Process: 204/2018-T

Date: March 4, 2019

Tax Type: IVA

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 204/2018-T) addresses two critical VAT issues: the applicable rate for transfer of poultry farm operations and documentation requirements for export exemptions. A poultry farming company contested VAT assessments totaling €543,430.77 for 2015-2017, arising from tax inspections of refund requests. The dispute centered on whether the temporary transfer of poultry pavilions and equipment qualified as agricultural leasing eligible for reduced VAT rates under item 4.2(e) of List I of the Portuguese VAT Code, or constituted a commercial establishment lease subject to standard rates. The Tax Authority argued the arrangement transferred an entire commercial operation, not mere agricultural equipment. The second issue concerned exports to third countries outside the EU, where the Authority rejected exemption claims under Article 14(a) of the VAT Code due to absence of proper customs documentation. The taxpayer had presented certificates of origin and veterinary certificates but failed to provide the Single Administrative Document (SAD) required by Article 29(8) of the VAT Code. The Authority maintained that only SAD documentation with exit certification proves goods physically left the EU customs territory. This case illustrates the strict documentary requirements for VAT exemptions on exports and the importance of properly characterizing contracts for VAT rate purposes, distinguishing between simple agricultural equipment leasing and comprehensive business operation transfers under Portuguese tax law.

Full Decision

ARBITRAL DECISION

I – Report

  1. A..., S.A., with the collective identification number ... and registered office in ...-..., hereby requests the constitution of an arbitral tribunal, pursuant to the provisions of Articles 2, paragraph 1, subparagraph a), and 10 of Decree-Law No. 10/2011, of 20 January, to assess the legality of the tax acts determining additional VAT assessments for the years 2015, 2016 and 2017, in the total amount of € 543,430.77, further requesting condemnation to the payment of compensatory interest.

The request is grounded on the following terms.

The Applicant is a commercial company dedicated to poultry farming in the context of egg production for incubation and day-old chicks.

Following two requests for VAT refund, made in the periodic declarations relating to the months of November 2016 and June 2017, tax inspection actions were initiated which resulted in additional VAT assessments through corrections introduced to the requested refunds.

The refunds originated from exports of goods effected to entities based in third countries, which are exempt from VAT pursuant to subparagraph a) of Article 14 of the VAT Code, and from the monthly transfer of poultry breeding units for operation, which is broken down into the lease of facilities and equipment for the development of rearing or reproduction activities, which is subject to the reduced rate of VAT, in light of the provisions of subparagraph e) of item 4.2 of List I annexed to the VAT Code.

The corrections identified in the inspection reports were based on the fact that the customs documents considered internally as adequate for the purpose of recognition of the right to exemption had not been presented, with regard to exports to countries outside the European Community, and on the understanding that the transfer of operation of the poultry breeding units cannot be qualified as a lease for agricultural purposes but as a transfer of operation that is not covered by the reduced rate regime.

The Tax and Customs Authority (AT) configured the contract of transfer of operation as a lease contract of a commercial establishment, that is, a contract by which one party transfers to another, temporarily and in return for remuneration, the enjoyment and use of its commercial operation. When it is certain that the Applicant only transferred, temporarily and for a fee, in favour of the transferee the rights to use the poultry pavilions, as well as the equipment located therein allocated to the poultry operation and no other factor of production whatsoever, and, in that sense, through the said contract only transferred two components capable of integrating a commercial establishment: the physical facilities (pavilions) and the equipment existing within them.

Since the situation of the case cannot be configured as the transmission of a commercial unit or of an indissociable whole, the reduced rate applicable to the provision of services that contribute to agricultural and forestry production should be applied, to which item 4.2 refers and among which is found the provision of services arising from the contract of "lease, for agricultural purposes, of the means normally used in agricultural and forestry operations".

With regard to exports to third countries, the corrections are based on the absence of customs documents that could support the transmission of goods in accordance with the provisions of Article 29, paragraph 8, of the VAT Code. Now, the Applicant requested from the Portuguese Chamber of Commerce and Industry the certificates of origin of the goods and, from the General Directorate of Food and Veterinary, the mandatory veterinary certificates to allow the entry of eggs for incubation into the territory of the Republic of ... and the Kingdom of ..., with the corresponding International Dispatch Declarations having been issued.

The transmissions of goods were actually carried out, originated in Portugal and had as final destinations the Republic of ... and the Kingdom of ... .

It concludes that the tax corrections contained in the Tax Inspection Reports should be annulled, due to erroneous interpretation and application of the rules of subjective scope of the tax.

The AT, in its response, argues that the contract by which the Applicant transferred, temporarily and for a fee, the enjoyment and operation of the poultry facilities, including all the equipment existing therein, corresponds not to a lease contract but to a contract of transfer of operation, which does not fall within the reduced rate regime of subparagraph e) of item 4.2 of List I annexed to the VAT Code, and that, as such, constitutes a provision of services, in accordance with the combined provisions of Articles 1, paragraph 1, subparagraph a), and 4, paragraph 1, of the VAT Code, subject to VAT assessment at the normal rate, according to the provisions of subparagraph c) of paragraph 1 of Article 18.

According to its allegation, what is at issue is not mere agricultural leasing by which the lessor transfers to the lessee the right of enjoyment of a property, but a transfer of operation by which the holder of the establishment transfers to the transferee the enjoyment and use of a commercial unit, and it must be recognized that the lease, for agricultural purposes, of the means normally used in agricultural or forestry operations may encompass the lease, the usufruct, or even the temporary enjoyment of tools, utensils, and equipment or any other instruments habitually used in agricultural or forestry operations but not the lease of an agricultural or forestry land itself.

With regard to the transmission of goods shipped outside the European Community, which are exempt from VAT pursuant to subparagraph a) of paragraph 1 of Article 14 of the Code, they must be proven through the appropriate customs documents, as provided in paragraph 8 of Article 29, and, pursuant to the subsequent paragraph 9, the absence of supporting documents determines the obligation for the transmitter of goods or provider of services to assess the corresponding tax.

Now, the Applicant only presented the certificates of origin from the Portuguese Chamber of Commerce and Industry and certificates from the General Directorate of Food and Veterinary, that is, the documents that accompany the exports, but which are not suitable to prove the effective receipt of goods in the recipient countries. Since in accordance with the combined provisions of Articles 161, paragraph 1, of the Community Customs Code and 786, paragraph 1, of the Implementing Provisions of the Community Customs Code, the dispatch of Community goods to a destination outside the customs territory of the Community is subject to a specific customs regime, which presupposes, in particular, the export declaration made in the name of the taxable person, to whom the copy with the exit certification must be delivered.

It should be understood that the appropriate customs documents intended to prove the transmissions of exempt goods correspond to the Single Administrative Document, which it was incumbent upon the Applicant to present in order to benefit from the tax exemption.

It concludes that the arbitral request is unfounded.

  1. In the course of the proceedings, the meeting referred to in Article 18 of the RJAT was dispensed with and a period was set for the submission of optional written pleadings.

The parties did not plead.

  1. The request for constitution of the arbitral tribunal was accepted by the President of the CAAD and automatically notified to the AT in accordance with regulatory terms.

In accordance with the provisions of subparagraph a) of paragraph 2 of Article 6 and subparagraph b) of paragraph 1 of Article 11 of the RJAT, in the wording introduced by Article 228 of Law No. 66-B/2012, of 31 December, the Ethics Council designated as arbitrators of the collective arbitral tribunal the undersigned, who communicated acceptance of the task within the applicable period.

The parties were duly and timely notified of this designation and did not express a wish to refuse it, in accordance with the combined provisions of Article 11, paragraph 1, subparagraphs a) and b), of the RJAT and Articles 6 and 7 of the Deontological Code.

Thus, in accordance with the provision of subparagraph c) of paragraph 1 of Article 11 of the RJAT, in the wording introduced by Article 228 of Law No. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 4 July 2018.

The arbitral tribunal was regularly constituted and is materially competent, in accordance with the provisions of Articles 2, paragraph 1, subparagraph a), and 30, paragraph 1, of Decree-Law No. 10/2011, of 20 January.

The parties have legal personality and capacity, are legitimate and are represented (Articles 4 and 10, paragraph 2, of the same statute and 1 of Ordinance No. 112-A/2011, of 22 March).

The proceedings do not suffer from nullities and no exceptions are invoked.

By order of 4 January 2018, the extension of the period for pronouncing the arbitral decision was determined, in accordance with Article 21, paragraph 2, of the RJAT.

It is appropriate to consider and decide.

II - Reasoning

Factual Matters

  1. The facts relevant to the decision of the case that may be considered established are the following.

A) A..., S.A. entered into a contract of transfer of operation with B..., Lda., whereby it transfers, temporarily and in return for payment, in favour of the second party the enjoyment and operation of the poultry facilities identified in subparagraphs a) to m) of the first clause of the contract, including all the equipment existing therein, through the payment of a monthly amount determined as a function of the number of birds housed, at the beginning of each flock, in each of the pavilions that make up the various poultry breeding units. The contracting parties may further agree that, through specific negotiation, during the rearing of each flock, the supply of goods (namely feed) and the provision of services (collection, technical monitoring, etc.) (doc. No. 28);

B) The Applicant effected exports of eggs for incubation to ... and..., through invoices Nos. 2208000553, of 4 May 2017, in the amount of € 71,280.00, 2208000555, of 8 May 2017, in the amount of € 61,560.00, 208000287, of 17 May 2016, in the amount of € 45,100.05, and 2208000293, of 23 May 2016, in the amount of € 23,749.95, which are contained in documents Nos. 29, 34, 39 and 45 attached to the petition;

C) For each of the transmissions of goods, certificates of origin of the goods were issued by the Portuguese Chamber of Commerce and Industry (documents Nos. 30, 35, 40 and 46) and sanitary export certificates from Portugal for the destination countries by the General Directorate of Food and Veterinary (documents Nos. 31, 41, 47 and 51);

D) International Dispatch Declarations were issued, which identify the means of transport used, the carrying entity, the shipper and the recipient (documents Nos. 32, 36, 42 and 48);

E) The export accompanying documents were also completed (documents Nos. 33, 37, 43 and 49);

F) The DU model export documents relating to the exports covered by invoices Nos. 208000287, of 17 May 2016, and 2208000293, of 23 May 2016, which are contained in documents Nos. 34 and 39, in which the recipient is C..., S.A., with registered office in ..., bear the stamp of the Customs of ... (documents Nos. 38 and 44);

G) The Applicant effected exports of eggs for incubation to ..., through invoice No. 2208000357, of 15 July 2016, in the amount of € 39,314.00;

H) For the transmission of goods referred to in the previous subparagraph, the General Directorate of Food and Veterinary issued the sanitary export certificate from Portugal to the destination country (document No. 51) and the export accompanying document (document No. 52);

I) The Applicant was subjected to an inspection procedure authorized by the service order OI2017..., in view of the analysis of the tax situation in the field of VAT arising from the refund request made in the periodic declaration of November 2016, in the amount of € 1,343,870.67;

J) In the Tax Inspection Report for the years 2015 and 2016, it was considered that the monthly transfer of operation for the production of breeding hens in the rearing units constitutes a transfer of operation, which constitutes a provision of services, in accordance with Articles 1, paragraph 1, subparagraph a), and 4, paragraph 1, of the VAT Code, subject to VAT assessment at the normal rate, having calculated arithmetic corrections in the amount of € 218,246.32, for the year 2015, and € 210,393.95 for the year 2016;

K) Also according to the Tax Inspection Report for the years 2015 and 2016, the transmissions of goods shipped outside the Community that are exempt from VAT, under the provisions of subparagraph a) of paragraph 1 of Article 14 of the Code, must be proven by "Exit certification for the shipper/exporter", which was not the case with regard to the exports covered by invoices Nos. 2208000287, of 17 May 2016, in the amount of € 45,100.05, and 2208000293, of 23 May 2016, in the amount of € 23,749.95, and 2208000357, of 15 July 2016, in the amount of € 39,314.00, which resulted in the assessment of tax to be paid in the total amount of € 6,489.84;

L) The Applicant was subjected to an inspection procedure authorized by the service order OI2017..., in view of the analysis of the tax situation in the field of VAT arising from the refund request made in the periodic declaration of November 2016, in the amount of € 1,343,870.67;

M) In the Tax Inspection Report for the year 2017, it was considered that the monthly transfer of operation for the production of breeding hens in the rearing units constitutes a transfer of operation, which does not fall within the reduced rate regime of subparagraph e) of item 4.2 of List I annexed to the VAT Code and constitutes a provision of services subject to VAT assessment at the normal rate, having calculated tax shortfall in the amount of € 98,913.60;

N) In the Tax Inspection Report for the year 2017, the transmissions of goods shipped outside the Community that are exempt from VAT, under the provisions of subparagraph a) of paragraph 1 of Article 14 of the Code, must be proven by "Exit certification for the shipper/exporter", which was not the case with regard to the exports covered by invoices Nos. 2208000553, of 4 May 2017, in the amount of € 71,280.00, and 2208000555, of 8 May 2017, in the amount of € 61,560.00, which resulted in the assessment of tax to be paid in the total amount of € 7,970.40;

O) The contents of document No. 28 attached to the arbitral petition are reproduced.

The Tribunal formed its conviction regarding the proven factuality based on the documents attached to the petition and on the administrative file submitted by the AT with the response.

Matters of Law

  1. The question at issue is whether the transfer to a third party of the operation of poultry facilities, including all the equipment therein, falls within the provision of subparagraph e) of item 4.2 of List I annexed to the VAT Code, in order to be included among the goods or services subject to the reduced rate. And in a second moment, whether the customs documents that are required for the transmission of goods to countries outside the Community, exempt from tax, can be constituted by the certificates of origin of goods issued by the Portuguese Chamber of Commerce and Industry and by the sanitary export certificates from Portugal to the destination countries issued by the General Directorate of Food and Veterinary.

Transfer of Operation

  1. Article 18, paragraph 1, subparagraph a), of the VAT Code establishes for the imports, transmissions of goods and provisions of services contained in List I the rate of 6%. On the other hand, item 4.2 of that List I, in its subparagraph e), enumerates among the goods and services subject to the reduced rate the "lease, for agricultural purposes, of the means normally used in agricultural and forestry operations".

The Applicant argues that the transfer of the right to use the poultry pavilions and the equipment located therein allocated to the poultry operation does not correspond to a transfer of operation of a commercial establishment, but to a lease, for agricultural purposes, of the means normally used in agricultural operations, which, as such, would be covered by subparagraph e) of item 4.2 of List I annexed to the VAT Code and subject to the reduced rate referred to in the said Article 18, paragraph 1, subparagraph a), of the VAT Code.

In contrast, the AT argues that the legal relationship established between the parties cannot be considered as a lease contract, but as a contract of transfer of operation, which does not fall within subparagraph e) of item 4.2 of List I annexed to the VAT Code, and, as such, constitutes a provision of services which, in general terms, is subject to VAT assessment at the normal rate.

It cannot fail to be recognized that the characteristic feature of the transfer of operation is reflected, not in the transfer of enjoyment of the property and the enjoyment of the furniture or contents located therein, but in the temporary transfer of the establishment as a whole, as a universality, as an economic unit more or less complex. And, in that sense, in the transmission effected by the transferor is included the entire sum of material and immaterial elements that integrate the organization of the enterprise, from the movables and immovables to the clientele and the contracts with personnel and financial entities (PIRES DE LIMA/ANTUNES VARELA, Annotated Civil Code, vol. II, 2nd edition, Coimbra, p. 491).

The transfer of operation presupposes, therefore, the transmission of the generality of the business means belonging to the transferor that integrate the commercial establishment and, thus, all elements with economic value that belong to the enterprise, and cannot relate only to individual elements that integrate the establishment (COUTINHO DE ABREU, Course in Commercial Law, vol. I, 2nd edition, Coimbra, pp. 290-292).

In the case, the Applicant entered into a contract, denominated as transfer of operation, by which it merely transfers, temporarily and in return for payment, in favour of the transferee the enjoyment and operation of certain poultry facilities, which are identified in the contractual clauses, including all the equipment existing therein, but which does not correspond to a transfer of operation of a commercial establishment in the proper sense, since what is at issue is not the transmission of the establishment as a unit but only the transmission of some of the business facilities that integrate the establishment. In that sense also points the fact that the remuneration was fixed, not by reference to the establishment as a legal and economic unit, but rather by the payment of a monthly amount determined as a function of the number of birds housed in each of the pavilions that was the subject of transfer.

The contract entered into between the parties corresponds, in these terms, to a lease contract, by which the lessee acquires the use and enjoyment of the thing leased and which can be defined as a lease if it is understood that it relates to integral parts of rural properties. It is not, in any case, a rural lease, that is, a lease, total or partial, of rural property for agricultural, livestock or forestry purposes, or other activities of production of goods or services associated with agriculture, livestock or forestry. There is no lease of a rural property, even if partial, but a lease of facilities and equipment intended for the specific productive purpose of rearing birds and which acquire economic autonomy in relation to the rural properties in which they are inserted.

There is no reason to consider, in this context, that we are not dealing with a lease and that it is not a lease, for agricultural purposes, of the means normally used in agricultural operations.

The lease thus meets the requirement referred to in subparagraph e) of item 4.2 of List I annexed to the VAT Code, whereby the arbitral request is shown to be, in this part, well-founded.

Customs Documents Appropriate for the Export of Goods to Countries Outside the Community

  1. Referring to exemptions in exports, similar operations and international transportation, Article 14 of the VAT Code, in its paragraph 1, subparagraph a), considers exempt from tax "the transmissions of goods shipped or transported outside the Community by the seller or by a third party on behalf thereof".

Article 29, meanwhile, establishes, for taxpayers, accessory obligations, among which is the one resulting from paragraph 8, which provides as follows:

The transmissions of goods and the provisions of services exempt under subparagraphs a) to j), p) and q) of paragraph 1 of Article 14 and subparagraphs b), c), d) and e) of paragraph 1 of Article 15 must be proven through the appropriate customs documents or, if there is no legal obligation for the intervention of customs services, by declarations issued by the purchaser of goods or user of services, indicating the destination they will be given.

The subsequent paragraph 9 adds that "the absence of the supporting documents referred to in the previous number determines the obligation for the transmitter of goods or provider of services to assess the corresponding tax."

In light of the provisions of Article 74 of the General Tax Law, "the burden of proof of the facts constitutive of the rights of the tax administration or taxpayers falls on whoever invokes them". Since the application of a rule of tax exemption is at issue and the obligation to prove, through appropriate customs documents, the transmission of goods considered exempt, rests particularly on the transmitter of goods, it seems clear that it is the taxable person who bears the burden of proof of the facts on which the attribution of the tax exemption depends.

Preliminarily, it is also important to define the concept of appropriate customs documents referred to in Article 29, paragraph 8, of the VAT Code. It should be considered that we are dealing with an indeterminate legal concept whose concretization does not depend on a value judgment or prognosis that grants the AT a margin of free administrative discretion. It will be a concept that can be determined in an intra-systemic manner through operations of legal interpretation and which has essentially the meaning of a norm referring to other places in the system (cf. MARCELO REBELO DE SOUSA/ANDRÉ SALGADO DE MATOS, General Administrative Law, Volume I, 3rd edition, p. 190).

Under the current Union Customs Code, approved by Regulation EU 952/2013 of the European Parliament and Council, of 9 October 2013, the customs destination of goods is assigned through the single administrative document (SAD) referred to in Article 2, § 5, of Annex B to Commission Delegated Regulation EU 2015/2446, of 28 July 2015, and whose form model is contained in Title III. The SAD can be presented to the customs authorities by the importer or by its representative, electronically or by direct delivery to the customs office premises.

Under the previous regime, Circular No. 8/2015, of the Division of Customs Regulation Services and the Division of Value Added Tax Services, aiming to clarify the regime of Article 788 of the Implementing Provisions of the Community Customs Code of 1992, established that the proof of the transmissions exempt from VAT, in accordance with Article 29, paragraph 8, of the Code, was effected through exit certification for the shipper/exporter. The model of exit certification to which the circular referred was contained, in turn, in Annex 3 to Circulated Office No. 15327/2015. This same office clarifies that the authorization for exit and the exit certification have distinct effects: the authorization for exit has the effect of authorizing the performance of the export operation when it is carried out by electronic transmission of data through the Automatic Processing System for Export Customs Declarations (STADA), being replaced by the Export Accompanying Document in the remaining cases; the exit certification has the effect of confirming the exit of goods from the customs territory of the Union.

In the case at hand, what is found is that the Applicant presented the invoices for the export operations, the certificates of origin of the goods and the sanitary export certificates from Portugal to the destination countries, as well as the international dispatch declarations, which identify the means of transport used and the export accompanying documents. In two cases, the export documents contain the customs stamp. However, proof of exit certification is not made, either through the model contained in Annex 3 to Circulated Office No. 15327/2015, or through the single administrative document.

As is known, the Regulations referred to in Article 288 of the Treaty on European Union are binding and have direct applicability, which means that their discipline is automatically incorporated into the internal legal order independently of any mechanism of reception in the national legal system. And in that sense points the provision of Article 8, paragraph 3, of the Constitution, which determines that the norms issued by international organizations of which the Portuguese State is a party are in force directly in the internal order, binding the State and citizens, independently of any act of approval or ratification. And, thus, the Regulations of the European Union, being binding and producing direct effects, generate rights and obligations in the legal sphere of their addressees.

It is certain that the Applicant submitted documents indicative that the exports took place. It cannot be concluded, however - contrary to what is stated in the judgment delivered in Case No. 88/2017-T -, that the transmission of goods for the purposes of Article 29, paragraph 8, of the VAT Code can be given as proven, based on the principle of free appreciation of evidence. This principle, which is enshrined in Article 607, paragraph 5, of the Code of Civil Procedure, allows the judge to take as proven a fact, based on its intimate conviction generated in light of the probative material brought to the proceedings. But as that provision immediately adds, "free appreciation does not cover facts for whose proof the law requires special formality, nor those that can only be proven by documents or that are fully proven, either by documents, or by agreement or admission of the parties".

In the case at hand, as has been clarified, the proof of the transmission of goods, for the purpose of tax exemption, must be made through appropriate customs documents. In a systematic interpretation that takes into account the purpose of the norm, appropriate customs documents cannot be considered as being any customs documents or any documents that reveal, indicatively, under the free appreciation of the judge, that the transmission was carried out. Since it is an indeterminate legal concept, it cannot be filled through a value judgment of free appreciation by the AT or the adjudicator, but only through the interpretation of the law.

The indeterminate concept is here used as a technical-legislative instrument intended to effect an intra-systemic reference. That is, it is a norm that, not directly regulating the legal question, orders the application of other norms of the legal system, contained in the same or another statutory provision, in which the question is established (cf. BAPTISTA MACHADO, Introduction to Law and Legitimizing Discourse, Coimbra, 1993, p. 105). And the integration of the concept must, in these terms, be effected by means of the provisions that define the customs procedure for the export of goods outside the community, which, as has been said, is reduced to the so-called single administrative document, which corresponds to the model of exit certification of goods, which, moreover, the AT itself specified, through a circular, as being the document that could prove the export of goods for the purpose of VAT exemption.

Thus, since it is not possible to establish that the Applicant proved through the appropriate customs document the exit of goods to a country outside the Community, it cannot be considered that the exemption referred to in Article 29, paragraph 8, of the VAT Code applies, and the corresponding tax must be assessed in accordance with the subsequent paragraph 9.

The arbitral request is therefore shown to be, in this part, unfounded.

Compensatory Interest

  1. The Applicant further requests condemnation of the AT to the payment of compensatory interest, at the legal rate, calculated on the tax, until the full reimbursement of the amount owed.

In accordance with the provisions of subparagraph b) of Article 24 of the RJAT, the arbitral decision on the merits of the claim that is not subject to appeal or challenge binds the AT, in the exact terms of the success of the arbitral decision in favor of the taxable person, incumbent upon it to "restore the situation that would exist if the tax act subject to the arbitral decision had not been carried out, adopting the acts and operations necessary for that purpose". This is in keeping with the provision of Article 100 of the LGT, applicable by virtue of the provision of subparagraph a) of paragraph 1 of Article 29 of the RJAT.

Also in accordance with paragraph 5 of Article 24 of the RJAT "payment of interest, regardless of its nature, is due, in accordance with the terms provided for in the General Tax Law and the Tax Procedure and Process Code", which refers to the provisions of Articles 43, paragraph 1, and 61, paragraph 5, of each of these statutes, implying the payment of compensatory interest from the date of the payment of undue tax until the date of processing of the respective credit note.

There is thus a basis, following the declaration of illegality of the tax act of withholding tax assessment, for the payment of compensatory interest, in accordance with the cited provisions of Articles 43, paragraph 1, of the LGT and 61, paragraph 5, of the CPPT, calculated on the amount that the Applicant paid unduly, at the rate of legal interest (Articles 35, paragraph 10, and 43, paragraph 4, of the LGT), with respect to the tax acts that are the subject of annulment.

III – Decision

The decision is hereby rendered as follows:

a) Judge partially well-founded the arbitral request and annul the tax acts that determined corrections in the amounts of € 218,246.32, € 210,393.95 and € 98,913.60, respectively, for the years 2015, 2016 and 2017;

b) Judge unfounded the arbitral request with regard to the remaining tax acts that were the subject of challenge;

c) Condemn the AT to the payment of compensatory interest in relation to the tax acts that were the subject of annulment.

Value of the Cause

The Applicant indicated as the value of the cause the amount of € 543,430.77, which was not contested by the Respondent and corresponds to the value of the assessment against which it was intended to object, whereby the value of the cause is fixed in that amount.

Costs

In accordance with the provisions of Articles 12, paragraph 2, and 24, paragraph 4, of the RJAT, and 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings and Table I annexed to that Regulation, the amount of costs is fixed at € 8,262.00, which is to be borne by the Applicant and Respondent, in the proportion of 1/36.

Notify.

Lisbon, 4 March 2019

The President of the Arbitral Tribunal

Carlos Fernandes Cadilha

The Arbitrator Member

Rita Guerra Alves

The Arbitrator Member

Hélder Filipe Faustino

Frequently Asked Questions

Automatically Created

Is the transfer of poultry farm facilities (cessão de exploração) subject to reduced VAT rate as agricultural leasing under Portuguese law?
Under Portuguese law, the transfer of poultry farm facilities (cessão de exploração) is generally not subject to the reduced VAT rate applicable to agricultural leasing. The CAAD tribunal and Tax Authority distinguish between simple agricultural equipment leasing under item 4.2(e) of List I (reduced rate) and transfer of a commercial establishment operation (standard rate). When the arrangement transfers entire operational facilities including pavilions and integrated equipment as a functional commercial unit, it exceeds mere agricultural equipment leasing and becomes a commercial establishment transfer subject to the normal VAT rate under Article 18(1)(c) of the VAT Code. The reduced rate applies only to leasing of individual tools, equipment, or instruments used in agricultural operations, not comprehensive operational transfers.
What documentation is required to prove VAT exemption on exports of goods outside the European Community under Article 14(a) of the Portuguese VAT Code?
To prove VAT exemption on exports outside the European Community under Article 14(a) of the Portuguese VAT Code, taxpayers must present appropriate customs documents as required by Article 29(8). The mandatory documentation is the Single Administrative Document (SAD) with exit certification from customs authorities, proving goods physically left EU territory. Certificates of origin from commercial chambers and veterinary certificates, while necessary for shipment, are insufficient to establish exemption eligibility. The SAD must be issued in the taxpayer's name and contain exit certification pursuant to Articles 161(1) of the Community Customs Code and 786(1) of its Implementing Provisions. Failure to present proper customs documentation results in obligation to assess VAT under Article 29(9), even if export actually occurred.
Can the leasing of poultry pavilions and equipment be classified as agricultural property leasing for reduced VAT rate purposes?
The leasing of poultry pavilions and equipment cannot be classified as agricultural property leasing eligible for the reduced VAT rate when it constitutes a comprehensive transfer of operational facilities. Portuguese tax law, as interpreted by CAAD, distinguishes between: (1) leasing individual agricultural means (tools, equipment, instruments) covered by the reduced rate under item 4.2(e) of List I, and (2) transferring integrated commercial operations including facilities and equipment as functional units. While the taxpayer argued only physical facilities and equipment were transferred, the Tax Authority successfully demonstrated the arrangement transferred complete operational capacity of poultry breeding units. The comprehensive nature of facilities transfer, including all integrated equipment for commercial poultry operations, characterizes it as commercial establishment transfer subject to standard VAT rates, not simple agricultural equipment leasing.
How does the CAAD arbitral tribunal distinguish between a commercial establishment lease and an agricultural equipment lease for VAT purposes?
The CAAD arbitral tribunal distinguishes between commercial establishment lease and agricultural equipment lease for VAT purposes based on the scope and integration of transferred elements. A commercial establishment lease (cessão de exploração) transfers the organized combination of production factors enabling business operation, including facilities, equipment, and operational capacity as an indivisible commercial unit. In contrast, agricultural equipment lease under item 4.2(e) involves temporary transfer of individual tools, utensils, equipment or instruments used in agricultural operations. The key criteria are: (1) whether transferred elements form an integrated operational whole or separate components, (2) whether the arrangement enables independent commercial activity or merely provides production means, and (3) the comprehensiveness of the operational transfer. When poultry pavilions and all internal equipment are transferred together as functional breeding units, this constitutes commercial establishment transfer, not agricultural equipment leasing.
What are the conditions for obtaining VAT refunds on exempt export transactions under Portuguese tax law?
To obtain VAT refunds on exempt export transactions under Portuguese tax law, taxpayers must satisfy strict documentation and substantive requirements. First, goods must actually be shipped to destinations outside EU territory, qualifying for exemption under Article 14(a) of the VAT Code. Second, taxpayers must present appropriate customs documents proving export completion, specifically the Single Administrative Document with exit certification as required by Article 29(8). Third, documentation must demonstrate the taxpayer is the exporter named in customs declarations. Fourth, refund requests in periodic VAT declarations must be supported by these documents during any subsequent inspection. The burden of proof rests entirely on the taxpayer. Failure to present adequate customs documentation, even if export occurred, results in VAT assessment obligation under Article 29(9) and denial of refunds, potentially triggering additional assessments and interest charges on improperly claimed refunds.