VAT/IRC Exemption Under Articles 9(8) and 10(c)(d) CIVA – Competition Distortion Analysis | CAAD 209/2015-T

ARBITRAL DECISION

The arbitrators Judge José Poças Falcão (arbitrator-president), Dr Paulo Lourenço and Dr José Coutinho Pires, (arbitrator-members), designated by the Deontological Council of the Administrative Arbitration Centre to form the Arbitral Court, constituted on 1-6-2015, agree on the following:

I – REPORT

A… CIPRL, (hereinafter referred to as A…), legal entity no. …, with headquarters at Alameda …, …, in the city of ..., which is part of the Service … corresponding to the Financial Service of ... …, of the Finance Department of …, came, under the provisions of articles 2°, no. 1, lit. a) and 10º of Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters - RJAT), to request the constitution of an Arbitral Court with a view to obtaining the declaration of illegality of the official assessments of VAT, of the respective compensatory interest and of the official assessment of Corporate Income Tax, identified below, carried out by ATA - Tax and Customs Authority (hereinafter referred to only as TA) following the inspection report prepared within the framework of service order 012014… (see doc. no. 1):

Additional VAT assessments (see doc. no. 2):

• no. … (collection document no. …);

• no. … (collection document no. …);

• no. … (collection document no. …);

• no. … (collection document no. …);

• no.… (collection document no. …);

• no.… (collection document no. …);

• no.… (collection document no. …);

• no.… (collection document no. …);

• no.… (collection document no. …);

• no.… (collection document no. …);

• no.… (collection document no. …); and

• no.… (collection document no. …).

Assessments of compensatory interest (see doc. no. 2):

• no. … (collection document no. …);

• no. … (collection document no. …);

• no. … (collection document no. …);

• no. … (collection document no. …);

• no.… (collection document no. …);

• no. … (document of collection no. …);

• no. … (collection document no. …);

• no. … (collection document no. …);

• no. … (collection document no. …);

• no. … (collection document no. …);

• no. … (collection document no. …); and

• no. … (collection document no. …).

Additional Corporate Income Tax assessment (see doc. no. 3):

• no. 2014….

1. The Claimant essentially alleged:

Between 8 May 2014 and 3 November 2014, the Claimant was subject to an external inspection procedure, carried out by the TA, initially of partial scope regarding the Corporate Income Tax (IRC) and which, on 9 October 2014, in compliance with the dispatch of the Head of Division, was expanded to general scope, "because situations had been verified in respect of IRC, which implied the proper analysis in respect of other taxes, namely VAT".

The external inspection procedure thus concerned, in general terms, the fiscal year 2010 and resulted "from a proposal following the special action - … 2013, carried out (...) [on] taxpayers that present irregularities in three (3) or more criteria, in accordance with the limits centrally defined in the Taxpayer Selection application".

Once the inspection acts were concluded, the now Claimant was notified of the tax inspection report draft, having, in a timely manner, in light of articles 60° of the General Tax Law (LGT) and 60º of the Supplementary Regime of Tax Inspection Procedure (RCPIT), exercised its right to a hearing setting out the factual and legal grounds which, in its understanding, would prevent the corrections projected there.

Considering it essential to the discovery of material truth, the now Claimant, as evidence, also enrolled a witness – B… - to be questioned on all matters, for determination of the alleged facts.

Notwithstanding what was submitted there, the TA decided to maintain the corrections projected.

It follows from the tax inspection report that "from the global analysis of the taxpayer, its operationality and all activities carried out by it, from the accounting records and corresponding supporting documents to the operations carried out", the TA concluded that there was a set of irregularities capable of giving rise to corrections both in respect of VAT and in respect of IRC and which are listed in the Summary Table of corrections resulting from the inspection action.

The Claimant does not, however, conform with the conclusions of the inspection report regarding the alleged irregularities, which led to additional assessments in the amount of 57,689.03 € and the consequent compensatory interest, in the amount of 9,750.72 €.

The Inspection Report promotes corrections in relation to VAT of the swimming pool services and athletics track, as well as to the rental of other facilities.

On the other hand, it also promotes corrections in relation to external supplies and services and to the disposal of fixed assets.

The aforementioned report presents the following conclusions:

A… has under its management the so-called City … which includes the Multi-use Pavilion, the Swimming Pool Complex, the Aquatic Park … and the Athletics Track …, among other facilities.

With respect to this operation, the TA found that the Claimant, in the services provided in the Swimming Pool Complex, does not apply VAT because it considers it to be an operation exempt under the provision of lit. 8) of article 9° of the VAT Code.

With respect to the Swimming Pool Complex, the TA considers that "the taxpayer should have proceeded to charge VAT (by applying the reduced VAT rate, in accordance with lit. a) of no. 1 of article 18º of the VAT Code and item 2.15 of the List Annexed to this Act), in accordance with the determination itemized in the table, which is attached in annex III, whose summary appears in the following table":

It alleges, for this purpose, that "the taxpayer does not meet the necessary requirements to apply the exemption provided for in lit. 8) of article 9º of the VAT Code, since it is in direct competition with other taxpayers."

According to the TA, "A… [finds itself] in a situation of direct competition with other entities, since in the city and municipality of ... there are entities that possess covered swimming pools for sports and recreational practice and provide the same type of services, such as a hotel located in the city or the "swimming pool of …" also located in the city or the swimming pools (also covered) in the parish of …, also in the municipality" (emphasis ours), having concluded that the taxpayer "is subject to taxation for the operations carried out in the Swimming Pool Complex, to the extent that as it was proven the carrying out of these operations leads to effective distortions of competition."

The TA also argues that the taxpayer, in the services it provides to users, whether in the athletics track, or in the rental of facilities for the practice of activities related to sports practice, is subject to tax and not exempt from it, under the terms of article 9º, no. 8 of the VAT Code.

In fact, where services provided relating to the practice of physical and sports activities and other public entertainment are concerned, the taxpayer should have proceeded to charge VAT (by applying the reduced rate (Item 2.15 of List I), in accordance with article 18, no. 1 lit. a), of the VAT Code"

The TA repeatedly alleges that in "the taxpayer the necessary requirements are not met to be exempt from VAT, (as listed in lit. c) and d) of article 10º of the VAT Code), (...) since it is in a situation of direct competition with other taxpayers, namely with entities subject to VAT that possess venues (covered pavilions and or football fields or others) where sport is practiced, establishments these that exist in the surroundings, which allow the practice of the same sports modalities, such as sports pavilions and indoor pavilions that exist not only in the city, but also in the municipality."

This means that the TA concluded in its Report that the Claimant does not meet the necessary requirements to be exempt from VAT, due to entering into direct competition with other taxpayers in the city and municipality of ..., that is, the TA bases its decision exclusively on the fact that, in its understanding, the taxpayer does not meet the requirement of lit. d) of article 10° of the VAT Code.

With respect to the conclusions of the inspection report, regarding external supplies and services, it follows from the same that "from the analysis of the supporting documents contained in the accounting records, there is evidence of undue expenses in the year under analysis, since it includes in the sub-account 6221 - specialized services - Specialized work, the invoices issued by the company "C… …, Lda (...)."

The TA alleges that "expenses were incurred by the taxpayer, accounted for throughout the year in question (...) [which] constitute expenses that are demonstrably not indispensable for the maintenance of the productive source."

As the TA sets out "these invoices relate to the preparation of a standard project for swimming pools and repeat project, an expense incurred by A… (...) inserted in a process of construction of five new Swimming Pool Complexes in the municipality of ..., in which the City Council is involved, sports equipment that will be, after completion, managed by A…. "

For this reason, it considers that "the taxpayer could not therefore deduct the VAT incurred, since, under the terms of no. 1 of article 20º of the VAT Code (...) these acquisitions not being necessary for the provision of services and not being able to be considered normal expenses of the operation, the taxpayer could not deduct the respective VAT. "

A) ON THE NULLITY OF THE REPORT FOR LACK OF REASONING

The TA does not allege what are the characteristics of the "hotel" swimming pool to which it refers and the prices practiced by it, all by comparison with the equipment made available, services provided and prices practiced by the Claimant, justifying in what way this competition is verified.

In the same way, just as it does not do so in relation to the aforementioned "hotel", neither does it do so in relation to the "firefighters swimming pools" and swimming pools in the parish of ….

On the other hand, the report is equally silent as to the characteristics and similarities between the athletics track and other equipment operated by the Claimant compared to "venues (covered pavilions and or football fields or others) where sport is practiced, establishments these that exist in the surroundings", which moreover are not even identified.

Also with respect to the disregarded costs, the TA merely alleges that "from the analysis of the supporting documents contained in the accounting records, there is evidence of undue expenses" which "are not indispensable for the maintenance of the productive source."

The truth is that it is the TA that bears the burden of proving the existence of all the requirements of the act of additional assessment, namely the concrete facts existing and proven that demonstrate an effective competition which, thereby, justify the corrections that support the assessment. (See Ruling of the Central Administrative Court South, Case 03629/09, of 06-10-2010, available at www.dgsi.pt: (…) X) -The TA, in the exercise of its competence to supervise the conformity of the conduct of taxpayers with the law, acts in the exercise of powers strictly bound, subject to the principle of legality, bearing the burden of proof of the existence of all the requirements of the act of additional assessment, namely the proof of the verification of serious and credible indications to carry out the corrections that support the assessment. XI) -In that sense, the TA is burdened with the demonstration of the factuality that led it to disregard certain costs accounted for in terms of undermining the presumption of veracity of the operations recorded in the accounting of the claimant and in the respective supporting documents which it enjoys in homage to the principle of declaration and veracity of the accounting record in force in our law - as provided at the time in article 75º of the LGT-, from then on, it becomes incumbent on the taxpayer the burden of proof that the accounting record deserves credibility. (...) -With regard to the patent insufficiency of evidence on the part of the TA in the procedure, for not having carried out the necessary steps at the appropriate time, it is not legally admissible for it to do so afterwards, in the contentious phase, as this would constitute a formal and substantive reasoning a posteriori and the substitution of judicial power for the Administration, an act prohibited by the sacrosanct principle of separation of powers (...) Having the TA not proven the well-foundedness of the formation of its judgment, the question relating to the legality of its conduct must be resolved against it, without need to analyze whether the claimant managed or not to prove in court the existence of the tax facts.

No. 1 of article 63º of the RCPIT establishes that the tax or tax-related acts that result from the Inspection Report may be based on its conclusions. This means that there must be special care in the level of reasoning for the tax corrections made in that report, lest the tax act itself is not properly supported, in terms of reasoning. - Jorge Manuel Araújo Breia de Matos, in The problem of reasoning of corrections in the tax inspection report, Master's thesis in Law of Legal-Economic Sciences, conducted under the guidance of Professor Doutora Glória Teixeira, available at www.cije.up.pt/download-file/l 124.

The reasoning of corrections must comply with a justifying discourse, through a statement that aims to express the material relevance of the correction. The capacity to clarify the reasons that led to the correction, the option made, is required, taking into account that there is a margin of discretion in some of these options, which is important to justify adequately. The founding statement must be a discourse capable of sustaining a correction. (Jorge Manuel Araújo Breia de Matos, ob cit.).

Moreover, as is known, where certain facts mentioned in the report are not alleged and these are not known ex officio, the judge cannot rule on them without violating the principle of party disposal and incurring in excess of ruling (Ruling of the Central Administrative Court North, of 24-05-2012, issued within the scope of case no. 00731/09.0BEPNF, available at www.dgsi.pt).

Now, considering that the inspection report is absolutely silent as to the facts that justify the corrections and that it is prevented from adding new facts at this procedural stage, it is clear that the report is null for lack of reasoning.

B) ON THE PRETERMISSION OF EVIDENCE PROCEEDINGS TENDING TO THE DISCOVERY OF MATERIAL TRUTH

The assessments now in question must be declared null, since the tax inspection report that gave rise to them suffers from the same defect, by virtue of having completely ignored the argument set out by the Author at the prior hearing.

The Claimant, as evidence, enrolled a witness, so that she would be questioned on all matters, for determination of the facts then alleged.

Now, despite the TA pretending in the inspection report to have received and analyzed everything that the now claimant spent when exercising its hearing, such circumstantial evidence does not correspond to reality, since it refrained from questioning a witness who had knowledge capable of putting in question the facts alleged in the draft inspection report and undermining its conclusions.

In fact, in light of the evidence elements, namely testimonial, that the Claimant enrolled in its submission, the TA had the obligation to have proceeded to the production of the enrolled evidence and its appraisal.

However, at no time was the enrolled witness heard within that procedure.

Jorge Lopes de Sousa states that "the instructing body may not carry out the requested proceedings if it considers them unnecessary for determination of the facts that matter for the decision, without prejudice to the legality of its decision being subject to contentious control and, therefore, may, in contentious challenge, annul the procedural decision if it is considered that necessary proceedings were not carried out for a correct determination of the facts.

However, the instructing body cannot, without a concrete judgment on the unnecessary nature of carrying out certain proceedings, rule out the possibility of using in the procedure some type of evidence means admitted in law, unless there is a special provision that provides for its exclusion (see Annotated and Commented Code of Procedure and Tax Process, vol. I, 2006, pp. 415 and 416).

That is, it is necessary to carry out the evidentiary proceedings requested by the taxpayer, even if they are considered impertinent by the Tax Administration, because the enrolled evidence proved essential to the satisfaction of the public interest, to the determination of material truth and to the clarification of the facts that support the cancellation of tax benefits, which, moreover, constitutes an obligation of the TA, as provided in article 58º of the LGT.

Furthermore, in not carrying out the requested evidentiary proceedings, the TA reveals a censurable authoritarianism, in that it restricts its critical examination to the evidence that is favorable to its economic interest.

Moreover, the elements brought to the proceedings by the taxpayer must be mandatorily taken into account in the reasoning of the inspection report, under the terms of no. 7 of article 60º of the LGT, which in fact did not happen, since the evidentiary proceedings requested at the prior hearing were completely ignored, with the TA not having ruled on them.

Given this, the illegality of the assessments now in question is clear, since the inspection report that gave rise to them suffers from a notorious omission of ruling by the TA regarding the arguments set out and the means of evidence indicated.

In fact, no. 2 of article 125º of the Code of Administrative Procedure provides that "(...) the adoption of grounds which, by obscurity, contradiction or insufficiency, do not concretely clarify the motivation of the act, is equivalent to lack of reasoning. (..) ".

And it is certain that "tax acts lack reasoning, which, from the outset, must be expressed in a formal, external or explicit declaration, that is, in a manifestation (declaration) embodied in an expressed discourse by the author of the act in a text which makes known to its recipient, presupposed as a normal or reasonable recipient placed before the concrete circumstances, the functional motivation of the act, the reasons why a decision was made in a certain direction and not in any other, allowing him to consciously choose between acceptance of the legality of the act or its challenge. " - Ruling of the Central Administrative Court South, of 13 January 2004, reported by Francisco Rothes, available at www.dgsi.pt.

By the above, the additional assessments now in question must be declared null, since the tax inspection report that gave rise to them suffers from the same defect, due to insufficient reasoning, under the terms of articles 125º, no. 2 and 135° of the Code of Administrative Procedure (CPA), by virtue of articles 2°, lit. c) of the LGT and 2º, lit. d) of the CPPT, because it completely ignored the argument set out by the Author at the prior hearing and did not proceed to the performance of the requested evidence.

D) ON THE ACTIVITY CARRIED OUT BY THE CLAIMANT

The now claimant, constituted by public deed of 22 January 1999, is a cooperative of public interest (public-utility cooperative), held in 89.26% by the Municipality of …, being a legal person under public law under the provision of no. 2 of article 1º of Decree-Law no. 31/84 of 21 January – (see information available at the official website http://www...).

Since 1999, the Municipality has shared the management of its sports equipment with the Cooperative "A…" with the purpose, defined by the Municipality, that such equipment would constitute a central element for the promotion of regular, competitive or maintenance sports activity and that, concurrently, would allow the ... to strengthen its capacity to host sports or cultural events of significance, capable of attracting large audiences, with the economic advantages resulting therefrom, and to affirm the Municipality as a territory of choice for sports practice.

This management sharing is carried out through the conclusion of Collaboration Protocols - see Collaboration Protocol which constituted Annex II of the inspection report draft.

It is, in summary, a matter of promoting and encouraging sports practice in the municipality of ..., giving priority to equal opportunities for access to non-competitive sports and developing socio-sports animation projects and free time and leisure occupation.

The claimant has, thus, as its main purpose:

a) To promote sports activity, using the infrastructures and creating those that become necessary for the purpose it intends to develop;

b) To encourage the practice of sports in the community in general;

c) To provide technical knowledge to the agents involved in the various modalities;

d) To enable the community in general and young people in particular, a healthier and more enriching alternative for the occupation of their free time;

f) To integrate marginalized children and groups of young people;

g) To enable young people outside the educational system, or outside any other training structure, equal opportunity in access to sports practice;

h) To promote professional training actions;

i) To promote and participate in Parties and Festivals, as well as in leisure and free time initiatives.

j) To manage all available facilities, adapting spaces for the provision of services in the area of catering, through the creation of catering services, catering, bars for selling drinks.

l) Purchase and sale of all food products, preparation and sale of all types of meals, both for consumption in these establishments and for outside these;

m) To guarantee the community and young people in particular, all necessary conditions for access to sports practice in safety, by equipping the City … with a Sports Medicine Support Center, for monitoring and evaluation of sports practice. "(see article 2° of the Statutes of A… - … Cooperative of Public Interest of Limited Liability which follows attached under document no. 4)

Under these attributions, the claimant directs its field of action into two main areas:

a) The management of the municipal sports park, under its responsibility the City … (Multi-use Pavilion, Swimming Pool Complex, … - Recreational and entertainment open-air swimming pools and Athletics Track …) the Swimming pools of …, the Swimming pools of … and nine sports pavilions (Municipal Pavilion of …, Pavilion … (…), Sports Pavilion of …, Pavilion of …, Municipal Pavilion … - … and Gimno-sports Pavilions of EB ... Schools of …, …, … and …);

b) The promotion and encouragement of sports practice in the Municipality of ..., giving priority to equal opportunities for access to non-competitive sports, developing socio-sports animation projects and free time and leisure occupation.

A… also manages, administratively, the D… - …, an innovative and pioneering service in the Country, focused on all athletes, whether or not integrated in the federated or school system, which was recognized as an extension of the Sports Medicine Centers of ....

The Claimant, in the activities it carries out with the objective of promoting sports practice by the population, does not act in competitive activities, acts only and solely in strict compliance with its legal "attributions" and the purposes for which it was created, and is therefore exempt from tax under the terms of article 9º, no. 8 of the VAT Code.

For the services provided by A… to the population, a fee is charged, defined in the table defined by the Municipality, it not being up to the Claimant to define the price to charge users for the services provided.

The fees to be charged by the claimant, in the management of the municipal sports park, are discussed, approved and annually set by the Municipality in Municipal Assembly, as per documents attached under no. 5).

Article 13º A of the Sixth Directive, entitled "Exemptions in favor of certain activities of general interest", in the version then in force, provided, in particular:

"1. Without prejudice to other Community provisions, the Member States shall exempt, under the conditions they fix with a view to ensuring the correct and straightforward application of the following exemptions and to prevent any possible fraud, evasion and abuse:

(...)

m) Certain services provided in close connection with the practice of sport or physical education, provided by non-profit bodies to persons who practice sport or physical education;

(...)

1. (...)

b) The provision of services and the supply of goods are excluded from the benefit of the exemption provided for in lit. b), g), h), i), l), m) and n) of no. 1, if:

-they are not indispensable for the realization of the exempt operations;

-they are intended, essentially, to obtain for the body supplementary income through the performance of operations carried out in direct competition with commercial enterprises subject to (VAT)."

At the national level, lit. a) of no. 1 of article 1º of the Code of Value Added Tax (VAT Code) provides that "subject to value added tax are the transfers of goods and the provision of services carried out in the national territory, on a paid basis, by a taxpayer acting as such."

In turn, taxpayers of the tax are "natural or legal persons who, in an independent manner and as a habitual practice, carry out activities of production, commerce or provision of services, including extractive, agricultural activities and those of liberal professions and, as well, those, in the same independent manner, carry out a single taxable operation, provided that that operation is connected with the exercise of the aforementioned activities, wherever it occurs, or when, regardless of that connection, such operation fulfills the requirements of real incidence of tax on income of natural persons (IRS) or tax on income of legal persons (IRC)" (see article 2, no. 1 lit. a) of the VAT Code).

However, article 9º of the VAT Code enumerates a set of operations, which, being considered of general and social interest and with purposes of relevant importance, are covered by the exemption provided therein, with a view to relieving, both administratively and financially, such activities.

Article 9º, no. 8 of the Value Added Tax Code (VAT Code) prescribes that exempt from tax are "the services provided by non-profit bodies, operating establishments or facilities intended for the practice of artistic, sports, recreational and physical education activities by persons who practice these activities."

In accordance with no. 19 of that legal norm, are also exempt "the services provided and the transfers of goods connected with them carried out in the collective interest of its members by non-profit bodies, provided that these bodies pursue objectives of a political, trade union, religious, humanitarian, philanthropic, recreational, sports, cultural, civic nature or representation of economic interests and the only consideration is a membership fee fixed under the terms of the statutes.

Thus, the provision of services in favor of persons who practice sports or physical education may benefit from the exemption provided in no. 8 of article 9º of the VAT Code, provided that these services have a close connection with sports practice and are indispensable for its realization, are provided by non-profit bodies and that the actual beneficiaries of these services are persons who practice sports or physical education.

Article 10° of the VAT Code establishes that "for purposes of exemption, only those considered non-profit bodies that simultaneously:

a) In no case distribute profits and its governing bodies do not have, directly or indirectly, any direct or indirect interest in the results of the operation;

b) Have accounting records that cover all their activities and make them available to the tax services, in particular for verification of the aforementioned;

c) Practice prices approved by public authorities or, for operations not susceptible to approval, prices lower than those required for similar operations by commercial enterprises subject to tax;

d) Do not enter into direct competition with taxpayers. "

The Tax Administration bases its decision exclusively on the fact of considering that the claimant does not meet the necessary requirements to be exempt from VAT, since it enters into direct competition with other taxpayers in the city and municipality of ... and therefore does not meet the requirement of lit. d) of article 10º of the VAT Code.

The position upheld by the TA directly contradicts the Binding Opinions that have been issued by it on this matter.

In the Binding Opinion issued in case no. …, by dispatch of 2014-04-01, of the VAT Department of the Tax and Customs Authority - TA, it is stated that "the services made available by the Municipalities, operating establishments or facilities intended for the practice of artistic, sports, recreational and physical education activities by persons who practice these activities, in this case, swimming pools, benefit from the exemption provided in lit. 8) of article 9) of the VAT Code, when the actual beneficiaries of the said services are the practitioners of these activities (...)" - see doc. no. 6.

This Binding Opinion dealt with the case of a Local Authority that drew up a protocol with a Foundation to proceed with the direct operation of that entity's swimming pools, just as occurs in the present case!

In the Binding Opinion issued in Case no. … (by dispatch of 2013-09-23, of the VAT Department) it was considered that "the exemption provided in article 9. 8) of the VAT Code which aims to pursue the objective of promoting sports practice by broad sections of the population, through the provision of services closely related to the practice of sport or physical education, provided by non-profit bodies directly to persons who practice sports or physical education, provided that "the exercise of this activity does not fall within a framework of pure rest and relaxation" (see the ruling C- Case: no. … 18/12, no. 22). Thus, within this exemption fall the use of municipal swimming pools, participation in aqua-aerobics, hydrobike and gymnastics classes, the practice of squash, muscle-building and cardio-fitness. "- see doc. no. 7.

In the Binding Opinion issued in Case no. … (by dispatch of 28-04-2011, of the VAT Department) it was considered that " The exemption provided in no. 8 of article 9º operates when the services are provided by the respective bodies directly to persons who practice the activities contemplated therein. (...) - see Doc no. 8.

Now, as it follows from the aforesaid Binding Opinions, the TA has come to consider that, insofar as entities that do not pursue profit objectives and promote sports practice by the population, the activities developed by them in that direction do not constitute competitive activities.

The concept of competition or "distortion of competition" as it is commonly designated is an indeterminate concept.

Knowing that such concept is defined neither in Community regulations (VAT Directive), nor in national legislation (VAT Code), it should be understood and interpreted with reference to the case law emanating from the Court of Justice of the European Union.

Thus, regarding the concept of "distortion of competition", the CJEU has understood that for there to be competition, it is necessary that, at the date of the operation, there is a market with equivalent rights or goods, and that these can be transmitted between private entities (see Ruling of the CJEU of 26 November 2007, Case T-Mobile, Proc. C-284/04, Coll. 2007, p. I-05189).

The quality of taxpayer (...) should in principle be assessed at the time of the provision, so it is also at that time that the influence on competition should be verified. - see BERNARDO BASTOS DE ALMEIDA, in Distortion of competition in the common value added tax system - Distortion to the principle of neutrality, page 24, available at http://repositorio.ucp.pt/bitstream/ l 0400. l 4/l 3324/l /Disserta%C3%A 7%C3%A 3o%20Bernardo%20AlmeidaFinal .

Moreover, this distortion of competition must be real and not merely potential.

Thus, for an act of competition to be verified, there must be a market and there must be a real risk that the exemption may, by itself, cause distortions of competition. - in this sense Ruling CJEU of 20/11/20013, case Taksatorringen, proc. C-08/01.

"In truth, only is an act of competition one that has repercussions on the market, influencing, directly or indirectly, the clientele: the act of competition is one that is suited to attribute in terms of clientele, advantageous positions in the market.

Competition is not, therefore, susceptible to being defined in abstract, whether through criteria of classification of economic activities (CAE) or even by mere complementarity or affinity of the various activities in comparison.

Competition can only be assessed in concreto, since what matters is to know whether the activity of an economic agent affects or not the activity of another, through the dispute of the same clientele.

(...)

The concept of competition is, therefore, a relative concept, which cannot be defined a priori but only assessed case by case, taking into account the concrete conduct of the various economic agents and the reality of current economic life." (see Jorge Patrício Paúl, "The presuppositions of unfair competition, Almedina, 1997, page 42).

The Inspection Report is absolutely silent as to the concrete materialization, that is, as to the material and formal reasoning of this concept in the concrete case, which, by itself, leads to the illegality of the assessments.

The truth is, in this case, as will be demonstrated, the services concretely provided by the claimant under the said VAT exemption are not susceptible to causing competition in the market in which it operates, from the outset because there is no operator in the local geographic market and in the municipality in general, that provides services equal to those provided by the now claimant globally considered.

From the outset because there is no operator in the market any sports park such as that operated by the claimant, namely that has physical conditions similar to those available to the park operated by the claimant and that offers to its users the services provided by it.

It is consensual and expressly recognized by the generality of observers that those goals were fully achieved, with ... occupying today a recognized place in the national and international circuits of sports and major cultural events, attracting athletes, practitioners and audiences local, national and international.

By its strengths, versatility and specificity, as can be clearly seen, there is no operator in the market where the Claimant operates any sports complex with even approximately similar characteristics.

It should be noted that, only in 2013, the following numbers of users frequented the equipment and activities promoted by the Claimant:

• Swimming Pool Complex …: Users enrolled in classes: 3,500 / year;

• Users enrolled in free mode: 7,200 Accesses per year;

• Total: 120,000 users.

• … Recreation Park - Open-air Swimming Pools Accesses: 100,000 / year.

• Municipal Swimming Pools of …: Users enrolled in classes: 1,200.

• Users enrolled in free mode: 1,100 Accesses per year, in a total of 35,000-

• Athletics Track …: Accesses per year: 20,000 users (athletics, football, rugby).

• 9 Sports Pavilions of the Municipality: More than 11,000 hours of annual occupation exercising activity more than 150,000 users/year.

• Games Field of the Leisure Park of …: About 500 hours of annual occupation exercising activity in this space more than 10,000 users/year.

• Multi-use of …: 156,000 entries at events.

• Sports Medicine Center of …: Care to 3800 users per year.

Sports Services:

Senior Activity: more than 2,000 users / year.

Holidays and Workshops ATL for young people: more than 2,000 young people/year;

Mini League: about 600 young people enrolled annually Community Games: 700 participants per year Mini Olympics: about 600 participants per year.

Thus, with no equivalent rights or goods existing in the market, there is, as can be clearly seen, no distortion of competition.

The services provided by the "hotel located in the city" are directed at providing its users with full well-being, in an environment of great tranquility in a space composed of only one heated indoor swimming pool of small dimensions (15 meters x 6 meters), jacuzzi, saunas and Turkish bath, hydromassage and underwater massage rooms, Scottish shower, Vichy shower and an area for relaxation and SPA treatments - see doc. no. 9.

That is, the TA concluded that the Claimant operates in competition with a spa that has a swimming pool certainly 10 times smaller than the swimming pool of the City Complex …!!!!

Regarding the swimming pools of the firefighters and the swimming pools in the parish of …, of dimensions much smaller than those operated by the claimant here, thus incomparable and impossible for the practice of all activities carried out there.

It should also be said that despite never alleged by the TA in the aforesaid report, these are also themselves subject but exempt from tax as per documents attached under numbers 10 and 11.

Given the above, it can be concluded that the claimant is not in direct competition with other taxpayers, by which, given the above, it is demonstrated that the claimant does not compete, at any time with other taxpayers, either in the city or in the municipality of ..., meeting in itself all the necessary requirements for VAT exemption under article 9°, no. 8 of the VAT Code.

But to leave no doubts, it will always be said that:

• the Pole of ... of the University of …, in the sports services it provides, does not subject the operation to VAT (see doc. 12),

• the Municipality of …, in the services provided in the Municipal Swimming Pools, does not subject the operation to VAT (see doc. 13),

• the Firefighters of …, in the services provided in the Swimming Pools, does not subject the operation to VAT (see doc. 14),

• the Municipality of …, in the services provided in the Municipal Swimming Pools, does not subject the operation to VAT (see doc. 15),

• the E…, in the services provided in the Swimming Pools of the Municipal Stadium, does not subject the operation to VAT (see doc. 16),

• the Sports Club of …, in the services provided in the Swimming Pools, does not subject the operation to VAT (see doc. 17).

In fact, this happens throughout the Country:

• the Municipality of …, in the services provided in the Municipal Swimming Pools, does not subject the operation to VAT (see doc. 18),

• the Municipality of …, in the services provided in the Municipal Swimming Pools, does not subject the operation to VAT (see doc. 19),

• the Municipality of …, in the services provided in the Municipal Swimming Pools, does not subject the operation to VAT (see doc. 20),

• the F… in the operation it makes of the Municipal Swimming Pools of … does not subject the operation to VAT (see doc. 21)

• the Municipality of …, in the services provided in the Municipal Swimming Pools, does not subject the operation to VAT (see doc. 22),

• the Municipality of …, in the services provided in the Municipal Swimming Pools, does not subject the operation to VAT (see doc. 23),

• the Municipality of …, in the services provided in the Municipal Swimming Pools, does not subject the operation to VAT (see doc. 24).

With respect to the athletics track, built in honor of the international athletes … … and …, the Athletics Track … was inaugurated on 2 March 2002, being one of the most modern sports equipment dedicated to athletics in the country.

Occupying a total area of 18,300 m2, it is equipped with 8 synthetic running tracks and equipped for all athletics modalities, having 4 changing rooms with a total capacity of 300 users in simultaneous use, in addition to a stand for 1,200 people.

The nine sports pavilions, in turn, are dedicated to formal and informal sports practice.

Four of them emerged from the institutional understanding between the Ministry of Education and the City Council of … and are integrated in EB ... Schools of the Municipality (…, …, … and …).

There are also the pavilions of …, …, …, the warming of the Multi-use of … and the F…, all open to general sports practice and to the training and competition of a significant number of sports clubs and associations ….

As for the athletics track and these titled by the TA as "other facilities", there are also no other sports facilities with similar characteristics and conditions, since there is no market where the Claimant operates any other Athletics tracks!!!!

So much so that the TA, in its report, was unable to substantiate the existence of a competitive market to that in which the Claimant operates.

Not indicating a single operator in the … market that offers the services provided by the claimant under the conditions in which it does so.

And it does not proceed to such indication certainly because it does not ignore that, in fact, such an operator does not exist in the … market!!!!

By which, given the above, it is demonstrated that the Claimant does not compete, at any time with other taxpayers either in the municipality, or in the city of ….

Whether with respect to the swimming pools, or with respect to the athletics track and other sports pavilions, the TA, in its report, does not substantiate or explain why the services by other market operators enter into competition with the services provided by the Claimant.

In this case, the TA did not even allege in its report whether the other market operators are or are not exempt entities.

It was decided in the Ruling of the Central Administrative Court North, of 24-05-2012, issued within the scope of case no. 00731/09.0BEPNF, available at www.dgsi.pt: "(...) On the other hand, it follows from article 13. no. 1, final part, of the Code of Procedure and Tax Process that the investigative activity of the judge must be limited to the facts alleged by the parties and to those that are known ex officio. Being that the facts reported in the report are also not known ex officio by the judge, except in the cases referred to in article 264, nos. 2 and 3 of the Code of Civil Procedure. Facts not being alleged in the report and these not being known ex officio, the judge cannot rule on them without violating the principle of party disposal and incurring in excess of ruling. What is given as proven there, not only was not alleged by any of the parties but also does not appear in the inspection report and is not even found in the gracious decisions subsequently issued. This fact was raised for the first time by the witness of the Public Treasury in a court hearing, without the Public Treasury (the party that could be interested in it) having manifested the will to take advantage of it under the terms and for the purposes of article 264, no. 3 of the Code of Civil Procedure. And even if it had done so, it could never have benefited the legality of the act because the a posteriori reasoning of the acts of the tax administration is not admissible (...)" (in this sense DIOGO LEITE DE CAMPOS, BENJAMIM SILVA RODRIGUES and JORGE LOPES DE SOUSA, in « General Tax Law Commented and Annotated», 2nd edition Revised and Enlarged, Vislis 2000, page 327 and jurisprudence cited therein)."

For the reasons set out, the additional VAT assessments that are hereby put in question and which derive, as has been said, from the inspection report carried out on the Claimant, result from an erroneous qualification of the tax fact and should, therefore, be declared illegal and consequently annulled, under the terms of article 99 lit. a) of the CPPT.

In this sense, see the opinion issued by Dr. G… (which is now attached under doc. no. 25) which, addressing these issues, concluded that:

1 - A… meets all the requirements provided for in article 10º of the VAT Code, whereby it must be considered as a non-profit body for the purposes of the exemption provided in no. 8 of article 9° of the VAT Code;

2 - There may be difficulty in concluding that A… respects the condition expressed in lit. d) of article 10º of the VAT Code and that the described services it provides to the public enter into direct competition with other taxpayers subject to value added tax.

3 - However, to speak of direct competition we must be in the presence of the provision of the same services by several operators and not of similar or substitute services (in which case we are in the presence of indirect competition), and should also consider whether or not there is interference with market rules, considering for this the importance of the organism's operations in absolute terms in the economic sector in which they operate.

4 - There cannot be direct competition on the part of A… in the activities it develops identified in no. 8 of article 9º of the VAT Code since:

• There are no economic operators that offer the same services provided by A…, namely, with the possibility of use of facilities of the size, complexity and equipment provided by the municipal facilities managed by A…, by which, given that there is no same product, there is no direct competition;

• A…'s activities are limited to the space and consumers of the municipality of …, whereby its operations produce no impact or importance in the market of physical and sports activities, making it impossible for it to cause any distortion in the competition of that market.

5 - According to the prescription of the first paragraph of article 133º of Directive 2006/112/CE, the Member States may only subject the exemption to the conditions provided - and also listed in the lit. of article 10º of the VAT Code -, to organisms that are not public law bodies.

6 - Article 10° of the VAT Code seeks to impose its conditions on all organisms without distinguishing public law organisms and organisms that are not public law organisms as it should do in respect of the said rule of the Directive, whereby it disrespects the Community law that binds the national legislator to legislate in such a way that the provisions imposed by the Directive are applied in the national territory with regard to the conditions and restrictions for recognition of exemption.

7 - Being the rule of the first paragraph of article 133º of Directive 2006/112/CE a precise and unconditional rule and not having been properly reverted to national law by the Portuguese State, this Community rule enjoys direct effect in our legal order, allowing A… to oppose a possible VAT assessment by the Tax Administration, alleging such Community rule or invoking it before the Courts.

8 - The activities operated by A… that can be framed in the provision of no. 8 of article 9º of the VAT Code are, therefore, exempt from VAT, in accordance with the provision of its article 10º and article 133º, first paragraph of Directive 2006/112/CE.

9 - The same services are exempt from VAT whether provided to natural persons or to entities or legal persons, since the concept of persons provided in no. 8 of article 9° of VAT Code is not, nor can be, restricted to natural persons.

10 - Are also exempt from VAT the operations of lease of immovable property (with the exceptions provided for in the lit. of no. 29 of article 9º of the VAT Code, it being understood that for VAT purposes the exemption covers only "bare" lease). If the immovable property is leased with the provision of ancillary or complementary services, the amounts relating to the provision of services must be subject to VAT and the amounts paid for the lease of the immovable property must be exempt.

ON THE LACK OF MERIT OF THE CONCLUSIONS OF THE INSPECTION REPORT REGARDING EXTERNAL SUPPLIES AND SERVICES

From the Collaboration Protocol concluded between the City Council of … and the Claimant, on 19 April 2010, it is stipulated that ''the following are excluded from the scope of current management and maintenance, remaining the responsibility of the City Council:

(...)

b) the performance of civil works for reformulation, expansion or restoration of buildings

(...) "

Note, however, that such scope of exclusion is relative, unique and exclusively to the sports equipment already existing and under operation by the claimant, namely:

a) Municipal Pavilion of …;

b) Pavilions of EB... Schools … (…), …, …, … and … Multi-use Pavilion (City …);

c) Athletics Track … (City …)

d) Municipal Swimming Pool Complex (City …)

e) Aquatic Park … (City …);

f) Municipal Pavilion of …;

g) Pavilion of H… (see article 4° of the aforementioned Protocol).

Now, the project in question constitutes an "ex novo" project, unrelated to the transfer to the claimant, by the City Council of …, of the right of use and operation of those sports equipment.

In this case, the project developed by the Claimant has nothing to do with the protocol concluded with the Municipality referred to in the inspection report, but rather concerns a project exclusively developed by the claimant within the scope of the purposes it pursues.

As has been said above, the Claimant aims, by statute and essentially, at the promotion of sports activity in the community in general using the infrastructures and creating those that become necessary for the purpose it intends to develop (see lit. a) of article 2º of the Statutes of A… - … Cooperative of Public Interest of Limited Liability).

In the pursuit of its purpose, the Claimant decided to implement a development plan and creation of new swimming pools, with a view to their operation and for the benefit of the community.

To this end, it contracted specialized services from C… …, Lda. for the development of a swimming pool construction project - see doc. no. 26.

The aforementioned project which, from an investment perspective, will allow it in the future to expand its field of action through the operation of these same swimming pools.

It follows abundantly that the costs incurred by the claimant fall within its scope.

The best interpretation of the rule of article 23º of the Corporate Income Tax Code is one that holds that the meaning of indispensability should be found by direct integration of the expense in the scope or purpose of corporate interest.

The legal notion of indispensability should thus be grasped in an economic-business perspective, by direct or indirect fulfillment of the objective of obtaining or maximizing profit.

Indispensable costs are therefore equivalent to expenses incurred in the interest of the business.

Thus, in this case, because the expenses incurred by the claimant have a direct causal relationship with the activity it carries out and are specifically aimed at implementing new areas of action, they should be accepted for tax purposes.

ON THE CONCLUSIONS OF THE INSPECTION REPORT REGARDING DISPOSAL OF FIXED ASSETS

As it follows from point 15 of the inspection report now in question, the TA states that "according to the accounting records and respective tax returns, it was accounted for as an expense, the amount of 20,229.00 €, in the sub-account 6873-Expenses and losses in non-financial investments-Disposals."

However, it continues in point 20 of the said report draft, "not having the presuppositions provided by law been complied with by the taxpayer, this expense should not be considered in the determination of the taxable matter."

As far as this part is concerned, in light of what is mentioned in the inspection report, the claimant, by virtue of having incurred in evident lapse, proposes to proceed to its correction and regularization.

As has been said above, the claimant completely disagrees with the conclusions contained in the inspection report.

However, as a precaution, it is incumbent on it at this stage to draw the consequences of the tax and legal corrections that the Tax Administration carried out.

As it follows from the inspection report, the Claimant is a "mixed taxpayer, with pro rata, under the terms of lit. a) of no. 1 of article 2º of the Value Added Tax Code (...), framed in the normal monthly periodicity regime", because it exercises, simultaneously, an activity exempt under article 9° of the Value Added Tax Code (hereinafter VAT Code), and other activities on a paid basis, subject to VAT and not exempt from it.

The Claimant is, thus, a mixed taxpayer, in that, in light of article 20 of the VAT Code, in the exercise of its activity it carries out, simultaneously, taxable operations that give rise to the right to deduction and exempt operations that do not give this same right.

This means that the determination of the percentage to be deducted is assessed based on the relationship between the volumes of business generated by the activities that allow the deduction of the tax incurred and those that do not allow such deduction.

Thus, if such corrections are made, the pro rata set at 54% will be set at 97%.

This means that, after all, the corrections carried out by the TA represent for the claimant a VAT credit in the amount of 10,131.88 €.

From this correction results, in favor of the Claimant, a net difference of 67,820.91 €.

Thus being, taking into account the correction by the TA, in the amount of 57,689.03 €, the Claimant has in its favor the difference of 10,131.88€.

For being so, the TA should be condemned to recognize the update of the pro-rata, under the terms set out.

ON THE COMPENSATORY INTEREST ASSESSED

To the exact extent that the additional tax assessments now notified are illegal, and should consequently be annulled, the assessments of compensatory interest are equally illegal and must be subject to annulment.

1. The TA, for its part, presented a timely response, contesting the grounds of the claim as well as excepting the incompetence of this Arbitral Court and raising what it called a "preliminary issue" in the following terms: "(...) Should the Court not find the above exception proven, that is, should the court not find the exception invoked above proven, should it not give preliminary effect to the understanding that all issues not relating to the strict appreciation of the legality of assessment no. 2007 ….

(...) First and foremost, it must be distinguished in this request for arbitral pronouncement, the part of the request directed to the declaration of illegality of the tax act, on the basis of vices of form and violation of law, from the part of the request directed to the declaration of non-enforceability of the assessment on the basis of the notification of the assessment after the period of lapse. (...) In fact, there is a pending Opposition proceeding in the TAF of Sintra, having as object the enforceability of the assessment now disputed, on the basis of both the non-existence of the intended joint liability (article 204º, no. 1 lit. b) of the CPPT), and the lack of notification to the Claimant of the assessment within the period of lapse (article 204º, no. 1 lit. e) of the CPPT). (...) The Opposition lodged runs its course in the TAF of Sintra under no. 720/12.7BESNT, with the Representation of the Public Treasury having been notified to contest, under the terms of article 210º of the CPPT, until 13/11/2012, that is, on a date prior to the submission of this request for arbitral pronouncement.

(...) In summary, it is important to ensure that this request for arbitral pronouncement is purged of any question regarding tax matters that does not concern the appreciation of the legality of the assessment act, such as the questions relating to its enforceability, which in addition to being excluded from the matters within the scope of the jurisdiction of arbitration in tax matters, can only be appreciated in Opposition to Execution, opposition that is pending in the TAF of Sintra.

(...) Having delimited the only object of this challenge to be appreciated by the Arbitral Court, the Claimant has no reason, as will be demonstrated below(...)".

1. By dispatch of 2-8-2015, the Claimant was notified to respond to the exceptions raised by the TA, which was done in a timely manner, although going beyond the scope of that response as the TA correctly pointed out and which was the subject of an agreed dispatch of 26-11-2015.

In this same dispatch, the Court decided to extend the period for the decision in light of the provisions of article 21º-1 and 2 of the RJAT.

Court meeting with the parties (article 18º of the RJAT)

By dispatch of 4-1-2016, the Court waived the meeting provided for in article 18º of the RJAT and designated a date for production of testimonial evidence which, following an adjournment at the request of the Claimant, took place on 10-2-2016.

By dispatch of 20-1-2016 and for the reasons invoked therein, the Court decided to extend again the period for the final decision.

Final allegations

By dispatch of 10-2-2016, at the time of witness interrogation, it was decided, with the agreement of the parties, that they present their final allegations in writing within the successive period of 10 days.

Only the Respondent submitted allegations within the regulatory period, in which, essentially, it maintained the positions assumed in the answer article.

The Claimant's allegations were received at the CAAD beyond the regulatory period and therefore are not considered by the Court.

Process cleanup

The arbitral court was regularly constituted and is absolutely competent.

The parties have legal capacity and standing and are legitimate (articles 4º and 10º, no. 2, of the same Act and article 1º of Ordinance no. 112-A/2011, of 22 March).

The question of cumulation of claims

The Respondent in its response raises the question of the "illegal cumulation of claims", invoking the provision of no. 1 of article 3º of the RJAT, which states that "the cumulation of claims, even if relating to different acts, and the combination of claimants are admissible when the success of the claims essentially depends on the appreciation of the same factual circumstances and the interpretation and application of the same principles or rules of law." Given this, it concludes, in brief, the following:

i. that the Claimant in the present proceedings cumulatively makes the claim for annulment of the act of assessment of VAT with the claim for assessment of Corporate Income Tax, due to the fact that both additional assessments result from the same inspection action,

ii. although, in its understanding, such circumstance does not result in the presuppositions for the cumulation of claims being met,

iii. specifying that "the concrete facts on which the corrections made for VAT purposes are based are not the same as those taken into account for the corrections made for Corporate Income Tax purposes",

iv. since VAT is a general tax on the consumption of goods, while Corporate Income Tax is a tax that affects the income of companies and other collective entities, there is no identity of taxes to which it appeals article 104º of the CPPT, "it is not a question of the interpretation and application of the same principles or rules of law: as far as VAT is concerned, the claimant appeals to rules of the VAT Code to support its position of annulment of the act, as far as Corporate Income Tax is concerned, to rules of the Corporate Income Tax Code",

v. concluding by the non-verification of the presuppositions for the cumulation of claims, arguing for its dismissal from the proceedings.

Notified to pronounce on the exceptions raised by the TA, the Claimant in what concerns the "illegal cumulation of claims", comes to make the comparison between the provision of article 104º of the CPPT and article 3º, 1 of the RJAT, invoking for this the commentary of His Excellency Counselor Jorge Lopes de Sousa, [1] extracting the following: "In article 104º of the CPPT the possibilities of cumulation of claims for the judicial impugn process are foreseen, but limited to cases where the tax is identical, in addition to the identity of the factual and legal grounds.

In article 3º, no. 1 of the RJAT the cumulation of claims is allowed even if relating to different acts when the success of the claims essentially depends on the appreciation of the same factual circumstances and the interpretation and application of the same principles or rules of law. The fact that article 3º, no. 1 of the RJAT does not refer to the identity of the taxes reveals that there is no limitation regarding the identity of taxes in relation to the arbitral courts as is made in article 104º of the CPPT, whereby, for example, an arbitral court can be asked to declare the illegality of acts of assessment of VAT and Corporate Income Tax that have the same factual materiality detected in an inspection action".

It also emphasizes, relying on the author and work cited, that, regarding the identity of factual situations and questions of law to be appreciated, "it is not necessary, for cumulation of claims to be viable (…) that there be an absolute identity of factual situations, it sufficing that the legal-tax question to be appreciated be essentially identical and the factual situation be similar in the points that are relevant for the decision.

The facts will be essentially the same when they were common to the claims of the proceedings (…) in such a way that it can be concluded that, if the alleged is proven in relation to one act, there will be the total or partially necessary factual support for the success of the claims of all the claims",

The Claimant further adds that the additional assessments underlying the present proceedings result from the conclusions of an external inspection procedure, carried out by the TA, in the period between 8/5/2014 and 3/11/2014, initially having as object the tax on income of legal persons, being subsequently extended to value added tax,

It concludes by arguing against the exception raised by the Respondent.

Deciding:

In defense of its positions, both parties invoke the pertinent norms: article 104º of the CPPT, and no. 1 of article 3º of the RJAT, which provide, respectively, as follows:

Article 104º - Cumulation of claims and combination of claimants

In judicial impugn, claims may be cumulated and claimants may be combined, under the legal terms, in case of identity of the nature of the taxes, of the factual and legal grounds invoked and of the court competent for the decision

Article 3º - Cumulation of claims, combination of claimants and judicial impugn

1- The cumulation of claims, even if relating to different acts, and the combination of claimants are admissible when the success of the claims essentially depends on the appreciation of the same factual circumstances and the interpretation and application of the same principles or rules of law. By way of summary, subscribing and relying on what flows from the recent Ruling of the Supreme Administrative Court, of 07/01/2016, reported by His Excellency Counselor Ascensão Lopes (Proc. 01265/13)[2], it can be concluded as to the "state of the art" regarding the interpretation of article 104º of the CPPT as follows:

"VI – Having occurred in the case of the proceedings from the outset the cumulation of impugns of VAT and Corporate Income Tax, such does not prevent the continuation of the proceedings, for knowledge of the vices imputed to the assessment acts, since in both cases we are faced with taxes with the nature of taxes (article 104º of the CPPT)"

Further withdrawing from the same ruling:

"(…) regarding this matter[3], this STA has not had uniform pronouncement. Thus in rulings of 13/3/2002, rec., no. 26752; of 26/3/203, rec., no. 131/03; of 3/7/2003, rec., no. 538/03; of 10/4/2004, rec., no. 1911/03, of 10/3/2005, rec., no. 0139/04; of 25/5/2005, rec., no. 0400/05; of 6/3/2008, rec., no. 0879/07, it was understood that, in light of the provision of article 104º of the CPPT, it is not viable to cumulate if the nature of the taxes in question is diverse (tax on consumption, tax on income and tax on assets) lacking then one of the presuppositions of this cumulation (and in the same sense, Counselor Jorge Lopes de Sousa also pronounces, Tax Procedure and Process Code, Annotated and Commented, Vol. II, 6th ed., Lisbon, Áreas Editora, 2011, pp 180/181 – annotations to art. 104º).

Already in rulings of 16/11/2011, rec. no. 0608/11, of 24/10/2012, rec., no. 0747/12, and of 6/3/2013, rec., 0137/12, it was understood, differently, that, in article 104º of the CPPT, the "identity of the tax", requires only the identity "of the nature" of the taxes impugned."

An identical position to the one just referred to is also extracted from the ruling of the same court no. 0747/2012, of 24/10/2012[4]: "The fact that the impugns respect VAT and Corporate Income Tax – VAT being a tax on expenditure and Corporate Income Tax a tax on income – does not prevent the continuation of the proceedings, since in both cases we are faced with taxes with the nature of tax (article 104º of the CPPT)".

Having revealed, synoptically, the "state of the art" as to the interpretation (which we subscribe to) of article 104º of the CPPT which, essentially, appeals to the classification of taxes resulting from the provision of articles 3º and 4º of the LGT, emphasizing its nature and not already its identity, it is concluded in this segment that there is no "illegal cumulation of claims" as the TA argues, it not assisting for this via any reason, the same occurring and for what is relevant here having as background the provision of no. 1 of article 3º of the RJAT.

Thus, within the scope of the legal regime of tax arbitration, and having as reference the provision of no. 1 of article 3º of the respective Regime, the admissibility of the cumulation of claims seems not to be already dependent on the nature of the taxes (regardless of the interpretation that one subscribes regarding article 104º of the CPPT), rather, making it dependent on the "identity of situations and questions of law to be appreciated".

The rule under scrutiny makes the possibility of cumulation of claims dependent on the verification of two requirements that are also themselves cumulative: (i) that the success of the claims essentially depends on the appreciation of the same factual circumstances and, (ii) that the success of the claims essentially depends on the interpretation and application of the same principles or rules of law.

For brevity, [5] it must be taken into account that the rules of cumulation of claims have underlying reasons of procedural economy advising, as has already been said[6], the speed of the decision and the sound objective of avoiding contradictory decisions.

In this way, being in question the appreciation of the same facts, cumulation of claims will, as a rule, be justified, on the presupposition that the questions of law (potentially distinct faced with different taxes) are not themselves an object of controversy.

"That is the scope of article 3º no. 1, in not requiring an absolute identity of factual and legal questions but only an identity as to what is essential".[7]

An essentiality moreover already signaled by His Excellency Counselor Jorge Lopes de Sousa[8], in the following note: "the facts will be essentially the same when they are common to the claims of the proceedings or claimants, in such a way that it can be concluded that, if the alleged is proven in relation to one act, there will be the total or partially necessary factual support for the success of the claims of all the claims".

Subsuming:

Descending to the concrete case, the truth is that the claim for annulment formulated by the Claimant, both as to the additional assessments of Corporate Income Tax and as to VAT had their origin in the same inspection action carried out by the TA, from whose inspection report it can, moreover be inferred that: " from the global analysis of the taxpayer, its operationality and all activities carried out by it, the accounting records and corresponding supporting documents to the operations carried out" there were irregularities detected with reflection in respect of VAT and Corporate Income Tax, which will be at the origin of the additional assessments that the Claimant puts in question in this request for arbitral pronouncement.

By which, without necessity of further considerations, and in light of what has just been said, we concluded that the cumulation of claims formulated by the Claimant was legal, the exception of illegality of the same raised by the TA in the context of its response therefore being improcedent.

The question of the (in)competence of the Court to know of the subsidiary claim

The TA, in its response and by way of exception, also raises the question of the "(in)competence of the Arbitral Court for knowledge of the subsidiary claim made", a claim that is embodied in the condemnation of the Respondent to recognize the correction of the pro rata calculation, with this being set at 97% instead of 54%, resulting, according to the Claimant, a VAT credit in its favor in the amount of 10,131.88 €.

The TA argues, in defense of its thesis, and in brief, that the claim in question constitutes a claim for regularization and reimbursement of VAT, that it had already been appreciated and rejected by the Finance Department of …, subscribing the position derived from the Tax Inspection Report (articles 21º to 25º), furthermore adding that it is not a "tax act of assessment, of self-assessment, withholding at source or payment by account susceptible to being appreciated by this arbitral jurisdiction", reiterating that the TA, in the administrative context "did not even appreciate the merit of the claim for change of percentage of pro rata formulated by the claimant given that it rejected it for lateness", not being in question, consequently, the legality of any assessment act, subject to review by the arbitral tax jurisdiction.

The Claimant following the arbitral dispatch of 02 August 2015, came to respond to the exception raised by the TA, alleging that the subsidiary claim in question "constitutes, only and solely, a consequence of the dismissal of the action and maintenance of the assessments in dispute" and that "it was only requested, in the event that this Court finds it does not have reason to the claimant [….] the condemnation of the TA to recognize the correction of the pro rata calculation, with the pro rata set at 54% being set at 97%, recognizing the Claimant a VAT credit in the amount of 10,131.88 €."

It concludes arguing it does not assist any reason to the TA and arguing for the improcedence of the exception in question.

Deciding:

Before we pronounce on the exception that now concerns us, it must be taken into account that the Claimant, in respect of VAT, is a mixed taxpayer, with pro rata, under the terms of the provision of lit. a) of no. 1 of article 2º of the VAT Code, and framed in the normal regime of monthly periodicity, exercising activities possibly exempt from VAT under the terms of the provision of article 9º of the VAT Code, simultaneously with other activities exercised on a paid basis, subject to tax and not exempt from it.

Using the Claimant, mixed taxpayer for purposes of VAT deduction, the method of pro rata or deduction percentage, will calculate "its percentage of the right to deduction of the tax through a fraction which comprises, in the numerator, the annual amount, tax excluded, of operations that give rise to deduction under the terms of no. 1 of article 20º, and in the denominator, the annual amount, tax excluded, of all operations carried out by the taxpayer resulting from the exercise of an economic activity provided for in lit. a) of no. 1 of article 2º, as well as non-taxed subsidies that are not equipment subsidies.

Tax is deductible only in the percentage corresponding to the annual amount of operations that give rise to deduction (nos. 1 and 4 of article 23º)"[9].

The Claimant having used for the exercise of VAT deduction the aforementioned method, and in accordance with the tables to which it proceeded in the elaboration, evidenced both in its right to hearing following its notification of the draft Tax Inspection Report (see administrative proceeding attached, article 88º of the right of hearing), and in the request for arbitral pronouncement, (see article 205º) will have achieved the pro rata at 54%, whereby if the additional VAT assessments promoted by the TA remain, that value must undoubtedly be corrected to 97%.

Now, it is precisely on this alteration that the Claimant anchors its subsidiary claim, through the comparison of its VAT returns with the corrections proposed by the Respondent, from which there will result a "credit" in its favor of 10,131.88 €, which it claims in the precise terms that are withdrawn from its claim: "[….] the TA should be condemned to recognize the correction of the pro rata calculation, with the pro rata set at 54% being set at 97%, with the Claimant recognized a VAT credit on in the amount of 10,131.88 €".

Regarding this claim of the Claimant, by it already raised, as mentioned, within the scope of its exercise of the right of hearing covered by article 60º of the LGT and 60º of the RCPIT, the TA, had already opportunity to pronounce in the Tax Inspection Report, in the sense of the lateness of the right to revision and correction of the pro rata, for the reasons expressed in the Tax Inspection Report, (see pages 26 and 27), reiterated, in their essence, in its answer article (see articles 159º to 174º), to which was added the material incompetence of the Arbitral Court for its knowledge.

On the material competence of the Arbitral Court

Article 2º of Decree Law no. 10/2011, of 20 January, defines the material scope of arbitration in tax matters attributing to arbitral courts, competence to appreciate the claims that flow from the lit. a) and b) as follows:

"a) the declaration of illegality of acts of assessment of taxes, of self-assessment, withholding at source and payment by account;

b) the declaration of illegality of acts of determination of the taxable matter when not giving rise to assessment of any tax, of acts of determination of the taxable base and of acts of fixation of patrimonial values."

On the other hand, it follows from article 2º, lit. a) of Ordinance no. 112-A/2011, of 22 March, through which the Tax Administration bound itself to the jurisdiction of the arbitral courts, operating alongside the CAAD, the exclusion of the binding of the TA to the arbitral jurisdiction of "claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment by account that have not been preceded by recourse to the administrative route under the terms of articles 131º to 133º of the Code of Procedure and Tax Process."

According to Jorge Lopes de Sousa[10], the activity of arbitral courts in tax matters will be restricted "to the activity connected with tax assessment acts, falling outside its competence the appreciation of the legality of administrative acts of total or partial denial or revocation of exemptions or other tax benefits, when dependent on recognition by the Tax Administration, as well as other administrative acts relating to tax matters that do not involve appreciation of the assessment act, to which lit. p) of no. 1 of article 97º of the CPPT refers".

The question of the material competence of tax arbitral courts has been raised on several occasions with the same, being able to be consensus for what is relevant here, that its competence, with the limitations noted, is limited to tax acts of assessment, self-assessment, withholding at source, payment by account, fixation of patrimonial values and determination of taxable matter or taxable base, and not already other administrative acts in tax matters, provided for, namely, in no. 2 of article 97º of the CPPT.

The latter will only be subject to review through a special administrative action, regulated in articles 50º and following of the Code of Procedure in the Administrative Courts.

The possibility of the tax arbitral proceeding being an alternative means to the special administrative action of impugn is not provided for in the RJAT, nor was it provided for in the law of legislative authorization.[11]

Doubts seem not to subsist that to the subsidiary claim formulated by the Claimant within the scope of this proceeding, underlies a claim for regularization and reimbursement of VAT, subscribing here the position that the TA sustains in this regard.

It is therefore within this context and taking into account the regulatory framework outlined above, that response must be found for the claim in question.

To do so, we will closely follow what results from proceeding no. 48/2015-T with whose reasoning and sense of decision, in this segment, we identify:

"According to some doctrine, the concept of VAT reimbursement used for the purposes of nos. 4 and following of article 22º of the VAT Code corresponds to a situation in which, from the balance determined in the period, there results a VAT credit in favor of the taxpayer that will have utility in subsequent periods (in a current account logic), unless he uses the faculty to request the reimbursement thereof, avoiding its reporting and application in subsequent periods. In such a way that "the request for reimbursement, thus conceived, is not a unilateral decision of the taxpayer but a right that he can exercise either to request its carrying forward or its reimbursement" (v., on this point, Martim Neto, Code of Value Added Tax Commented, 2nd ed., Lisbon, Áreas Editora, 1997, page 246 and Salgado de Matos, idem, p. 287) ..."

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