reclamation occurred, the truth is that the Claimant resorted to the mechanism of official review of the self-assessment act. Given that, as we have seen, the Binding Ordinance expressly excludes from the scope of tax arbitration self-assessment acts that have not been preceded by recourse to administrative means, referring to cases where such recourse is mandatory, through prior mandatory gracious reclamation, under the terms provided in Articles 131 to 133 of the CPPT, it is important to analyze, before anything else, whether the dismissal of requests for review of the tax act, provided in Article 78 of the LGT, is included in the competencies attributed to arbitral tribunals operating at CAAD.

In fact, Article 2 of RJAT makes no express reference to these acts, contrary to what occurs in the legislative authorization law on which the Government based itself for approving RJAT, in which express mention is made of "requests for review of tax acts" and "acts that entail the appraisal of the legality of liquidation acts".

As stated in the Arbitral Decision issued in case No. 117/2015-T, the formula "declaration of illegality of tax liquidation acts, self-assessment acts, tax withholding acts and payment on account acts" used in paragraph a) of No. 1 of Article 2 of RJAT does not restrict, in a mere declarative interpretation, the scope of arbitral jurisdiction to cases in which one of those types of acts is directly challenged. In truth, the illegality of liquidation acts can be declared jurisdictionally as a corollary of the illegality of a second-degree act, which confirms a liquidation act, incorporating its illegality.

The inclusion in the competencies of arbitral tribunals operating at CAAD in cases in which the declaration of illegality of the acts indicated therein is effected through the illegality of second-degree acts, which are the immediate object of the impugnatory claim, results with certainty from the reference made in that rule to self-assessment acts, tax withholding acts and payment on account acts, which are expressly referred to as included among the competencies of arbitral tribunals. In fact, regarding these acts, gracious reclamation is imposed, as a rule, as necessary in Articles 131 to 133 of the CPPT, whereby, in these cases, the object of the impugnatory proceedings is, as a rule, the second-degree act that appraises the legality of the liquidation act, an act that, if it confirms it, must be annulled to obtain the declaration of illegality of the liquidation act. The reference made in paragraph a) of No. 1 of Article 10 of RJAT to No. 2 of Article 102 of the CPPT, in which the various types of acts giving rise to the period for judicial impugnation are indicated, removes any doubts that the provisions referred to in paragraph a) of Article 2 of RJAT are covered in the competencies of arbitral tribunals operating at CAAD, whereby the illegality of the acts referred to in paragraph a) of Article 2 of RJAT must be obtained following the declaration of the illegality of second-degree acts."

The analysis of the question of the competence of arbitral tribunals operating at CAAD is particularly well developed and founded in this Arbitral Decision, to which adherence is given, without need for further discussion.

However, it will still be said that it was in this sense that the Government, in the Binding Ordinance, interpreted the competencies of tax arbitral tribunals, by excluding from their scope of competence claims relating to the declaration of illegality of self-assessment acts, tax withholding acts and payment on account acts that have not been preceded by recourse to administrative means under the terms of Articles 131 to 133 of the CPPT.

Thus, it is to be concluded that the formula used in paragraph a) of No. 1 of Article 2 of RJAT does not exclude cases in which the declaration of illegality results from the illegality of a second-degree act. And, being thus, it is our understanding that the competence of the arbitral tribunal also extends to cases in which the second-degree act is, as in the concrete case, an act dismissing a request for review of the tax act, all the more so that it is the understanding of the Supreme Administrative Court itself (which, moreover, is recognized by the ATA in the dismissal decision issued) that in cases in which the request for review of the tax act is made within the gracious reclamation period, it should be equated to a gracious reclamation. No reason is apparent that would justify the restriction of that competence.

1. The ATA understands, however, that that normative should be understood in its literality, excluding from the scope of tax arbitral jurisdiction claims relating to the declaration of illegality of self-assessment acts that have not been preceded by reclamation under the terms of the mentioned CPPT rules.

All of the ATA's argumentation on this matter ends up reducing to the defense of the understanding that it was the legislator's intention to restrict the competence of tax arbitral jurisdiction, regarding the knowledge of illegalities of self-assessment acts, solely to situations in which there is a reclamation filed under the terms of Articles 131 to 133 of the Code of Tax Procedure and Process, as that results expressly from the text of the interpreted rule.

However, analyzing the arguments invoked by the ATA for this purpose, no substantial reason is apparent supporting this understanding. In truth, no reason is seen for excluding this matter from the competence of arbitral tribunals, given the conditionalities and specificities proper to each of the gracious means in question, in the same terms as tax tribunals are bound for knowledge of the legality of self-assessment acts. To which is added that, the letter of the law, provided it is properly contextualized, does not lead to the result defended by the ATA in these proceedings.

As well stated in Arbitral Decision No. 55/2015-T, "in fact, the expression used by such rule is parallel to the rule itself of Article 131/1 of the CPPT, which should be understood as a realization of the assumed, and peacefully recognized, legislative intention that the tax arbitral process constitute an alternative procedural means to the judicial impugnation process.

The rule of paragraph a) of Article 2 of Ordinance 112-A/2011, of March 22nd, should also be understood as explained by the circumstance that, in its absence – and given the content of Article 2 of RJAT – it is outlined as possible the direct impugnation of self-assessment acts, without precedence of prior administrative pronouncement. That is: taking into account that given RJAT it was not configured as necessary any prior administrative intervention prior to arbitral impugnation of a self-assessment, the content of the ordinance should be interpreted as equating – on this matter – the tax arbitral process to the judicial impugnation process and not, as would follow from the position sustained by the ATA, go from 80 to 8, taking a broader impugnability than possible in the Tax Courts, and transmuting it into a narrower one."

1. Moreover, the interpretation exclusively based on the literal content defended by the Tax and Customs Authority in the present proceedings cannot be accepted, as in the interpretation of tax rules the general rules and principles of interpretation and application of laws are observed (Article 11, No. 1, of the LGT) and Article 9, No. 1, of the Civil Code. It follows from these legal provisions that the interpretation of the legal norm cannot be limited solely to its literal content. It is fundamental to discern the legislative thought, taking into account the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it arose and the objectives it seeks to pursue.

The ATA's allegation on this matter is, therefore, not accepted. As to the correspondence between interpretation and the letter of the law, only a verbal correspondence is required, even if imperfectly expressed. Only interpretations that have no correspondence whatsoever in the letter of the law are prohibited, which is not the case. Therefore, the letter of the law is not an obstacle to an interpretation that, taking into account the other elements of interpretation, explicitly and rationally sets forth the scope of the literal content and the legislative thought underlying it.

1. It is manifest that the scope of the requirement of prior gracious reclamation, necessary to open the contentious path of impugnation of self-assessment acts, provided in No. 1 of Article 131 of the CPPT, has as its legitimate justification the fact that regarding the matter under appraisal it is permitted a taking of position by the Tax Administration on the legality of the legal situation created, avoiding judicial contentiousness, if possible, and giving the opportunity to the ATA to revoke or correct the act. Now such purposes are perfectly achieved in the concrete case with the request for review of the tax act that gave rise to the second-degree act, which consisted of the dismissal of the request for official review of the self-assessment act.

Thus, a different interpretation of the rule provided in the CPPT and the one provided under tax arbitration is not defensible, especially since the letter of the rule contained in Ordinance 112-A/2011, of March 22nd, ends up being less restrictive than that of the CPPT, in that it does not integrate the word "necessarily" (see Article 131, No. 1 of the CPPT), nor does it refer to "gracious reclamation" but rather to the expression "administrative means". Hence, it is possible a reading of the letter of the law itself that contains the sense that only excluded from the scope of tax arbitral jurisdiction is the knowledge of claims relating to the declaration of illegality of self-assessment acts, tax withholding acts and payment on account acts that have not been preceded by recourse to administrative means. Such interpretation is, further, entirely compatible with the terms provided in Articles 131 to 133 of the Code of Tax Procedure and Process.

Similar to the case law contained in Arbitral Decisions issued in cases 48/2012-T, 117/2013-T and 55/2015-T, among others, cited by the ATA itself, it is the understanding of this arbitral tribunal that it is endowed with material competence to hear the matter in question and under discussion in the present proceedings. To this end, citing Decision 117/2013-T, it is concluded that "the interpretation exclusively based on the literal content defended by the Tax and Customs Authority in the present proceedings cannot be accepted, as in the interpretation of tax rules the general rules and principles of interpretation and application of laws are observed (Article 11, No. 1, of the LGT) and Article 9, No. 1, expressly prohibits interpretations exclusively based on the literal content of rules by establishing that «interpretation should not be limited to the letter of the law» and should, rather, reconstruct from the texts the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it is applied»

It is to be concluded, in harmony with the arbitral case law cited above, that Article 2, paragraph a) of Ordinance No. 112-A/2011 (Binding Ordinance), properly interpreted with the principles of law interpretation set forth above and provided in Article 9 of the Civil Code, applicable to tax rules by virtue of the provision of Article 11, No. 1 of the LGT, enables the filing of requests for arbitral pronouncement regarding self-assessment acts that have been preceded by a request for official review.

In this manner, the exception of incompetence of the Arbitral Tribunal, invoked by the ATA, is devoid of merit.

B) Exception of Incompetence Based on the Scope of the Impugnation Process Versus Action for Recognition of a Right or Legitimate Interest

1. The ATA further argues the incompetence of the Arbitral Jurisdiction in terms of subject matter, in virtue of, in its understanding, the legality of any tax self-assessment act not having been appraised in the request for official review.

It alleges that the Respondent "the Claimant, in the request for official review did not request the annulment of any self-assessment act but only authorization to be able to deduct the VAT liquidated in excess with reference to the year 2010", which configures a request for recognition of a right prohibited from the arbitral tribunal's competence.

To this argument it adds another, according to which the request filed by the Claimant, after all, must be considered untimely because what it petitioned was authorization to deduct the excess tax value, thus such request should have been made within the periods legally provided in the VAT Code for that purpose, namely in Articles 98, No. 2 and 78, No. 6 of that code.

Let us see, therefore, whether the respondent has reason in these matters.

1. As to the first question set forth, account must be taken of the delimitation of the scope of competence of arbitral tribunals, as per the terms already set forth above, to which must be added that the fact that paragraph a), of No. 1 of Article 10 of RJAT makes express reference to Nos. 1 and 2 of Article 102 of the CPPT, in which the various types of acts giving rise to the period for judicial impugnation are indicated, intends to establish as a rule the possibility of encompassing all types of acts susceptible of being challenged through the judicial impugnation process.

1. Moreover, the legislative authorization law on which the Government based itself for the approval of RJAT (see Article 124 of Law No. 3-B/2010, of April 28th) reveals the clear intention expressed by the legislator that "the tax arbitral process constitute an alternative procedural means of a right or legitimate interest in tax matters"

As well stated in the Arbitral Decision issued in case 117/2013-T "(…) being this the sense of the said legislative authorization law and being inserted in the relative reservation of competence of the Assembly of the Republic to legislate on the tax system, including, the guarantees of taxpayers (Articles 103, No. 2 and 165, No. 1, paragraph i) of the CRP), and on the organization and competence of courts (…) Article 2 of RJAT, under penalty of unconstitutionality (…) cannot be interpreted as interpreted as attributing to tribunals operating at CAAD competence for the appraisal of the legality of other types of acts, for whose impugnation the judicial impugnation process and the action for recognition of a right or legitimate interest are not adequate".

1. It is thus important to determine whether the legality of the act dismissing a request for official review can or cannot be appraised in a tax tribunal, through the judicial impugnation process or action for recognition of a right or legitimate interest.

Now, the act dismissing a request for official review constitutes a tax act, considered as such the decision of the Tax Authority by which it proceeds to the application of the tax rule to the individual and concrete situation. As Alberto Xavier states, "the tax act is the act of application of the material tax rule to the concrete case".

Being thus, it does not raise doubt that the decision dismissing a request for official review of a tax act is always, and cannot be otherwise, motivated by the subsumption of the concrete case to the discipline of a concrete tax rule and, in that measure, entails a judgment of legality, thus is an act impugnable in court.

1. In the case of the present proceedings, the dismissal of the request for official review was determined by the consideration that the application of the deduction criteria was an option of the Respondent and, even if not thus, in requesting authorization to deduct the VAT liquidated in excess, it would have to submit to the imperativeness of the special rules provided in the VAT Code, namely those provided in No. 2 of Article 98 and No. 6 of Article 78 of the VAT CODE, having consequently concluded that the Claimant did not comply with the two-year period for the effectuation of the corrections advocated by it. We are thus facing an impugnable act, as it constitutes an individual and concrete decision of application of a certain legal regime to the individual case under analysis.

Moreover, the grounds for the act dismissing the request for official review reveal well that awareness regarding the application of the regulatory provisions it invokes to the concrete case. The analysis of the dismissal decision leaves no doubts about the understanding that the ATA itself gave to the request formulated by the claimant, in classifying it under the terms and for the purposes of the provision of Articles 78 and 98, both of the VAT Code (VAT Code) and Article 78 of the General Tax Law (LGT) as well as in expressly referring that review of the tax act of (self-)liquidation is requested, based on alleged excess payment during the 2010 financial year.

The analysis of the grounds of the review request presented by the Claimant, the detail of the analysis of the values in question, the preparation of the attached schedules and the analysis of the documents attached to the request and the formulation of the request demonstrate well that the Claimant requests authorization to proceed to the deduction of the excess VAT, considering that the self-assessment claimed was based on a misinterpretation of the applicable principles and regulatory provisions. Thus, no doubt subsists that the Claimant considers such self-assessment act as illegal and for this very reason resorted to the guarantee of the review request to restore legality, annulling the act in question and recognizing its right to the deduction of the values paid in excess due to deficient application of law. Moreover, the self-assessment act in question was within the knowledge of the ATA, whereby, after the filing of the review request, properly explained the criteria applied, due to misinterpretation of the law, it makes no sense to come to say that the Claimant deducted the values in those terms by its own option, circumventing the review request on grounds of the illegality invoked and in the end concluding that we are facing a request for recognition of a right for which the arbitral tribunal has no competence.

Once again, the Respondent has no reason as to this question.

As was written in the Arbitral Decision issued in case 117/2013-T, "although the operative part of the act dismissing the request for review of the self-assessment act does not pronounce on the legality of this, it ends up being admitted, in the grounds, that the claim of the now Claimant could have been granted had it been formulated within the period provided in Article 78, No. 6, of the VAT Code, which has inherent that the self-assessment act is illegal."

This very situation occurs in the case of the present proceedings.

Thus, and for all the foregoing, this exception of material incompetence must also fail.

1. Finally, but related to the previous question and still in search of the incompetence of the arbitral tribunal to hear the request, before presenting to discuss the merits of the case, the ATA argues the untimeliness for direct impugnation of the VAT self-assessment act, as the 90-day period counted from the end of the legal period for the respective voluntary payment has long expired.

The ATA understands that the request for official review filed by the Claimant did not relate to the legality of any self-assessment, having the Claimant requested, only, authorization for the adjustment of VAT for the periods indicated by it, whereby it will be unsusceptible of interfering with the period for impugnation of the said self-assessment acts. As has been said already, this allegation is made in the follow-up to the previous one, that is, for considering that the Claimant did not invoke any illegality but rather before a request for recognition of a right.

Relevant for the resolution of the question in question will be, therefore, to determine whether the request for official review (gracious impugnation means) filed by the Claimant was in fact directed at the self-assessment act challenged and its legality or whether, by contrast, it had another object of decision than that.

1. Now, the answer to this question cannot fail to go in the first of the pointed senses, as was already exposed previously, being clear that the request for official review was directed at the self-assessment act indicated by the Claimant, whose illegality it attempts to demonstrate alleging that it used, erroneously, deduction criteria that were not the correct ones given the provision in the VAT Code, from which resulted a value of tax liquidated and paid in excess.

In turn, the decision dismissing the review appraised its legality, so much so that it is grounded in the application of the special and imperative rules that, according to the ATA, follow from the VAT Code. Thus, it cannot be stated with truth that the decision dismissing did not appraise the legality of the self-assessment act, when it is clear from the grounds it gave to the same, it concluded confirming the legality of the self-assessment act (allegedly because) and its maintenance in the legal system, for, in the understanding of the TA, the criteria used for the deduction of VAT by the Claimant were an option of its, as well as for the period having elapsed within which it would be permitted to exercise the right of that to proceed to the corrections advocated by it, cannot the article 78 of the LGT set aside the application of the periods provided in the imperative rules provided in the VAT Code.

In this manner, it is clear that throughout the content of the decision dismissing the review request underlies the understanding of the ATA itself that it is facing the decision of a request that corresponds to the use of a "gracious impugnation means of the self-assessment act", in the case the request for official review.

Given this, having the present request for arbitral pronouncement been filed within the legally provided period, by reference to the date of notification of the decision dismissing the request for official review of the self-assessment act, the present dispute must be considered timely.

1. For all that was exposed above, the questions of unconstitutionality that the ATA raises in its Response and Submissions are not pertinent, regarding the interpretation of the questions related to the competence of the Arbitral Tribunal.

1. Also for all that is left stated, given the failure of the exception invoked by the ATA, there is no obstacle to the appraisal of the merits of the case.

C) On the Merits of the Question

1. The procedure for review of the tax act constitutes, thus, an administrative means of correction of errors in tax liquidation or self-assessment acts.

The Supreme Administrative Court has recognized that the review procedure "is admitted as a complement of the administrative and contentious impugnation means of those acts, to be deduced within the normal periods respective thereto, which has in view the possibility of remedying grave injustices of taxation both in favor of the taxpayer as in favor of the administration.

However, it is not indifferent for the taxpayer whether or not to challenge the liquidation acts within their respective periods, as in case of annulment in impugnatory proceedings, judicial or administrative, any illegality can be invoked and there is a right to compensatory interest from the date of payment until the issuance of the credit note (Articles 43, No. 1, of the LGT and 61, No. 3 of the CPPT) while in cases of official review of the liquidation (when not made at the request of the taxpayer, within the gracious reclamation period, a situation that is comparable to that of gracious reclamation) only is there a right to compensatory interest under the terms of Article 43, No. 3 of the LGT and the annulment can only have as its grounds error attributable to the services and duplication of collection (Article 78, Nos. 1 and 6 of the LGT).

Essentially, the regime of Article 78, when the review request is formulated beyond the periods of administrative and contentious impugnation, amounts to a means of restitution of what was unduly paid, with revocation and cessation for the future of the effects of the liquidation act, and not an annulatory means, with retroactive destruction of the effects of the act.

With this in light, the procedural means of review of the tax act cannot be considered as an exceptional means to react against the consequences of a liquidation act, but rather as an alternative means of the administrative and contentious impugnation means (when used at a time when those can still be utilized) or complementary to them (when the periods for utilization of the impugnation means of the liquidation act have already been exhausted).

It is a reinforcedly guarantistic regime, when compared with the regime of impugnation of administrative acts, but that reinforcement finds its explanation in the nature strongly aggressive to the legal sphere of individuals that tax liquidation acts have."

From this Decision, it also results that, although the procedure is designated as official review, nothing prevents it from occurring by initiative of the taxpayer. Being that, it further adds to the same Decision that "it is admitted alongside the review of the act by initiative of the taxpayer (within the gracious reclamation period) that it also take place, also following from his initiative, official review (which the administration should also carry out by its own initiative). (…) Thus it is to be concluded that the fact that the gracious reclamation period and the period for judicial impugnation of the liquidation act have elapsed did not prevent the impugner from requesting official review and impugning contentiously the act dismissing it."

1. It is further added that under the terms of the provision of Article 95, No. 2, paragraph d), of the LGT, acts dismissing review requests are enumerated among the acts potentially harmful and susceptible of contentious impugnation. As the aforementioned Decision of the Supreme Administrative Court further states, no distinction is made between acts dismissing requests for official review presented within the gracious reclamation period and the others, presented beyond that period. Each is impugnable, as moreover follows from the imperative of effective jurisdictional protection, provided for in Article 268, No. 4 of the CRP.

1. Given this, returning to the concrete case of the present proceedings, it is found that at issue is the exercise of the right to deduction of VAT, motivated by error of the Claimant regarding the interpretation of the legal criteria applicable to the deduction of tax, translated in the application of a deduction percentage lower than that due to each of the situations evidenced in the proceedings, which generated the excess tax unduly paid to the State.

In the four documents that make up the request for official review, the Claimant explains and demonstrates the errors of application of the respective percentages and calculates the value of excess tax paid. Throughout the request, it grounds and demonstrates the errors of application of the respective percentages, case by case (see established factual matter), whereby, given all the information that the ATA already had in its possession, resulting from the periodic declarations filed, it now only needed to analyze the calculations presented by the Claimant and, if doubts remained, analyze the accounting documentation which, as the Claimant itself refers, was available for analysis by the ATA if it so wished.

1. In fact, at the moment of receipt of the invoices, A… understood, erroneously, that the VAT in question was not deductible, the same having been accounted for as a cost. Given what is set forth, it seems obvious that the municipality only did not deduct the tax in question because it erred in the application of the deduction methods, which translates, not a mere accounting error, but rather an error of law. It is manifest that this is not an option of the Municipality but rather a clear and notorious error regarding the applicable legal rules for the deduction of tax.

Given the content of the review request and the documentation attached, elaborated in a clear manner to demonstrate the errors in the deduction of tax and to determine the value of the excess supported by A…, the ATA cannot now come invoke that it simply did not take knowledge of the self-assessment act in question and that it did not take position on the same. So much is it not so, that the ATA in the dismissal decision knows in detail of the self-assessment act in question, to conclude that the request is untimely. At no point does it put into question that the right invoked by A… did not exist or was not demonstrated, it only considered that the request was untimely given the special rules of the VAT Code.

1. The fundamental question that must now be decided is whether the ATA was right in the decision dismissing the request for official review filed by the Claimant, when it invokes that the situation in question does not fall under the provision of Articles 98 of the VAT Code and 78 of the LGT but rather under the provision of Article 78, No. 6 of the VAT Code.

Article 98 of the VAT Code provides that:

"1 — When, for reasons attributable to the services, tax superior to that due has been liquidated, official review is proceeded with under the terms of Article 78 of the general tax law.

2 — Without prejudice to special provisions, the right to deduction or reimbursement of excess tax paid can only be exercised until the expiry of four years after the birth of the right to deduction or excess payment of tax, respectively."

1. In turn, Article 78 of the VAT Code states, in addition to other matters:

"(...) 2 — If, after the registration referred to in Article 45 has been made, the operation is canceled or its taxable value is reduced as a consequence of invalidity, resolution, rescission or reduction of the contract, by the return of merchandise or by the grant of discounts or reductions, the supplier of the good or supplier of the service can effect the deduction of the corresponding tax until the end of the tax period following that in which the circumstances that determined the cancellation of the liquidation or the reduction of its taxable value occurred.

(...)"

The question that arises is whether, when the Claimant presents a request for review in which it requests authorization to deduct VAT that it erroneously did not deduct in 2010, does it fall within Article 78, No. 2, of the VAT Code or rather falls under Article 78, No. 6, of the VAT Code, as the ATA understands it?

Article 78, No. 6, of the VAT Code states:

"6 — Where the reviewing decision is not issued within 60 days from the reception of the request for review, or where it is decided that no adjustment is to be made, the request for review shall lapse, without prejudice to the rules on deductions that are based on operative facts occurring within the previous four years, if no adjustment was carried out for failure to comply with the formalities required, unless the incompleteness or errors are corrected or the formalities completed, within the periods provided by law, or, where such formalities concern the immediately previous period, the deductions that are to be made can be deducted in the same declaration as that in which the request for review is submitted.

The amendments to the methods and criteria for apportionment referred to in Article 23 cannot be made after the declaration relating to the last period to which they are to apply."

1. The right to deduction of VAT is regulated by Articles 19 to 26 of the VAT Code. In particular, Article 22 of the VAT Code sets out when the right to deduction arises and the procedure for exercising that right, and Article 23 establishes the methods and criteria for determining the portion of VAT that may be deducted in the case of mixed operations (operations which are both taxable and non-taxable).

Article 22, No. 1, of the VAT Code provides that:

"1 — The right to deduction shall arise at the time when the deductible tax becomes chargeable, without being subject, as regards the right to the deduction, to the conditions under which such tax was collected."

Article 23, No. 1, of the VAT Code states that:

"1 — Where a taxable person makes both taxable and exempt supplies and the goods and services are used for the purposes of both transactions, only that part of the VAT which is proportional to the taxable transactions may be deducted.

For the purposes of this Article, the taxable person may use the real allocation method, the pro rata method or any other method to determine the portion of the VAT that can be deducted, provided it is sufficiently representative of the actual proportion of use of the goods and services for taxable and exempt purposes, respectively."

Article 23, No. 3, of the VAT Code states:

"3 — The methods and criteria for apportionment of VAT shall be revised based on changes in the circumstances which affect the proportion of taxable and exempt supplies."

Article 23, No. 4, of the VAT Code provides:

"4 — The amendments to the methods and criteria for apportionment shall be made in accordance with Article 78."

1. From a careful reading of the texts of Articles 22, 23, 78, Nos. 2 and 6, and 98, it is clear that Article 22 addresses when the right to deduction arises and Article 23 addresses the methods and criteria for determining what proportion of VAT may be deducted. Article 78, No. 2, addresses the situation in which, after the registration (recording in the accounts) was made, the operation is cancelled or its value reduced due to specific circumstances (invalidity, resolution, rescission, reduction of the contract, return of merchandise, granting of discounts or reductions). None of these situations applied to the case in hand. The Claimant did not cancel the operations for which it acquired the goods and services, nor did it reduce the value thereof; what it did was realize that in 2010 it had mistakenly determined the portion of VAT deductible using incorrect criteria.

Article 78, No. 6, of the VAT Code, on the other hand, is directed at precisely the situation with which we are dealing: it is an article specifically addressing the amendments to the methods and criteria for apportionment provided for in Article 23, which is why it states expressly that "The amendments to the methods and criteria for apportionment referred to in Article 23 cannot be made after the declaration relating to the last period to which they are to apply."

This provision establishes a special two-year period for such amendments, whereby amendments to the methods and criteria for apportionment cannot be made after the declaration relating to the last period for which the methods and criteria were in force. In 2010, the methods and criteria for apportionment applied by the Claimant were applied in the period of December 2010 (last period of 2010), and thus the two-year amendment period was from December 2010 to December 2012.

The ATA, in its decision dismissing the review request, concluded that because the request for review was filed in May 2014, beyond the two-year period, the Claimant had no right to amend the methods and criteria for apportionment, and therefore had no right to the deduction of the VAT in question.

However, this conclusion is incorrect, because it fails to take account of an important distinction: one thing is the two-year period provided in Article 78, No. 6 for amendments to the methods and criteria for apportionment; quite another thing is the four-year period provided in Article 98, No. 2 for the exercise of the right to deduction of VAT that was paid in excess.

1. A careful examination of the texts of Article 78, No. 6 and Article 98, No. 2 shows that they address different situations and establish different two-year and four-year periods respectively, precisely because the legislator has distinguished between two separate situations:

(1) The need to amend the methods and criteria for apportionment that were applied in a certain period (Article 78, No. 6, VAT Code) – for this, a two-year deadline is provided; and

(2) The recovery of VAT paid in excess due to those erroneous methods and criteria (Article 98, No. 2, VAT Code) – for this, a four-year deadline is provided.

In fact, Article 98 establishes that where, for reasons attributable to the services (or, as in this case, for reasons attributable to the taxpayer having mistakenly applied the methods and criteria for apportionment, which constitutes an error attributable to the taxpayer in the application of the law, but not a substantive legal error for which the taxpayer is obligated to repair), excess tax has been paid, such tax should be adjusted through official review, and the right to recovery of the excess extends to a four-year period.

1. That said, what is the proper interpretation of Article 78, No. 6?

The provision states that "The amendments to the methods and criteria for apportionment referred to in Article 23 cannot be made after the declaration relating to the last period to which they are to apply."

The correct interpretation of this provision is that, if in a given year the Claimant applies certain methods and criteria for apportionment, those methods and criteria cannot be amended in a subsequent declaration for the periods in which they were applied. In other words, the amendments cannot be retroactively applied to prior periods. Thus, the provision is a rule of non-retroactivity of amendments to the methods and criteria for apportionment.

However, this interpretation does not prevent the Claimant from requesting, outside the two-year period, the recovery of the VAT paid in excess due to the erroneous application of the methods and criteria for apportionment in those prior periods, provided such recovery is requested within the four-year period provided in Article 98, No. 2.

The fact that the methods and criteria cannot be amended after the declaration of the last period to which they apply does not mean that the recovery of excess VAT cannot be sought after the two-year period. In fact, the recovery of excess VAT is a different matter from the amendment of the methods and criteria for apportionment. The amendment of the methods and criteria means changing the approach to apportionment for future periods; the recovery of the excess means obtaining restitution of the amount overpaid due to the erroneous application of the methods and criteria in prior periods.

The distinction is clear: under Article 78, No. 6, the Claimant cannot amend its methods and criteria for apportionment after December 2012 (two years after December 2010); but under Article 98, No. 2, the Claimant can still request the recovery of the VAT paid in excess in 2010 until December 2014 (four years after December 2010).

Thus, the ATA's interpretation that the Claimant was time-barred by the two-year period in Article 78, No. 6 to request the recovery of the excess VAT is incorrect. The correct interpretation is that the Claimant, by requesting official review within the four-year period provided in Article 98, No. 2, was entitled to recover the excess VAT, even though it was beyond the two-year period for amending the methods and criteria for apportionment.

1. There is another important consideration that supports this interpretation. Article 78, No. 2, of the LGT provides:

"2 — The revision of tax acts by the entity that performed them can be carried out on the initiative of the taxpayer, within the reclamation period and for any legal cause, or on the initiative of the tax administration, within four years following the liquidation or at any time if the tribute has not yet been paid, for an error attributable to the services."

Article 78, No. 1 of the LGT refers to "revision of tax acts", which term encompasses the revision of VAT self-assessments. Thus, where there is error in a self-assessment, the revision procedure is available.

The error in the present case consisted of the incorrect application of the methods and criteria for apportionment provided in Article 23 of the VAT Code. The Claimant, in the request for official review, correctly identified the error (the incorrect application of the methods and criteria for apportionment) and requested that the ATA recognize the error and authorize the deduction of the excess VAT.

The question that must be answered is: is the error in the application of the methods and criteria for apportionment an error that qualifies as falling within the scope of the revision procedure under Article 78 of the LGT?

The answer is clearly in the affirmative.

The error in the application of the methods and criteria for apportionment is an error in the interpretation and application of the law (error of law), which is an error that falls within the scope of the revision procedure. In fact, the jurisprudence of the Supreme Administrative Court recognizes that errors of law, as well as errors of fact and material errors, may be grounds for revision.

1. Furthermore, Article 78, No. 1 of the LGT provides that revision "can be carried out on the initiative of the taxpayer, within the reclamation period and for any legal cause." This language is broad and encompasses any legal cause, including an error of law in the application of the methods and criteria for apportionment.

The question might arise: if the Claimant can request revision for any legal cause within the reclamation period, why does the VAT Code establish a two-year period for amendments to the methods and criteria for apportionment (Article 78, No. 6)?

The answer lies in the distinction between the scope of the revision procedure and the scope of the amendment of the methods and criteria for apportionment. The revision procedure, under Article 78 of the LGT, is available for the correction of errors, including errors of law. The amendment of the methods and criteria for apportionment, under Article 78, No. 6 of the VAT Code, is a specific procedure for changing the approach to apportionment for future periods.

The two-year period in Article 78, No. 6 is not a limitation on the revision procedure; it is a limitation on the amendment of the methods and criteria for apportionment for future periods. The revision procedure under Article 78 of the LGT, on the other hand, may be used to correct errors from prior periods, including errors in the application of the methods and criteria for apportionment, and the right to such revision extends to four years (in the case of VAT, under Article 98, No. 2).

1. This interpretation is also consistent with the underlying purpose of the VAT system. The VAT is an indirect tax where the taxpayer acts as an intermediary, collecting VAT on behalf of the government and paying it to the government. The objective of the VAT system is that ultimately the burden of the tax falls on the final consumer, not on intermediate suppliers.

If a taxpayer, through erroneous application of the law, has remitted more VAT to the government than it was legally obligated to remit, then the VAT system has been distorted: the taxpayer has overpaid, and the final consumer has not borne the ultimate burden as intended. The restoration of the proper operation of the VAT system requires that the excess VAT be recovered.

The interpretation that prevents the recovery of excess VAT after two years, even though the general four-year period for recovery has not elapsed, would be inconsistent with the purpose of the VAT system and would result in an unjust enrichment of the government.

1. For all the foregoing, the tribunal finds that:

(1) The Claimant committed an error of law in the application of the methods and criteria for apportionment in 2010;

(2) The Claimant's request for official review, filed in May 2014, was timely under Article 98, No. 2 of the VAT Code, as it was filed within four years of the payment of the excess VAT in 2010;

(3) The ATA's reliance on Article 78, No. 6 of the VAT Code to deny the recovery of the excess VAT was incorrect, as that provision does not prevent the recovery of excess VAT under the four-year period provided in Article 98, No. 2;

(4) The ATA should have approved the Claimant's request for official review and authorized the deduction of the excess VAT in the amount of €30,737.01.

1. Accordingly, the tribunal finds that the ATA's decision dismissing the request for official review was illegal and should be annulled.

DECISION

For all the foregoing reasons, the tribunal:

1. Rejects the exceptions of material incompetence invoked by the Respondent;

2. Annuls the decision of the Tax and Customs Authority dismissing the request for official review of the VAT self-assessment act;

3. Recognizes the Claimant's right to deduct the VAT supported in excess during the year 2010 in the amount of €30,737.01;

4. Condemns the Tax and Customs Authority to authorize the deduction of the said amount of VAT and to effect the corresponding adjustment, including accrued compensatory interest as provided by law from the date of payment of the excess VAT until the date of adjustment.

5. Determines that the Tax and Customs Authority shall issue the corresponding credit note within 30 days of notification of this decision.

Issued on November 17, 2015