Summary
Full Decision
ARBITRAL DECISION
The arbitrators Dr. Alexandra Coelho Martins (arbitrator president), Dr. Adelaide Moura and Prof. Dr. Nina Aguiar (arbitrator members), appointed by the Ethics Council of the Administrative Arbitration Centre ("CAAD") to form the present Arbitral Tribunal, constituted on 10 July 2018, agree as follows:
Report
A..., S.A., legal entity number..., with registered address at..., n.º ... –..., Lisbon, hereinafter referred to as the "Claimant", filed a request for constitution of a Collective Arbitral Tribunal and for arbitral pronouncement, pursuant to articles 2.º, n.º 1, paragraph a), 10.º, 15.º and following articles, all of the Legal Regime for Arbitration in Tax Matters ("RJAT"), approved by Decree-Law n.º 10/2011, of 20 January, with a view to the partial annulment of assessment acts for Corporate Income Tax ("IRC") and compensatory interest, relating to the 2015 tax year, issued in the global amount of € 133,045.88, against which it contests the amount of € 132,323.46, having accepted the amount of € 704.25 relating to autonomous taxation. The contested amount stems from an increase to the Claimant's taxable base of € 495,255.00, on the grounds of non-deductibility of expenses "not properly documented".
The Claimant further requests that the AT be condemned to restitution of the amount of € 132,323.46, plus payment of compensatory interest, in accordance with the terms set out in article 43.º of the General Tax Law ("LGT"), until full reimbursement.
The respondent is the Tax and Customs Authority ("AT").
As grounds for the annulment request, the Claimant alleges the following substantive defects:
The payments made by the Claimant to B..., S.A., hereinafter B..., correspond to the transfer of income generated by B...'s own investment, and not to the remuneration of a service rendered by the latter to the Claimant, and thus fall outside the scope of application of Value Added Tax ("VAT"). It is undisputed that income from investments in investment funds does not have underlying activities subject to VAT, as expressly acknowledged by the AT in Circular Letter n.º 30103, of 23 April 2008;
Since these are operations outside the scope of VAT, the payments in question are not subject to the obligation to issue an invoice and, for that reason, are not covered by the provisions of article 23.º, n.ºs 4 and 6 of the IRC Code;
Thus, it is improper to consider the commissions paid to B... as non-deductible on the grounds that they should result from the provision of a service which this entity should have invoiced to the Claimant, when this is not the case;
The clients of B... are not the final investors. It is B... that acts as a direct investor (principal), in its own name and with a view to directly obtaining income from that investment, under the Contract concluded with the Claimant;
Furthermore, the aforementioned payments are evidenced by documents containing the essential elements for identification of the operations, their parties and amounts involved;
With regard to the periodized expenses not accepted, corresponding to rebates payable to B... in the subsequent tax year (2016), in the amount of € 74,372.10, these could never have been supported by any invoice, since the obligation to pay had not even yet become due, and thus the AT's allegation is likewise without merit;
The denial of the deductibility of expenses incurred by the Claimant without factual or legal grounds violates the principle of taxation of enterprises by real income and the principle of justice inherent in the material principle of the rule of law, enshrined in the Constitution ("CRP"), in articles 104.º, n.º 2 and 266.º, n.º 2 and 2.º.
The Claimant concludes with a request for annulment of the corrections to the taxable base and the IRC assessments and compensatory interest corresponding thereto. It also petitions for condemnation of the Respondent to reimbursement of the amount wrongly assessed and paid, plus compensatory interest. It attached 6 (six) documents and identified two witnesses.
The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and followed its normal procedure, specifically with notification to the AT.
In accordance with articles 5.º, n.º 3, paragraph a), 6.º, n.º 2, paragraph a) and 11.º, n.º 1, paragraph a), all of the RJAT, the Ethics Council of CAAD appointed as arbitrators of the Collective Arbitral Tribunal the undersigned signatories, who communicated acceptance of the mandate within the applicable time limit.
The parties, duly notified of this appointment, raised no objections in accordance with articles 11.º, n.º 1, paragraphs b) and c) and 8.º of the RJAT and 6.º and 7.º of the CAAD Deontological Code.
The Collective Arbitral Tribunal was constituted on 10 July 2018, as communicated by the President of the CAAD Ethics Council.
The Respondent submitted a response and attached the administrative file ("PA"), arguing for the dismissal and consequent absolution of the claim.
According to the Respondent, there appears to exist a service rendered by B... to the Claimant, consisting of recruitment of investors with the consequent provision of capital, which is remunerated. Since B... is a VAT taxable person, it is obliged to issue an invoice, pursuant to article 29.º, n.º 1, paragraph b) of the VAT Code. The response to the central question to be decided must be that the deductibility of expenses is conditional on the existence of an invoice, in view of the provisions of article 23.º of the IRC Code.
It adds that the Claimant's position is contradictory in defending that for payment of rebates or rebates no invoice need be issued, but itself issuing invoices whenever it receives rebates, for the total value received.
On the other hand, it contends, without conceding, that even if one could assume the non-necessity of invoicing by B..., the obligation would remain to provide documentary proof of deductible expenses, for IRC purposes, in accordance with article 23.º of the Code of this tax, that is, there should exist a document identifying B... as the recipient of the amounts in question, which constitute costs for the Claimant's activity. A document which, in the AT's view, does not exist, which is why the corresponding expenses are not deductible for tax purposes (article 23.º-A, n.º 1, paragraph c) of the IRC Code).
The Respondent considers there to be no unconstitutionality as alleged and, as to the payment of compensatory interest, contends that, were the disapplication of article 23.º to be decided, this would not generate the respective obligation, since the AT cannot disregard legal rules on grounds of unconstitutionality.
By ruling of 19 September 2018, the Tribunal determined the holding of the meeting provided for in article 18.º of the RJAT, with examination of the witnesses identified by the Claimant.
On 29 October 2018, the aforementioned meeting was held, in which the witnesses C..., employee of the Claimant in the Accounting and Control Department, and D..., Certified Accountant, were heard.
The Tribunal notified the parties for successive written submissions and set 9 January 2019 as the deadline for delivery of the arbitral decision, warning the Claimant that, by that date, it should proceed to payment of the subsequent arbitration fee, pursuant to article 4º, n.º 3 of the Rules of Costs in Tax Arbitration Proceedings and communicate that payment to CAAD.
The Claimant submitted submissions maintaining, in essence, the arguments set out in the request for arbitral pronouncement. It contends that ex post facto reasoning constitutes illegality and, in case of well-founded doubt as to the existence and quantification of the taxable fact, the contested act should be annulled under article 100.º, n.º 1 of the Code of Tax Procedure and Process ("CPPT"). It further contends that the requirement of an invoice as an essential element of proof of cost constitutes an irrebuttable presumption, unconstitutional by violation of the principle of taxable capacity. It also considers unconstitutional, under the same principle, the requirement of an invoice in the tax year prior to the one in which the obligation to pay becomes due.
In its submissions, the Respondent reiterates the position set out in the response and invokes that the Claimant illegally issued credit notes with the objective of reducing income. On the matter of accrual, it notes that the deadline for issuance of invoices is set out in article 36.º of the VAT Code and does not depend on payment. On the other hand, it rejects the unconstitutionality of the legal requirement for a document proving expenses. On the equation of amounts paid by the Claimant to B... with investment/deposit interest, it states this is an attempt to explain the inexplicable, since if the Claimant considers it to render a service to investment fund management companies, it must be concluded that B... renders services to the Claimant.
By ruling of 7 January 2019, given the complexity of the issues raised, the deadline for delivery of the decision was extended, pursuant to article 21.º, n.º 1 of the RJAT.
Procedural Ruling
The Tribunal was regularly constituted and is competent ratione materiae, given the configuration of the object of the proceedings (cf. articles 2.º, n.º 1, paragraph a) and 5.º of the RJAT).
The request for arbitral pronouncement is timely, as it was submitted within the deadline provided in paragraph a), n.º 1, of article 10º of the RJAT.
The parties have legal personality and capacity, have standing and are regularly represented (cf. articles 4.º and 10.º, n.º 2 of the RJAT and article 1.º of Portaria n.º 112-A/2011, of 22 March).
The proceedings do not suffer from nullities, no exceptions having been raised.
Reasoning
Findings of Fact
With relevance for the decision, the following facts, considered proven, should be noted:
A. A... S.A., the Claimant herein, is a credit institution established in the form of a joint-stock company, on 9 May 2001. It is registered in the area of the Lisbon Finance Service ... for the exercise of "other monetary intermediation" activity, with economic activity code 64190, and classified under the general IRC regime and the normal regime, with monthly periodicity, for VAT purposes, developing operations exempt from VAT, pursuant to article 9.º, n.º 27 of the respective Code, and non-exempt operations – cf. Tax Inspection Report, also designated "RIT", attached with the request for arbitral pronouncement ("ppa" – document 1) and with the PA, and Report and Accounts for 2015 attached with the ppa as document 1.
B. The Claimant makes available the full range of products and services of a universal bank, dedicating itself to obtaining third-party resources, in the form of deposits or otherwise, which it applies, together with its own resources, in the granting of credit, in securities and in other assets, also providing other banking services in Portugal. Within the scope of its activity, it assists its clients in identifying savings solutions and investment opportunities available at each moment, as well as in aspects related to their financing needs and current financial management – cf. RIT and Report and Accounts for 2015 attached with the ppa as document 1.
C. The Claimant does not have banking branches in the traditional sense, and thus makes available its banking and financial products and services through the following channels:
Internet, through the website (www...pt) and mobile banking;
Investment centres located in Lisbon, Porto, Braga, Aveiro, Leiria, Évora and Faro, which have their own network of Personal Financial Advisors (PFA); and
Contact Centre (telephone banking);
– cf. RIT and Report and Accounts for 2015 attached with the ppa as document 1.
D. The Claimant developed an electronic platform for distribution of investment products with a diversified offering, namely investment funds, structured products and other financial instruments, supported by its competencies in management and commercialization of financial assets – cf. Distribution Platform Agreement attached with the ppa as document 2 and RIT.
E. On 1 July 2011, the Claimant and B... concluded a contract which they designated "Distribution Platform Agreement" ("Distribution Platform Agreement", hereinafter also referred to as "Agreement"), pursuant to which the Claimant granted B... access to the above-mentioned Distribution Platform for investment products distributed by it, comprising approximately 2,900 investment funds, national and international, from 57 fund management companies for the general public, to which are added approximately 2,000 investment funds exclusively for the B2B institutional market – cf. documents 1 and 2 attached with the ppa and RIT.
F. According to the Agreement, the parties intended to benefit from the synergies of the combination of their respective capacities, using, on one hand, the Claimant's access to a broad range of financial asset offerings and its services supporting the management and commercialization of assets and, on the other hand, the direct or indirect access to B...'s client network – cf. document 2 attached with the ppa, considering D.
G. The Agreement in question stipulates (cf. document 2 attached with the ppa) that:
The parties enter into a distribution relationship based on the electronic system ("Distribution Platform") developed by the Claimant which enables B... to execute transactions – subscribing, acquiring and redeeming financial instruments (Assets) from the investment funds covered by the Agreement – Clause 2 and Clause 3;
B... intervenes in channeling subscription, acquisition, redemption or sale orders of the assets, without prejudice to not assuming an obligation to carry out these transactions – Clause 3;
B... assumes responsibility for settlement (payment) of transactions carried out through the Distribution Platform and provisioning of the account (with funds) for this purpose. On the other hand, in case of redemption or sale of the assets ordered by B..., the Claimant shall proceed to payment of the respective amounts, less any withholdings due – Clause 6;
The Claimant has no responsibility in situations of insolvency of investment funds, depositaries, managers, issuers or Global Distributor, transfer agent or any other entity engaged in activities relating to the transacted assets, nor for delays in payment by these – Clause 6;
The Claimant may update the Distribution Platform and shall provide B... with technical assistance and customer support service, being able to provide on the Platform relevant information, documents, advertising or explanatory material relating to the Assets (which have been provided to it by the "F...") and provide training to B...'s employees on the Assets distributed through the Platform – Clause 7;
The Claimant assumes the obligation to provide the necessary accounts for various purposes – namely for settlement of operations and Assets (custody) – under one (or several) "master" account(s) designated "E... Account(s)" – Clause 7;
B... assumes the obligation to collaborate in the installation and integration of the software necessary to ensure development of activities resulting from the Agreement – Clause 8;
Transactions carried out by B... through the Distribution Platform have full legal effect without need for any additional requirement. The use of certified codes is deemed to correspond to B...'s signature, even if subsequently subject to confirmation in documentary form – Clause 8;
Payments are made through the maintenance of open positions, with respect to the respective transactions executed by B..., in the E... Account (which comprises the various Settlement Accounts and Asset Accounts) which it holds with the Bank [the Claimant] – Clause 12;
The Claimant provides B... with account statements in electronic format relating to transactions, positions and accounts to enable full reconciliation of all executed transactions, all pending positions and individual entries, debits or credits, as well as balances in the various Accounts held by B... at the Bank – Clause 13;
The Claimant makes available to B... an online system (via Internet) through which it can monitor requests made, their respective status (including confirmations and pending requests), the amounts that must be paid for transactions and the details thereof. Orders received by the Claimant through the Distribution Platform are forwarded by it to the F... . In the E... Account opened by the Claimant in the name of B..., all positions maintained relating to all assets resulting from the Agreement are recorded – Clause 13;
The Claimant does not charge B... any commission for installation and provision of the Distribution Platform (set-up fee), or settlement or custody fees ("settlement & custody fees") – Clause 16 and Annex III;
The Claimant is remunerated solely by the Fund Management Companies – these in the capacity of F... – through commissions arising from the activity carried out under this Agreement and calculated on the amount invested by B... – Clause 16 and Annex III and testimony of the witnesses examined;
Insofar as the Transactions or the Assets under management imply a gain ("profit") for the Claimant, arising from activities carried out under this Agreement, it may pay ("may pay") B... a portion of the commissions received from the F... for the work of placing the Assets – Clause 16 (1);
The portion of the Claimant's commission to be shared with B... is expressed as a percentage which was set at 80%, so that, upon receipt of commissions from the F..., it transfers 80% to B... and retains 20% – Clause 16 (2) and Annex III;
Given that B...'s remuneration derives from the commissions that the Claimant collects from the F..., if, and to the extent that, these commissions are not paid to the Claimant, B... will also not be entitled to the corresponding remuneration – Clause 16 (3);
Following the termination of the Agreement, B... shall continue to collect the remuneration agreed with the Claimant with respect to assets that have been subscribed (acquired) through the Distribution Platform in accordance with this Agreement and that are therefore recorded in the Claimant's name, until such Assets are fully redeemed/sold – Clause 16 (7).
H. Furthermore, according to the Agreement and with relevance for the case under review, the following definitions are established (cf. document 2 attached with the ppa, Clause 1):
(D) Asset Account – account intended to facilitate the recording of transactions executed through the Distribution Platform and the holding in custody by the Claimant of assets belonging to transactions executed through that Platform;
(J) Financial Intermediation – investment activities and services, and ancillary activities as defined in Directive 2004/39/EC of the European Parliament and of the Council, of 21 April 2004 (MiFID);
(K) F... – entity authorized to issue, manage, distribute or place each Asset;
(N) E... Account – account in the name of B... which may comprise a set of (sub)settlement accounts ("settlement accounts") and (sub)Asset accounts of B... for the purposes of this agreement;
(Q) Remuneration ("Remuneration") – remuneration that B... may receive from the Claimant for each subscription/acquisition or redemption/sale of Assets, if applicable, and/or for Assets under management placed in custody through, or with the Bank and/or any other commission applicable to Assets under management, in all those cases that have been originated by B... through the Distribution Platform;
(R) Services ("Services") – services ancillary to the Distribution Platform that are rendered or are eligible to be rendered by the Claimant under the Distribution Platform;
(V) Transactions – subscription, redemption, acquisition and sale, or similar operations on Assets that are executed through the Distribution Platform.
I. With respect to commissions received with reference to the 2015 tax year, the Claimant issued invoices to the F... for the total amount received, subsequently transferring to B... the amount of € 495,255.00, corresponding to the agreed share of 80% – cf. RIT.
J. B... did not issue to the Claimant a debit or collection document relating to the amount received of € 495,255.00. The Claimant issued posting notices relating to the partial payments of this amount, as they were transferred to B..., and also account statements showing all the amounts moved, in accordance with its usual procedures and with general banking sector practices – cf. Document 2 attached with the ppa and testimony of the two witnesses examined.
K. The Claimant recorded in the revenue account # 81395.6 – "Commission Distribution Other Funds", the total commissions received from the F... in 2015. Simultaneously, it debited in the same account the amount corresponding to 80% of those commissions (€ 495,255.00) transferred to (paid to) B..., contributing to a lower credit balance in this revenue accounting category – cf. RIT.
L. Thus, with respect to the commissions attributed by the F..., the Claimant deducted, in the calculation of the IRC taxable base declared in the corresponding Form 22, submitted within the legal deadline, with reference to the 2015 tax year, the amount of the remuneration of 80% paid to B..., of € 495,255.00 – cf. RIT.
M. In the first three quarters of 2015, the Claimant issued credit notes for the amount of commissions paid to B..., having during the tax inspection recognized that this was an incorrect procedure, and accordingly proceeded to cancel them – cf. RIT.
N. On 27 April 2017, an external general-scope tax inspection of the Claimant commenced, relating to the 2015 tax year, authorized by Service Order OI2017..., of 5 April 2017, with a view to ascertaining its tax status and compliance with tax obligations inherent in the exercise of its activity, in the course of which various requests for information and documents were made to which it attempted to respond – cf. RIT.
O. As a result of this inspection action, after being notified of the Draft Tax Inspection Report, the Claimant was notified of the Tax Inspection Report and other attachments (hereinafter "Report" or "RIT"), in which it is determined that the IRC taxable base for 2015 be increased by € 495,255.00, by virtue of the disregard of expenses incurred by the Claimant with payments made to B... – cf. RIT.
P. According to the Report, this amount of € 495,255.00 corresponds to remuneration for a service provided by B... to the Claimant, relating to the placement of investment funds with B...'s clients, an activity for which it would charge commissions which, by not being documented by invoice, do not meet the requirements for fiscal deduction, in IRC, in the Claimant's sphere, on the grounds which are partially transcribed (cf. RIT):
"III. DESCRIPTION OF FACTS AND GROUNDS FOR MERELY ARITHMETIC CORRECTIONS
[…]
III.1 Corrections to taxable base – IRC
III.1.1 Expenses not properly documented € 495,255.00 (nos. 3, 4 and 6 of art.º 23.º, and paragraph c) of n.º 1 of art.º 23.º-A, both of the IRC Code)
To be added to the IRC taxable base the amount of € 495,255.00, corresponding to expenses whose supporting documentation, not corresponding to an invoice or equivalent document issued by the service provider, fails to comply with the provisions of nos. 3, 4 and 6 of art.º 23.º, and paragraph c) of n.º 1 of art.º 23.º-A, both of the IRC Code, for the tax acceptability of expenses (accounting) to operate.
In fact, according to what is clear from paragraph c) of n.º 1 of art.º 23.º-A of the IRC Code, expenses whose documentation does not comply with the provisions of nos. 3 and 4 of article 23.º of the same code are not deductible for purposes of determining taxable profit, even when accounted for as expenses of the taxation period.
Now, in accordance with nos. 3 and 4 of article 23.º of the IRC Code, expenses incurred or borne by the Taxable Person to obtain or ensure income subject to IRC must be documented, regardless of the nature or medium of the documents used for this purpose, and, in the case of expenses incurred or borne with the acquisition of goods or services, the supporting document must contain, at minimum, the elements contained in paragraphs a) to e) of n.º 4 of art.º 23.º of the IRC Code. It should be noted that, according to n.º 6 of art.º 23.º of the IRC Code, when the supplier of goods or provider of services is obliged to issue an invoice or legally equivalent document pursuant to the VAT Code, the supporting document for acquisitions of goods or services must necessarily assume this form.
From the combination of the provisions of the above-mentioned legal provisions, with the supporting documentation provided to us by the Taxable Person to prove expenses (in the amount of € 495,255.00) incurred or borne with commissions paid to entity B... (entity obliged to issue an invoice or legally equivalent document pursuant to the VAT Code), it is clearly evident the failure to comply with the conditions legally required for the deductibility of the said expenses.
Given that these (accounting) expenses are negatively impacting the net result of the period, it becomes, therefore, necessary, for purposes of determining the taxable result, in compliance with the provisions of nos. 3, 4 and 6 of art.º 23.º, and paragraph c) of n.º 1 of art.º 23.º-A, both of the IRC Code, to add them to the IRC taxable base.
For a better understanding of this correction and its grounds, the following aspects should be borne in mind:
From the business and elements collected by the Tax Inspection
Information was obtained from the company "B..., SA", with the tax identification number (NIPC) ... (hereinafter referred to as B...), with whom the Taxable Person maintains economic relations, a copy of the contract reproduced in Annex 1 (46 pages).
Information was obtained from clarifications provided verbally to A..., who clarified that the execution of the contract shown in Annex 1 (46 pages) derives from its fund distribution activity. In fact, the Bank acts as a financial intermediary between the Funds and the final investors who become holders of the respective participation units and effective beneficiaries of the income.
In the 2015 Management Report of A... – an integral part of the tax documentation process provided for in art.º 130.º of the IRC Code – it is noted in particular that «In the area of investment funds, the strategy of broadening and diversifying the offering of fund management companies and investment funds was maintained. In fact, Bank A... currently ensures the distribution of approximately 2,900 investment funds from 57 fund management companies for the general public, to which is added the provision of approximately 2,000 additional investment funds exclusively for the B2B institutional market».
Specifically, in the investment fund distribution system, the Taxable Person makes available to its clients a diversity of investment funds in which they can make their investments. For this financial intermediation service, A... receives from the entities designated by the Funds responsible for carrying out global distribution (the F...) distribution commissions, which it reflects accounting-wise in its results (more specifically in the revenue account «81395.6 – Distribution Commission Other Funds»).
Specifically with respect to B... – which is an institutional investor – A... entered into the contract already referred to, and in its clause 16 the following was agreed:
«16. Remuneration on Assets
16.1. Insofar as the Transactions and/or the Assets under management imply a profit for Banco A… arising from the activities performed under this Agreement, Banco A… may pay to B… part of the commissions it collects for its Assets placement work, Banco A… keeping the remaining part of the fees and commissions it receives for the work carried out.
16.2. B… acknowledges and agrees that the Remuneration shall be established by Banco A…, and accepted by B…, in respect of each of the Assets and is expressed in a percentage of the amount received by Banco A… from the and/or as agreed with the F… for distributing such Assets.
16.3. Considering that the Remuneration arises from the commissions that Banco A… collects from the F…, if and to the extent Banco A… is not paid the related commissions from the F…, B… will also not have any right to the corresponding Remuneration.»
Thus, in accordance with this clause, the Bank, with respect to distribution commissions received, directly related to investments attributable to B..., commits to delivering a portion, corresponding to a percentage, of this income to B... (only to the extent that it effectively receives it).
Point 2 of Appendix III of the contract defines that this percentage is 80% («Banco A... will yield to B… 80% of the rebate and retain 20% with a minimum of 10 b.p.»).
[…]
In response to point 9.6, on 2017-06-09, Annex 2 (4 pages), Bank A... declared the following:
«9.6. The payments made by A... to B... – under the heading of "Remuneration on Assets" – aim solely to transfer to B... the income derived from its investments in moveable investment funds presented on the A...'s online transactional platform. As mere income from investments in investment funds, these are not supported by any invoice. For your reference, a detailed exposition of the situation under analysis follows below:
(i) Through the execution of the "Distribution Platform Agreement" contract, A... made available to B... an online transactional platform that allows the latter to access investments linked to real estate investment funds.
(ii) Through the aforementioned platform, B... acts in the capacity of direct investor as to investments made (that is, it is B... that subscribes, acquires and redeems the respective financial instruments from the investment funds). A... acts in the capacity of mere distributor of financial instruments, exercising no fund management activity.
(iii) Under this relationship, whenever A... obtains profits arising from activities conducted under the platform (generated by amounts paid to it by management companies of moveable investment funds under the heading of "rebate" or "retrocession"), A... retains 20% of those amounts – as remuneration – and transfers 80% of the amounts to B..., as a form of remuneration for B...'s investments in moveable investment funds.
(iv) As income generated by investments directly made by B..., without any associated service provision, the amounts transferred by A... are not subject to VAT (cf. Circular Letter n.º 30103, of 23 April 2008).
(v) Accordingly, such income should not be supported by any invoice, as results from the interpretation a contrario of the provisions of article 29.º n.º 1 paragraph b) of the VAT Code».
Having analyzed the elements globally presented, the following was possible to conclude:
The A... invoices the B... for the amounts received relating to distribution commissions (see Annex 3 – 1 page – by way of example) and accounts for the said amounts in the revenue account (results) «81395.6 – Distribution Commission Other Funds»;
ii. These amounts are in accordance with the distribution contract previously concluded (see by way of example Annex 4 – 22 pages);
iii. The Bank calculates which amounts are due to B... in compliance with clause 16 of the «Distribution Platform Agreement» (Annex 5 – 7 pages);
iv. The Taxable Person transfers the amounts calculated in iii) to B...;
v. As a means to support the expense referred to in iv), relating to the payment it makes to B..., A... issues Credit Notes addressed to the F...;
vi. The amounts themselves mentioned in v) have nothing to do with the amounts received from the specific F... contained in the Credit Note, with the Bank including in these documents amounts delivered to B... relating to distribution commissions received from other F...;
vii. The accounting of these expenses was carried out as a debit to the revenue (results) account «81395.6 – Distribution Commission Other Funds».
On 2017-06-26 the Taxable Person declared (Annex 5 – 7 pages), with respect to the documents referred to in point (v) above, the following: «we found that the credit notes were incorrectly issued because they reflect amounts that, despite having been received from that entity [i.e., the F...], were transferred to B... under point 16 and n.º 2 of Appendix III of the «Distribution Platform Agreement» contract». (Emphasis added).
Subsequently, an attempt was made to calculate the total amount of expenses recorded in the accounting relating to payments made to B..., collecting the respective supporting documentation. Thus, the following request for information was made [...].
Based on the responses given by the Bank, on 2017-10-09 and 2017-10-13, it was possible to conclude the following:
The amounts relating to the 4th quarter of 2014 did not affect revenue accounts in 2015;
ii. The payments made to B... relating to the 1st, 2nd and 3rd quarters of 2015 amounted to € 111,172.35, € 149,314.71 and € 160,395.84 respectively and contributed to a lower credit balance in the accounting revenue account (income) «81395.6 – Distribution Commission Other Funds»; these amounts are reflected in Credit Notes nos. 6600000011 to 6600000014, 6600000018 to 6600000021 and 6600000066 to 6600000069 issued by the Taxable Person (see Annex 6 – 12 pages);
iii. With respect to the 4th quarter (see Annex 7 – 2 pages), «On 31 December 2015 it was recorded as a debit to the accounting account # 684859.1 – COMMISSIONS OP.REAL.P/TERC.-OTHERS, [embodying accounting expenses] through the results accrual process, an amount of € 74,372.10 relating to the total amount of "rebates" or "retrocessions" received/to be received by A... from management companies of moveable investment funds and to be paid to B... in 2016, as a result of this entity's investments in investment funds in the fourth quarter of 2015 under point 16 and n.º 2 of Appendix III of the «Distribution Platform Agreement» contract (cf. Bank response dated 2017-10-13).
Thus, with respect to the total amount of "rebates" or "retrocessions" paid to B... that negatively impacted the Taxable Person's accounting result in 2015, this amount totaled € 495,255.00 (€ 111,172.35, € 149,314.71, € 160,395.84 and € 74,372.10, recorded at A... as a debit to result accounts).
It was also declared at that time – Annex 8 (3 pages) – that «the documents issued by A..., referred to in 1.2, in addition to having been incorrectly issued were also incorrectly sent to the entities for which they were issued but we do not have a copy of a document proving their respective sending and/or receipt by that entity». (Emphasis added).
In summary, A..., as a financial intermediary, has a structure in place that enables it to make available to its clients a range of investment fund participation units, making the "match" between the Funds that need to raise financial resources and clients who wish to invest their liquidity. For this activity conducted, it earns distribution commissions.
B... is one of its clients, but is a client of an institutional nature.
In fact, according to information provided by the Insurance and Pension Funds Supervisory Authority (ASF), B... is an entity authorized to contract Insurance, of the life branch type "Life Insurance", "Insurance linked to investment funds" or "Capitalization Operations".
The insurer then makes available to its clients structured products such as insurance linked to investment funds or unit linked (life insurance of variable capital in which the amount to be received by the beneficiary depends on a "reference value" consisting of one or more participation units). Through the business structure set up by B... to provide these services, through the normal conduct of its (B...) activity, it becomes possible for A... – as a financial intermediary and through its own financial intermediation activity – the distribution of a larger number of participation units (and to a broader range of clients – the Insurer's clients – which it would otherwise not be able to reach).
Aware of the fact that it is rendering a service to the Bank, the Insurer demands remuneration from it (for the placement of these participation units), which is contractually provided for in the aforementioned clause 16 of the contract (concluded between A... and B...).
We are fundamentally faced with an agreement in which there is a Global Distributor (F...) which, by the placement of investment funds carried out by B..., pays commissions to A... . And in which B..., by placing with its (B...) clients investment funds (for which A... charged commissions to the F... for their placement) charges commissions to A... for the service of placing those investment funds.
B...'s clients thus end up being, directly or indirectly, the final investors.
It should be noted that the legal relationship between the F... and the Bank is entirely different from that established between the Taxable Person and B..., given that remuneration is fixed under different contracts. In fact, if we look at the provisions of clause 11.6 of the contract attached in Annex 4 (22 pages), we find exactly that: the F... clarifies that it has no responsibility for subsequent payments made by the Bank to third parties related to fund distribution.
As for the Taxable Person's reference to the fact that we are dealing with «income generated by investments directly made by B..., without any associated service provision (…) (cf. Circular Letter n.º 30103, of 23 April 2008)», based on the foregoing, we consider, to the contrary, that the operations in question fall within point VII.A of that Circular Letter and not in point VII.B as the A... contends. In fact, it is clarified in that administrative instruction that «operations arising from the exercise of an economic activity subject to VAT are also to be considered, carried out by taxable persons whose purpose is collective investment in securities, through capital raised from the public, which devote themselves to constituting and managing securities portfolios against remuneration, given that such activity exceeds mere acquisition, holding and sale of shares and aims at obtaining revenues with a character of permanence».
This is because there is no mere buying and selling of securities here. We are faced with entities with structures set up for the exercise of financial intermediation activity (in the case of the Bank) and the activity of placement with customers of structured insurance products (in the case of the Insurer), and thus effectively the «exercise of an economic activity subject to VAT» is verified.
According to n.º 1 of article 4.º of the VAT Code, service provisions are considered operations effected onerous that do not constitute transfers, intra-community acquisitions or import of goods.
[…]
Given the foregoing, there is no doubt that the debit of the commission in question – paid by A... to B..., as remuneration for the services rendered by that entity – even if, in theory (and by way of reasoning), it were considered that one was dealing with an operation exempt from VAT pursuant to n.º 27 of art. 9.º, should have been documented through an invoice issued by B..., for the services rendered, and should contain therein (if appropriate) the grounds for the (possible) non-payment of VAT, as provided in paragraph e) of n.º 5 of article 36.º of the VAT Code.
From Expenses Incurred or Borne and Their Deductibility for IRC Purposes
N.º 1 of art.º 23.º of the IRC Code lists expenses or losses to be considered for tax purposes provided they are incurred or borne by the taxable person to obtain or ensure income subject to IRC.
Similarly to the manner of explanation of art.º 20.º, with respect to income and gains, art.º 23.º lists in its paragraphs a) to m), in an exemplary manner, expenses or losses to be considered for tax purposes provided they are incurred or borne by the taxable person to obtain or ensure income subject to IRC.
However, for expenses enumerated to be considered deductible for tax purposes, two fundamental requirements are necessary:
That they be documented (pursuant to nos. 3, 4 and 6);
That they be incurred or borne by the taxable person to obtain or ensure income subject to IRC.
The absence of either of these requirements implies their non-consideration as a tax expense.
With the amendments introduced by the IRC reform law, it was established, in n.º 4 of this art.º 23.º, the minimum elements that the expense supporting document must contain, when it refers to the acquisition of goods or services:
Name or business name of the supplier of goods or provider of services and the acquirer or recipient;
Tax identification numbers of the supplier of goods or provider of services and the acquirer or recipient, whenever these are entities with residence or permanent establishment in the national territory;
Quantity and usual designation of goods acquired or services rendered;
Value of the consideration, namely the price;
Date on which the goods were acquired or on which the services were performed.
Furthermore, as set out in n.º 6 of art.º 23.º, if the supplier of goods or the provider of service is obliged to issue an invoice or legally equivalent document pursuant to the VAT Code, the supporting document referred to above must then necessarily assume this form.
[…]
According to the provisions of paragraphs a) to r) of n.º 1 of art.º 23.º-A, there exist a set of expenses which, although accounted as expenses, are not deductible for purposes of determining taxable profit (meaning they must be added to the net result of the period).
These are «expenses whose documentation does not comply with the provisions of nos. 3 and 4 of art.º 23.º, as well as expenses shown in documents issued by taxable persons with a non-existent or invalid tax identification number or by taxable persons whose cessation of activity has been declared ex officio pursuant to n.º 6 of article 8.º» – as per paragraph c) of n.º 1 of art.º 23.º-A of the IRC Code.
Thus, with a view in particular to combating tax fraud and evasion, this rule refers in a conclusive manner to the non-relevance for tax purposes, of expenses borne by documentation that does not comply with the provisions of nos. 3 and 4 of art.º 23.º of the IRC Code, resulting in shared responsibility of the taxable person (acquirer of these expenses).
It should be noted that, in order to verify the existence/validity of the taxpayer or the exercise of activity of clients/suppliers – or even to assess the supporting documentation considered (for tax purposes) valid to support the expenses in question – the taxable person should resort to the Finance Portal which, as provided in n.º 4 of art.º 23.º-A of the IRC Code, makes cadastral information available.
Thus, despite the existence of documentation of the expense, if this is not the appropriate one in view of what is required in nos. 3, 4 and 6 of art.º 23.º, with a view in particular to combating tax fraud and evasion, the legislator expressly determined that this expense, not being considered as properly documented in the precise terms of these tax rules, should not be considered a deductible expense for purposes of calculating taxable profit.
It is thus the express intention of the legislator that there be no tax participation in cases where the expense, in light of this rule, is not properly documented. This does not mean that, in practice, the expense has not occurred, only that it is determined that, even if it has occurred and even if it is accounted as an expense of the period, it is not fiscally deductible.
In this way, although the IRC Code endorses accounting, and consequently the accounting regime of expenses, it determines in its arts. 23.º and 23.º-A that expenses whose documentation does not comply with the provisions of nos. 3 and 4 of art.º 23.º are taxed (in conjunction with n.º 6 of the same article and with art.º 23.º-A of the IRC Code), thus imposing limitations on the fiscal deductibility of certain accounting expenses (that is, of certain negative components of the accounting result of companies).
Thus, when the Taxable Person does not prove the conditions expressly required by law, the accounting expense is not deductible.
c) From the conclusive synthesis
Nos. 3, 4 and 6 of art.º 23.º of the IRC Code establish that:
[…]
In the case at hand in the present reasoning, the expenses relating to commissions borne with operations carried out with B... are documentally supported by Credit Notes issued (i) by A... to (ii) non-resident entities (F..., such as G...) – with the Taxable Person expressly recognizing that the said Credit Notes were incorrectly issued [further noting that (i) these were also incorrectly sent to the entities for which they were issued; and that (ii) it does not have a copy of a document proving their respective sending and/or receipt by those entities] – rather than being supported (i) by invoices (ii) issued by entity B..., in accordance with the provisions of the VAT Code and in compliance with nos. 4 and 6 of art.º 23.º of the IRC Code.
It should be recalled that B... was, at the time of the facts, classified for VAT purposes in the normal regime with quarterly periodicity, information which the A... (or any other company) could have been aware of, specifically to the extent that, in compliance with the provisions of n.º 4 of art.º 23.º-A of the IRC Code, this information is disclosed on the Finance Portal. Therefore, the documentation that should have been issued, by B... to A..., for the services rendered, as results from the provisions of nos. 3 to 5 of art.º 23.º of the IRC Code, should have been an invoice. Or, in other words, A..., taking into account the express delimitation of the scope (of documentation accepted for purposes of fiscal deductibility in cases where the supplier of goods or provider of services is obliged to issue an invoice) imposed by the tax legislator, wishing to support, for purposes of fiscal deductibility, the accounting expense incurred with the commissions here in question (incurred by the activity carried out by B...), should have, in compliance with the legal provisions referred to above, required B... to issue an invoice for the services rendered by it (and which are embodied, in a receipt in the sphere of company B... and in an expense in the sphere of company B...).
From the combination of the provisions of nos. 3, 4 and 6 of art.º 23.º of the IRC Code it is thus concluded that, in A..., the expenses in question, in the amount of € 495,255.00, should be supported by invoice(s) issued by company "B..., SA", with NIPC..., in accordance with the terms and requirements imposed by the VAT Code and by n.º 4 of art.º 23.º of the IRC Code, not being so supported, the accounting expenses, in the amount of € 495,255.00, are not documentally proven for purposes of fiscal deductibility, as results from nos. 3, 4 and 6 of art.º 23.º of the IRC Code.
Furthermore, according to the definition in paragraph c) of n.º 1 of art.º 23.º-A of the IRC Code, «expenses whose documentation does not comply with the provisions of nos. 3 and 4 of article 23.º are not deductible for purposes of determining taxable profit (…), even when accounted as expenses of the taxation period (…) [...].»
Q. The Claimant was notified of the IRC assessment demonstrations n.º 2017..., of 14 December 2017, of compensatory interest n.º 2017..., of 19 December 2017, and of account settlement n.º 2017..., also of 19 December, relating to tax for the year 2015, from which resulted, the total amount payable of € 133,045.88, of which the payment deadline was set at 26 January 2018 – cf. document 5 attached with the ppa.
R. The Claimant proceeded, on 22 January 2018, to payment of the total amount resulting from the said IRC assessments and compensatory interest, of € 133,045.88, against which it contests € 132,313.46 – cf. document 6 attached with the ppa.
S. In disagreement with the correction to the IRC taxable base contained in the above-identified tax assessment and with the inherent payment of compensatory interest, the Claimant presented to CAAD, on 26 April 2018, the request for constitution of the Collective Arbitral Tribunal that gave rise to the present proceedings.
Motivation
The factual matters pertinent to the judgment of the case were selected and delimited according to their legal relevance, in light of the plausible solutions to the legal questions, in accordance with the combined application of articles 123.º, n.º 2, of the CPPT, 596.º, n.º 1 and 607.º, n.º 3 of the CPC, applicable ex vi article 29.º, n.º 1, paragraphs a) and e) of the RJAT.
As regards the proven facts, the conviction of the arbitrators was based essentially on the positions taken by the parties and on the critical analysis of the documentary evidence attached to the file. The testimony of the two witnesses examined, C... and D..., employee of the Accounting and Control Department and certified accountant of the Claimant, respectively, was objective, consistent and credible, having corroborated the understanding of the facts that results from the documents.
The first witness confirmed that B... is an insurance company client of the Bank and that acquires financial assets – e.g., investment fund participation units – through the electronic platform that provides access to a diversified range of investment fund management companies (mostly foreign) and their investment fund portfolios. The Bank receives and transmits, through the platform, buy and sell orders of investors, in this case B... . The funds (or more precisely, the management companies that represent them) do not "know" the clients, they are always paid through the financial intermediary, the Claimant herein.
It also confirmed the existence of documentation supporting the movements, embodied in posting notices which are communicated/sent to B... .
With respect to commissions received by the Claimant, it stated that they originate from the investment made by B... and persist as long as such investment is maintained.
The second witness also confirmed that B... is an insurance company client of the Claimant which, in the scope of its activity, decided to make its investments through the Claimant's platform by executing the corresponding Agreement. Payments and receipts between the Claimant and B..., in addition to being contractualized and accounted for, were made through movements in the (bank) account, so there is no doubt about the financial flows.
The commissions received by the Claimant, which it referred to as "inducements", arise in its relationship with fund management companies, depending on the amounts invested through the electronic platform, and have no relation to the appreciation of the assets in which the investment was made. The payments that are then owed to B... relate to this amount received, although, in its view, they have a different nature.
The fund management companies have the Claimant as their sole interlocutor in these B... operations and, as well, in all those in which the Bank A...'s platform is used.
Facts Not Proven
The Claimant's allegation that B... acts, as a client of the Claimant in the capacity of a direct investor (article 12.º of the ppa), was not proven, it being established that, for the fund management companies or F..., the sole interlocutor is the Claimant, which places the buy and sell orders of the Assets and carries out the respective payments and receipts, without prejudice to doing so on behalf of clients.
There are no other alleged facts with relevance for the decision that should be considered not proven.
On the Law
2.1. Delimitation of Questions to be Decided
The main question in dispute – presupposed in the application of the regime provided for in article 23.º, nos. 4 and 6 of the IRC Code – relates to whether the payments made to B... by the Claimant constitute remuneration for service provisions, in the meaning of VAT, rendered by B... [to the Claimant], within the scope of the contractual relationship established in the "Distribution Platform Agreement", for which it should have proceeded to issue the corresponding invoices to the Claimant, in accordance with and for the purposes of articles 4.º, n.º 1 and 29.º, n.º 1, paragraph b) of the VAT Code.
In the circumstance that it is concluded there is an obligation to issue invoices dictated by the VAT Code, it is relevant, also, for the legal solution of the case, to determine the consequences of its non-compliance in the sphere of the acquirer, the Claimant herein (which, it must be noted, is not the entity upon whom that invoicing obligation falls, which rests with the taxable person provider of services) in light of articles 23.º, nos. 4 and 6, and 23.º-A, n.º 1, paragraph c) of the IRC Code and of the constitutional principles invoked, of taxable capacity and of justice inherent in the material principle of the rule of law (articles 104.º, n.º 2 and 266.º, n.º 2 and 2.º, all of the CRP).
2.2. Framework for VAT Purposes
The concept of service provision, for VAT purposes, is contained in article 4.º, n.º 1 of the Code of this tax and encompasses all "operations effected onerous which do not constitute transfers, intra-community acquisitions or importation of goods", in line with the definition of article 24.º, n.º 1 of Directive 2006/112/EC of the Council, of 28 November 2006 ("VAT Directive"), which defines it as "any operation which does not constitute a delivery of goods". This is a notion that assigns a broad scope of application to VAT, resulting from a delimitation by the negative which characterizes it as a general tax on consumption with a broad base (broad based tax), to the point that doubts are raised about its constitutional compliance, due to the rule lacking the "high degree of conceptual determination" required pursuant to the provisions of article 103.º, n.º 2 of the CRP.
On this matter, the Constitutional Court pronounced itself in Decision n.º 500/2009, of 30 September 2009, in which it concludes that recourse to such a legal concept [of service provision] does not prejudice "the ability to apprehend the facts subject to tax by a normal recipient, nor does it violate the principle of tax legality" (cf. article 102.º, n.º 3, of the CRP).
That Court makes an articulated reading with the provision of article 1.º, n.º 1 of the VAT Code, which determines that "service provisions effected in national territory, onerous, by a taxable person acting as such" are subject to tax, directing us to the concept of economic activity that delimits the concept of taxable person and, ultimately, all the subject matter of objective and subjective incidence of VAT, pursuant to the terms contained in article 2.º, n.º 1, paragraph a) of the VAT Code, according to which taxable persons are "[p]ersons, natural or legal, who, in an independent manner and habitually, engage in activities of production, commerce or provision of services, including extractive activities, agricultural activities and those of the liberal professions, and also those who, in the same independent manner, perform a single taxable operation, provided that this operation is connected with the exercise of the aforementioned activities, wherever this occurs, or when, regardless of such connection, such operation meets the requirements for the real incidence of tax on income of natural persons (IRS) or tax on income of legal persons (IRC)".
The VAT Directive defines taxable person in similar terms to those transposed by the VAT Code, as "any person who carries out, independently and in any place, an economic activity, whatever the purpose or result of that activity" and economic activity as "any activity of production, commercialization or provision of services, including extractive activities, agricultural activities and those of the liberal professions or equivalent" (cf. article 9.º, n.º 1).
The concepts of service provision and economic activity constitute, for this purpose [of VAT], autonomous concepts of European law and have been the subject of interpretation by the Court of Justice ("CJ"), which confirms the breadth of the scope of application of VAT, its independence from the result of activities (whether this is profitable or not) and the need for a direct nexus ("direct link") and for a synallagmatic link between the provision of the service and its consideration (remuneration) – cf. by way of example, Decisions of the CJ of 3 March 1994, Tolsma, C-16/93; of 20 June 1996, Wellcome Trust, C-155/94; of 11 July 1996, Régie Dauphinoise, C-306/94; of 29 April 2004, EDM, C-77/01; of 6 October 2009, SPO Kärnten, C-267/08; of 29 October 2009, SKF, C-29/08; of 3 September 2015, Asparuhovo Lake, C-463/14, and further jurisprudence cited therein.
In this manner, the notion of a service provision contract, provided for in article 1154.º of the Civil Code – as "one in which one of the parties undertakes to provide the other a certain result of his intellectual or manual work, with or without remuneration" – presents a scope and purpose entirely distinct and has no application whatsoever in the context of VAT, given the legal discipline and case law cited above. For the purposes of this tax, operations of non facere (such as, for example, of abstention or non-exercise of an activity) are also covered by the concept of service provision.
Thus, the characterization of an operation as a service provision rendered onerous for VAT purposes is satisfied with conduct that falls within the scope of the development of an economic activity, within the framework of a synallagmatic business relationship in which reciprocal performances are agreed, one(s) being remuneration or consideration for the other(s).
In the situation at hand, a contract was concluded between the Claimant and B... for use of an electronic platform for distribution of financial products, through which the latter can make financial applications in investment funds. Through this platform, B... obtains access to a vast network of financial asset offerings. The Agreement concluded also provides for the rendering by the Claimant to B... of services ancillary to management, commercialization, recording and custody of assets in the capacity of financial intermediary, in conformity with Directive 2004/39/EC, of 21 April 2004, relating to markets in financial instruments ("Markets in Financial Instruments Directive" – MiFID). For these services, the Claimant does not charge any remuneration to B... . However, the benefits of the Agreement are not exclusive to it, providing that, on the Claimant's part, it gains access, direct or indirect, to B...'s client network, materializing in commissions on amounts that are invested while the investment is maintained.
In fact, it is noted that, as an intermediary, the Claimant – with respect to investment activity that its client B... develops using the platform – receives commissions for its work of placing the assets, calculated on the volume of investment made while the assets remain within its sphere, which it designates retrocessions or "inducements" (incentives). However, these commissions are not owed and paid to the Claimant by B... under the Agreement, but by the F..., i.e., by the fund management companies, global distributors of financial products. Given that the legal relationship between the Claimant and the F... (and, consequently, the commissions owed by these to the former) is not governed by, nor forms part of the Agreement concluded with B... .
Without prejudice to the foregoing, the Agreement is not oblivious to the commissions owed by the F... to the Claimant, making express mention thereof and dedicating definitions (Q) and clauses (16) to it. This is because these commissions to which the Claimant is entitled on the basis of another contractual relationship and with other parties (subjects), are accommodated by the Agreement (under analysis) applicable to the relationship between the Claimant and B... as the presupposition of the stipulation of a charge against the Claimant: that of payment of 80% of what it will receive from these other parties. The Agreement explicitly establishes that B...'s remuneration provided for therein derives from the commissions that the Claimant collects from the F..., which occurs within the framework of another legal relationship, with another cause, object and subjects.
In this context, the Agreement provides that insofar as the Transactions or the Assets under management under the Agreement imply a gain ("profit") for the Claimant, the latter may pay ("may pay") to B... a portion of the commissions received from the F... for the work of placing the Assets, which was fixed in an annex to the Agreement in the significant percentage of 80%.
The Claimant argues that this charge is optional for two reasons. The first relates to the expression "may" employed in the Agreement which means "can" and not "must", so the Claimant could pay B..., but would not be obliged to do so. The second is due to the express provision of a clause that determines that insofar as commissions are not paid to the Claimant, B... will also not be entitled to the corresponding remuneration.
However, it is important to note that the wording of other clauses of the Agreement indicate that a legal duty is underlying, as it refers that if commissions are not paid to the Claimant, B... will not have the right ("will not have any right") to its remuneration, which has implicit that if they are paid and the negative condition does not occur, B... will be entitled to the receipt of its aliquot. In fact, underlying the very assertion that the sharing of commissions is only due in case of receipt (or in other words, that it is not due if the Claimant does not receive them) is the understanding that, if that reservation were not made, the right to remuneration would subsist even without the Claimant's receipt of the commissions. Otherwise such a statement would be unnecessary and redundant (cf. Clause 16(1) and (3)).
Furthermore, B...'s right to receive remuneration persists even beyond the term of the Agreement, but it is the activity performed under its term that is its cause. This entity will continue to collect the remuneration agreed with the Claimant while the Assets subscribed (acquired) through the Distribution Platform remain registered in the former's name, until they are fully redeemed – Clause 16 (7).
In the circumstances described, as the Claimant contends, B... is a client of the financial intermediation services rendered by the Claimant. Such quality (of client) does not, however, imply that B... cannot simultaneously render services to the Bank and receive the corresponding remuneration therefor.
With respect to the Claimant's thesis that payment to B... is nothing more than an additional remuneration of capital invested by it through the Distribution Platform, i.e., a passive-nature income, generated by investment in investment funds, and associated with the mere static holding of financial assets (generally, in this case, participation units), and thus would not result from the exercise of an economic activity, nor from a service provision for VAT purposes, various objections are raised.
Although there is an unequivocal relationship between the investments made by B... and the payments due to it by the Claimant, because the value of the commission received from the F... and 80% passed by the Claimant to B... is calculated on the investments made by B... through its Distribution Platform and while these are maintained, this link is not, according to our understanding, that of remuneration of these investments.
In truth, B... does not make any investment or capital contribution to the Claimant, which this could remunerate in return. Furthermore, the nature of these payments to B... is linked to the Claimant's commissions (an association which is expressly provided for in the Agreement). Such payments constitute, moreover, a transfer or partial passing of these commissions, and these are clearly not the remuneration of invested capital or financial applications, because the Claimant does not invest in the funds, rather it is an intermediary of such investment. We are therefore faced with commissions which, in the Claimant's sphere, and this is not controversial, constitute the consideration for its work of placing the Assets, of "distributor" of investment funds, via use of the Distribution Platform developed by it. Its sharing with B... cannot be characterized as remuneration by the Claimant of an investment by this entity, because neither did B... invest in the Claimant, nor did the Claimant invest in the funds.
According to the legal opinion filed by the Claimant, the reason for such sharing of commissions, also designated retrocessions or inducements, in the manner carried out, is due to the regulation adopted by the European Union with reference to markets in financial instruments (Directive 2004/39/EC cited above) and to the activity of investment firms (Directive 2006/73/EC, of 10 August 2006, implementing the first-mentioned one), which establishes, as a general rule, the prohibition of investment firms, in the case the Claimant, from benefiting from financial incentives or otherwise to privilege the interests of another client or coming from another person than the client, with respect to services rendered to the client, a situation in which it is considered that the investment firm does not act "honestly, fairly and professionally". This discipline aims to guard against situations of conflicts of interest that may occur in the course of providing investment services and was transposed by article 313.º of the Securities Code ("CVM"), existing some exceptions to the prohibition, which require that the client be informed, completely, of the value or the method of calculating the remuneration, prior to the provision of the financial intermediation activity, and that this does not prejudice respect for the duty to act in the direction of protecting the legitimate interests of the client, here B... .
In this framework, the alternative found consisted of transferring a substantial portion – 80% – of the commission received by the Claimant from the fund management companies, third parties to the Agreement, to its client B... .
For the Claimant, the circumstance that B... does not assume the obligation to carry out operations for which it should receive commissions, nor even that of using the Distribution Platform, would be reason enough to consider that a service provision is not verified. For the purposes of the civil law concept of service provision, certainly. However, with the reference being the extremely broad concept of service provision in the meaning of VAT,
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