CAAD Case 22/2018-T: VAT Deduction Rights, Good Faith Principle & Property Leasing Administrative Guidance

Arbitral Decision (consult full version in PDF)

The arbitrators Dr. Jorge Lopes de Sousa (arbitrator-chairman), Dr. Olívio Mota Amador and Dr. José Ramos Alexandre (arbitrator-members), appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 22-03-2018, agree as follows:

1. Report

A..., SA, with registered office at Rua..., no...., rooms ... and ..., in Porto, NIF..., (previously designated as B..., SA, with registered office at Rua da ..., s/n, ...-... ...) (hereinafter designated as "B..." or "Applicant") filed an application for constitution of a collective arbitral tribunal, in accordance with Decree-Law no. 10/2011 of 20 January (hereinafter RJAT), in which the TAX AND CUSTOMS AUTHORITY is the Respondent.

The Applicant seeks the annulment of additional VAT assessments and interest for the years 2012, 2013 and 2014, in the amounts of €433,360.42, €390,970.69 and €238,709.24, respectively, and compensatory interest of €78,421.78, €55,438.66 and €24,011.85, the additional VAT assessments and compensatory interest for the year 2015, in the amount of €604,372.89 and €43,231.32, respectively, as well as the decisions refusing the administrative appeals presented against these assessments.

The Applicant further seeks the condemnation of the Tax Authority to pay interest.

Subsidiarily, the Applicant requests the annulment of the compensatory interest assessments.

The application for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the Tax and Customs Authority on 18-01-2018.

In accordance with the provisions of subparagraph a) of paragraph 2 of article 6 and subparagraph b) of paragraph 1 of article 11 of RJAT, the Deontological Council appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of the charge within the applicable period.

On 07-03-2018, the parties were duly notified of this appointment and expressed no desire to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11, paragraph 1, subparagraphs a) and b) of RJAT and articles 6 and 7 of the Deontological Code.

In compliance with the provision of subparagraph c) of paragraph 1 of article 11 of RJAT, the collective arbitral tribunal was constituted on 22-03-2018.

The Tax and Customs Authority responded, defending the dismissal of the claims and stating that if "doubts remain" it is "of the opinion that the matter be submitted to the consideration of the CJEU whether services such as those in question may benefit from the exemption in question".

On 14-06-2018 and 06-07-2018, hearings were held in which witness evidence was produced and it was decided that the proceedings continue with simultaneous written pleadings.

The Parties submitted pleadings.

The Tribunal is competent and was duly constituted.

The parties have legal personality and capacity, are legitimately interested and are properly represented (articles 4 and 10, paragraph 2, of RJAT and article 1 of Order no. 112-A/2011, of 22 March).

The proceedings are not affected by any nullities.

2. Facts

2.1. Proven Facts

The following facts are considered proven, as relevant to the decision:

• The Applicant, in the pursuit of its activity, formalized between 2012 and 2015, as lessor, various real property lease contracts in C... (hereinafter "C..."), considering them exempt from VAT, in accordance with article 9, paragraph 29, of CIVA;

• Two inspections were carried out on the Applicant, the first in 2016, relating to the fiscal years 2012 to 2014, and the second relating to fiscal year 2015, and the Tax and Customs Authority made VAT corrections, on the grounds of failure to assess VAT on property rental payments, on the understanding that the Applicant was not exempt from tax in the activity it carried out;

• Following the first inspection, the Applicant was notified of the following additional VAT assessments and compensatory interest for the years 2012 to 2014 in the amounts of €433,360.42, €390,970.69 and €238,709.24, respectively, and compensatory interest of €78,421.78, €55,438.66 and €24,011.85, respectively (documents nos. 1 to 3, attached to the arbitration application, the contents of which are hereby incorporated):

• The Applicant filed an Administrative Appeal against the assessments indicated in the preceding subparagraph, which was dismissed by decision of 25-10-2017, issued by the Head of the Finance Directorate Division in Porto (document no. 4, attached to the arbitration application, the content of which is hereby incorporated);

• Following the second inspection, the Applicant was notified of the following additional VAT assessments and compensatory interest, in the amount of €604,372.89 and €43,231.32, respectively, relating to fiscal year 2015 (document no. 65 attached to the arbitration application, the content of which is hereby incorporated):

• The Applicant filed an Administrative Appeal against the assessments indicated in the preceding subparagraph, which was dismissed by decision of the Head of the Finance Directorate Division in Porto of 29-12-2017 (document no. 6, attached to the arbitration application, the content of which is hereby incorporated);

• In the Tax Inspection Report relating to the first inspection, which forms part of the administrative file, the contents of which are hereby incorporated, the following is stated, among other matters:

III.1. VAT – TAX CORRECTION - Years 2012, 2013 and 2014

III.1.1. VAT Non-Assessment - Atypical Lease Contracts

III.1.1.1. Description of the Operation of the C... Business Complex (C...)

As previously mentioned and hereby reproduced, B...'s main activity is the promotion and development of Management of C..., contracting the leasing of spaces and providing the services necessary to support and manage these spaces and all structures and infrastructure common to C... (C...);

The ownership of the business complex (real properties), initially in the name of B..., was transferred in 2006.12 to the FUND, which in turn leased it to the former, undertaking to "transform the business complex into a Business Center".

Thus, on 2006.12.27, the FUND and B... entered into a contract called "Commercial Lease Agreement", and from that date B... entered into individualized contracts with its clients (which we shall also refer to as business center users), which it designated and classified as "Commercial Sublease Contract".

The contract with the FUND was extended every 3 years, and for the periods under analysis the initial contract with an amendment of 29 December 2011 was in force (which sets only a new annual rent value = €1,040,000).

The Business Center, as also previously mentioned, comprises a large space of approximately 70,000 m² (gross area), 38,000 m² of leasable gross area, corresponding to a business condominium with 132 spaces for lease and 1,100 parking spaces, encompassing the most varied business sectors, from catering, commerce, offices, warehouses, industry and parking. (our emphasis).

The space also has, for use by the users of the companies installed and the public, a wide range of services, as advertised on the website that promotes the Business Center, as well as on other sites promoting the leasing of spaces:

[Image of website]

There are various services available, both for the clients of C... and for its users.

[Image of website]

B... has a set of protocols available to its clients.

[Image of website]

[Image of website]

[Image of website]

B... thereby promotes the publicizing of companies installed in C...

[Image of C... Website]

Of the various events held, we highlight the following campaign developed for 1 December 2012, as it is considered an event involving shops open to the public, thus requiring integration between the various companies and the entity promoting these events, B.... The active participation of the taxpayer in the "visa" of C... is highlighted:

[Image of C... Website]

[Image of News]

[Image of News]

Also for 2014, it is worth noting the investment made by B... for the installation of company D... - a success case valued at hundreds of millions of dollars as the second largest online luxury fashion retail site - "...in the facilities of the old B... factory, near Porto, we have a gigantic open space, which develops mainly on one floor, with hundreds of people seated in front of computer screens...".

This investment, made in 2014 in the space designated as Space G12, amounted to approximately €712,000 in structural works and installation.

[Photograph of D... facilities]

Also as mentioned, the characterization of C... is mentioned in third-party websites and advertisements:

[Image of advertisements website]

As can be verified from this advertisement of 2 October 2013, C... offers a set of services and support, both to the users/clients of the center and to its users:

Internet,
Telephone,
Television,
Forklift,
Hairdresser,
"No Cosi" Transport, Meeting/Conference Room,
Permanent Cleaning and Gardening,
Health Area,
Vehicle Maintenance,
Restaurant Cafeteria,
Maintenance,
ATM,
Wi-Fi,
Covered and open-air parking,
Mailboxes,
Loading and unloading dock,
Satellite TV,
Ambient Music,
Eco-center,
Access Management and Control,
CCTV System,
Excellent Infrastructure and
24-hour Security

In summary:

As the company itself advertises on its website, they promote Management of C..., contracting the leasing of spaces and providing the services necessary to support and manage these spaces and all structures and infrastructure common to C...:

• Infrastructure, Services and Protocols carried out by B... in support of C... are identified;

• The publicity made to its clients is evidenced.

• The floor plan of the business complex is demonstrated where available parking spaces for clients and other users of C... are identified.

• Other benefits/points of interest are identified such as bus, cafeteria, restrooms, mail, telephone and others;

• They also make reference to the promotion of C... through initiatives developed in support of its clients.

C... thus presents itself as an integrated business reality, that is, as a business establishment and not as a sum of various establishments (corresponding to the sum of all spaces). This is contributed to by the (essential) character of all services provided by the business center management company, together/in collaboration with the actual users of the various spaces.

In this aggregated way, the management entity and users incorporate a single integrated center comprised of shops (art, furniture and decoration, fashion, health and aesthetics and gourmet), offices, warehouses, show-rooms, and collective parking for users and patrons of C...

From the perspective of the users of the spaces (clients), it appears that the economic transaction underlying the sublease agreements entered into by B... is not exhausted in the possibility of enjoyment of the real property but also, and dependent upon this, in the enjoyment of the associated services described above, these of special importance. This is referenced by the clients themselves as well as by the management of B..., as shown in the example extracted from the media:

[Image of news]

Analysis of the contracts entered into between B... and its clients.

III.1.1.2. "Commercial Sublease Contracts" - Analysis of Clauses

It should be noted, first, that the taxpayer characterized, for accounting and tax purposes, the commercial relationship with its clients as a pure lease of real property, that is, as a commercial lease, with the designations of the contracts reflecting this position.

We proceed, by way of example, to explain the clauses of six contracts, representative of approximately 25% of the total Rent billing.

For the purpose of classifying the transactions under VAT, the contracts were analyzed and the content of the relevant clauses was highlighted, revealing the following to be pertinent.

"COMMERCIAL SUBLEASE CONTRACT" - CLAUSES

Retail Shop Lease – E...

• Clause 4 — The subleased premises (C...) are intended exclusively for retail clothing trade...

in management report: The business center, located in a large space of approximately 70,000 m² (gross area), corresponds to a business condominium with more than 120 units, encompassing the most varied business sectors, from catering, commerce, offices, warehouses, industry and parking. The space also has, for use by the users of the installed companies and the public, a wide range of services, which will be specified further below.

• Clause 5, point 1 - A monthly rent of €1,200 is agreed upon for the fraction designated Building C10, with 160 m²...

• Clause 6, point 1 - Exterior conservation, maintenance and improvement works, as well as maintenance of the elevator in the leased space, are the responsibility of B...;

• Clause 6, points 2 and 3 - Interior conservation, maintenance and improvement works are the responsibility of the sublessees and shall become an integral part of the property...; Any works to be carried out by sublessees or installation of equipment (air conditioning, surveillance and fire, etc), or advertising on the facade, must be previously submitted for approval by B..., given in writing... with all necessary elements so that it can pronounce itself, namely projects and descriptive notes...;

• Clause 7, point 1 - Expenses related to installation and consumption of water, electricity, telephone, air conditioning, fuels and fire network as well as common services with a monthly value corresponding to 8% of the rent amount plus VAT at the legal rate in force... are the responsibility of sublessees...;

B... debits to its clients monthly, 3 distinct components: a sum as rent, a sum as common expenses, and individual expenses for each client. This matter will be explored further below.

• Clause 8, point 1 - B... shall make available a total of 2 parking spaces in a location to be defined....

These parking spaces are for common use and are made available to B...'s client companies and consequently to the clients of those same companies.

• Clause 8, point 2 - Sublessees undertake to comply with the Internal Regulations drawn up for the use and enjoyment of the common areas of the business complex, namely with respect to circulation, parking, loading and unloading, entry and exit of vehicles and personnel, so as to achieve a functional, efficient and safe business complex for all users;

The drawing up of the Internal Regulations, in accordance with the contract between B... and the FUND, is the responsibility of the FUND.

• Clause 8, point 3 - In the event of non-compliance with any obligation on the part of the lessees, particularly with regard to payments, B... may prevent entry to the business center and the subleased facilities to representatives, workers, or any other persons or entities sent or related directly or indirectly... changing the respective locks and exercising the right of retention with respect to all goods, property and equipment deposited there...

• Clauses 10 and 11 - The contracts further establish that B... may assign its contractual position; by contrast, clients cannot do so (referred to as intuitus personae).

Office Lease – D...

The most relevant contract concluded in the period of inspection activity - in this case, year 2013, entering into force on 01.01.2014 - with similarities to the former:

• Clauses 3 and 4 - The subleased premises (C...) are intended exclusively for office use... 4,200 m² in building G12... duration of 65 months, automatically renewing for equal successive periods...

Should D... terminate this contract before the end of the initial 65-month period, it is agreed that it undertakes to pay B..., as compensation for non-compliance with the contractual period, an amount equal to 2/3 of the monthly rents in force at the date of termination, from the date of such termination until the end of the 65-month initial duration period agreed upon for the contract.

• Clause 5, point 1 - The agreed monthly rent is €31,332.00...

• Clause 6, point 1 - All exterior conservation, maintenance and improvement works are the responsibility of B...;

B..., during 2014, promoted works in Building ... in the amount of approximately €712,000 - see below TI Table

• Clause 6, points 2 and 3 - Interior conservation, maintenance and improvement works are the responsibility of sublessees and shall become an integral part of the property...; Any works to be carried out by sublessees or installation of equipment (air conditioning, surveillance and fire, etc), or advertising on the facade, must be previously submitted for approval by B..., given in writing... with all necessary elements so that it can pronounce itself, namely projects and descriptive notes...;

• Clause 7, point 1 - Expenses related to installation and consumption of water, electricity, telephone, gas and air conditioning maintenance, as well as common services with a monthly value corresponding to €1.00 m², plus VAT at the legal rate in force... are the responsibility of sublessees...;

• Clause 8, point 1 – B... shall make available a total of 40 parking spaces in a location to be defined... as well as 80 OTV cards for entry validation.

• Clause 8, point 2 - Sublessees undertake to comply with the Internal Regulations drawn up for the use and enjoyment of the common areas of the business complex, namely with respect to circulation, parking, loading and unloading, entry and exit of vehicles and personnel, so as to achieve a functional, efficient and safe business complex for all users;

• Clause 10 - It further establishes that B... has the right to assign, partially or totally, its contractual position, regardless of prior knowledge or consent of the lessee.

• Clause 17 - Finally, it is stated that the subject matter of the contract (Space...) shall be delivered with the characteristics contained in Annex I.

This Annex defines a set of works to be carried out by B..., under the requirements and guidance of D... It alone demonstrates that B... adapts the spaces it grants to its clients, according to their needs. Let us see:

Works accomplished - Contract (demolition and construction)

The contract itself concluded between the parties stipulates the MATERIALS AND WORK TO BE PERFORMED, in a Descriptive Report whose content, passes generically, through: 1. General Provisions; 2. Purpose and Regime of the Contract; 3. Preparation and Planning of Works; 4. Execution Deadlines; 5. Inspection and Control; 6. General Conditions for Contract Execution; 7. Preparatory Works; 8. Construction Materials and Elements; 9. Work Reception; 10. Warranty Period; and 11. B...'s Obligations during the Warranty Period.

The works to be performed are highlighted: structural works, total adaptation of the facilities to a business area going through the various construction specialties of a new space (which remained with only the exterior walls), always under client guidance.

Show-room, Warehouse and Office Lease – F..., G... and H... (respectively)

• Clause 4 - The subleased premises (C...) are intended exclusively for show-rooms of products commercialized... warehouses and offices... the shop...; ...to commercial offices and services...;

• Clause 5, point 1 - A monthly rent of €6,250 is agreed upon for the fraction designated Building F with 999 m²... A monthly rent of €1,500 for the fraction designated Building ... with 350 m²... a monthly rent of €6,720 for the fraction designated Building C24, with 980 m²...

• Clause 6, point 1 - Exterior conservation, maintenance and improvement works, as well as maintenance of the elevator in the leased space, are the responsibility of B...;

• Clause 6, points 2 and 3 - Interior conservation, maintenance and improvement works are the responsibility of sublessees and shall become an integral part of the property...; Any works to be carried out by sublessees or installation of equipment (air conditioning, surveillance and fire, etc), or advertising on the facade, must be previously submitted for approval by B..., given in writing... with all necessary elements so that it can pronounce itself, namely projects and descriptive notes...;

• Clause 7, point 1 - Expenses related to installation and consumption of water, electricity, telephone, air conditioning, fuels and fire network as well as common services with a monthly value corresponding to 3% of the rent amount plus VAT at the legal rate in force... are the responsibility of sublessees...;

• Clause 7, point 3 - B... undertakes to maintain and keep the common areas of the business complex clean and in good condition and with internal and permanent security systems, including permanent business complex reception service;

This clause does not appear in all highlighted contracts. However, its content is provided for in the Internal Regulations of C..., applicable to all of B...'s clients.

• Clause 8, point 1 - B... makes available, free of charge, a total of 20 parking spaces... a total of 4 parking spaces in a location adjacent to the leased object... for a total of 32 parking spaces...

• Clause 8, points 2 or 3 - Sublessees undertake to comply with the Internal Regulations drawn up for the use and enjoyment of the common areas of the business complex, namely with respect to circulation, parking, loading and unloading, entry and exit of vehicles and personnel, so as to achieve a functional, efficient and safe business complex for all users;

• Clause 10 - The FUND appears in some of the contracts as a party, authorizing its conclusion and assuming responsibility for its compliance, should B... or it itself, rescind, for any reason, the contract concluded between them.

• Clauses 10 and/or 11 - Establish that B... may assign its contractual position; by contrast, clients cannot do so (referred to as intuitus personae).

Delving deeper into the nature/substance of the business developed by B..., let us examine, briefly, some of the provisions contained in the Internal Regulations.

III.1.1.3. "Internal Regulations" - Analysis of Clauses

From the Internal Regulations - a document supplementary to the sublease contracts - intended to regulate the relationship between management entity and its clients, essentially regarding the use of common areas of the..., the following are highlighted:

RIGHTS OF B...'S CLIENTS - ARTICLES 3 AND 4 [excerpt]

• Each subleased unit holder has the right to exclusively use his subleased part and also to jointly use, with the other sublessees, the areas, equipment and common utility services, in accordance with the terms and conditions of these Regulations;

• The exercise of rights of each subleased unit holder and or possessor cannot conflict with the rights of the others; they are not permitted, in particular: ... b) introduce in the part that is subleased to them exterior changes that affect the aesthetics, operation or threaten the security of the business complex; e) use or allow use in a manner that affects common utility property; g) dedicate the subleased parts to any purposes that by their frequency or use could prejudice the prestige, functionality and organization of the business complex; j) in general, perform any acts or omissions that prejudice the normal operation of the business complex;

OBLIGATIONS OF B...'S CLIENTS - ARTICLE 5 [excerpt]

• Prepare and execute the project of installation and decoration works in accordance with the high quality standards of the business complex;

• Provide to Management the visit or inspection of the part that is subleased to them, when justified...;

• The subleased unit holder and or possessor entitled to use a common area cannot prevent the performance therein, by decision of Management and at the expense of the community of owners, of any works that prove necessary not only to its maintenance but also to the maintenance of other common areas...;

RESPONSIBILITIES OF MANAGEMENT (B...) - ARTICLE 7 [excerpt]

• Organize the Business Center, in its various aspects, defining and requiring the various sublessees to comply with what is decided, namely regarding surveillance, parking, loading and unloading, circulation, noise, works and infrastructure, relations between the various sublessees, etc;

» Perform conservatory acts regarding rights relating to equipment, services and common utility areas;

ADMINISTRATION EXPENSES AND COMMON AREA CHARGES - ARTICLE 9 [excerpts]

» All expenses and other charges, ordinary and extraordinary, aimed at the normal and regular functioning of common use property ... shall be supported by sublessees according to the subleased space...;

ASSEMBLY OF SUBLESSEES - ARTICLE 10 [excerpt]

• The sublessees may constitute themselves in Assembly, whose conclusions shall be addressed to the Business Center Management...;

Active Management of C... is also revealed in this document.

III.1.4. Other Contracts - Analysis of Clauses

In C... there is a space adapted for catering and services, operated by third parties. From 2008 to 2010 it was operated by I..., Lda. and from 2011 onwards by J..., Lda.

The main clauses of the contracts follow;

"Business Establishment Exploitation Concession Contract I..." (in force between 2008 and 2010)

• Clause 1 - B... is the legitimate possessor of a catering and beverages "Establishment", of whose entirety the following are an integral part: the right of ownership of the respective facilities located in C..., hereinafter Space (ground floor room, pantries, storeroom, kitchen, bathrooms, terrace and remaining accesses); The goods and equipment listed in annex i; Use license...

• Clause 2 - B... grants I... the temporary exploitation of the "Establishment"

• Clause 3 ...granted for a period of 3 years... renewable...

• Clause 4 - ... for maintenance of this contract it is an essential condition that the client continues its activity, with high standards of quality and service, adapting and meeting the needs of the various sublessees and users of C..., adopting a pricing policy similar to that currently in force.

• Clause 5 - During the exploitation period of the Establishment, I... shall pay B..., as compensation for the exploitation it will conduct in 2008, fixed remuneration of €2,500 plus 2.5% of Establishment sales, in 2009, €3,000 plus 6% of sales, in 2010 and 2011, €4,000 plus 5% of sales (considering the value without VAT); B... shall have the right to analyze, with the frequency it deems appropriate, the sales report extracted from reading "2" of the cash register.

• Clause 7 - The client shall ensure, throughout the exploitation period, the maintenance of Installation conditions in compliance with the hygiene and safety standards of food facilities in force at any given time...

• Clause 9 - It is B...'s exclusive obligation to perform, at its own expense, all corrections to the installations that may be imposed by competent authorities to maintain the use license of the Establishment - B... assumes full responsibility for all and any fines or sanctions that may be applied to the client by authorities due to the operation of the establishment without the competent use license...

• Clause 10 - The client shall have exclusive sales of food and beverages at the Installation and surrounding area, except for those performed through food or beverage commercialization machines, commonly called "vending machines", fixed or movable, which may be placed directly or indirectly by B..., or by any person or entity it may choose. Thus excluded from the scope of this contract are bars, canteens, vending and cafeterias already installed in the various spaces, namely, in ..., ..., ...

• Clause 11 — The client undertakes to allow B... access to the Establishment space for the occasional performance of events organized by it...

• Clause 14 - At the end of this contract, the client shall deliver the Establishment, free of persons, as well as the goods and equipment listed in Annex I, in good condition of cleanliness and preservation...

This contract, despite exhibiting the designation of "Business Establishment Exploitation Concession Contract", was not subject to VAT assessment.

"Commercial Sublease Contract - J..." (in force after 2011)

For the same space, the contract concluded with J... already adopted the designation of "Commercial Sublease Contract":

• Clause 4, point 1 - The subleased premises (C...) are intended exclusively for catering and beverages, bread stand and kiosk...;

• Clause 4, points 2 and 4 - It is B...'s exclusive obligation to perform, at its own expense, all corrections to the installations that may be imposed by competent authorities to maintain the use license of the subleased space; B... assumes full responsibility for all and any fines or sanctions that may be applied to the client by authorities due to the performance of activity on the real property...

• Clause 6, point 1 - Considering the investment that the client undertakes to make at the now subleased location, in accordance with the works and decoration project to be defined by both parties and which will be later amended to this contract and the fact that the same shall revert, at the end of this sublease, to B... without any consideration, compensation or indemnification: The agreed monthly rent is €7,500... And from February 2011 to December 2012 it shall have a discount of €1,500, being €6,000...

• Clause 8, point 1 - Expenses related to installation and consumption of water, electricity, telephone, air conditioning, fuels and fire network... are the responsibility of sublessees...;

• Clause 7, point 1 - Exterior conservation, maintenance and improvement works, as well as maintenance of the elevator in the leased space, are the responsibility of B...;

• Clause 7, points 2 and 3 - Interior conservation, maintenance and improvement works are the responsibility of sublessees and shall become an integral part of the property...; Any works to be carried out by sublessees or installation of equipment (air conditioning, surveillance and fire, etc), or advertising on the facade, must be previously submitted for approval by B..., given in writing... with all necessary elements so that it can pronounce itself, namely projects and descriptive notes...;

• Clause 9, point 1 - B... shall make available a standalone and exclusive parking space in a location already defined on the plan... the goods and equipment listed in annex i, in the condition of conservation as of the date;

• Clause 9, point 2 – The client undertakes to ensure maintenance of the space conditions in compliance with the hygiene and safety standards of food facilities... to ensure cleanliness of exterior areas of terraces, adjacent gardens and exclusive parking... to comply with the Internal Regulations drawn up for the use and enjoyment of the common areas of the business complex, namely with respect to circulation, parking, loading and unloading, entry and exit of vehicles and personnel, so as to achieve a functional, efficient and safe business complex for all users... to offer annually a Christmas Party, or equivalent, to B..., up to the limit of 20 people...

B... promoted the idea of implementing a direct exchange system in which "...rents can be paid by the companies installed there in services or products. It is unknown whether it implemented it.

• Clause 9, point 3 - In the event of non-compliance with any obligation on the part of the lessees, particularly with regard to payments, B... may prevent entry to the business center and the subleased facilities to representatives, workers, or any other persons or entities sent or related directly or indirectly... changing the respective locks and exercising the right of retention with respect to all goods, property and equipment deposited there...

• Clauses 11 and/or 12 - Establish, further, that B... may assign its contractual position; by contrast, clients cannot do so (referred to as intuitus personae).

These two contracts put in evidence the granting of exploitation of the restaurant.

The passive placement of the real property at the disposal is completely decontextualized with the verified reality.

CONCLUSION

For the qualification of the contracts concluded between the manager of C... and its clients, the following elements are highlighted:

B...'s Clients undertake to:

1. Pay a monthly remuneration, constituted by the sum of two components:

• One fixed;

• Another percentage intended to share in expenses and charges with the functioning and use of the business center;

1. Respect, in the facilities, the finishes and decoration of spaces, the quality standards of materials and aesthetics adopted for the center and to submit to the manager's approval, works to be performed;

2. Respect the Internal Regulations and consequently the normal functioning of the business complex - private areas and common areas.

The Manager undertakes to:

1. Provide the right to use spaces as defined in the contract, namely access to common use areas;

2. Undertake to provide services of common interest to the Business Center - security, publicity, cleaning services, park access, operating conditions, and guarantee access and proper functioning of common use areas;

3. The manager is also responsible for monitoring the operation of spaces (observance of operating hours, line of business exercised, compliance with Internal Regulations and other contract clauses);

In contracts that do not stipulate all these characteristics/conditions, new elements are evident that characterize the business as a grant to exploitation. Example: the contract with company J....

As clearly revealed to us, all these characteristics qualify the Business Center as an integrated business park since the lease of space is accompanied by centralized management of the entire business complex, translated into a broad set of services provided to its clients - the spaces are prepared for the exercise of an economic activity, both in static form (installation conditions) and dynamic form (business operation).

III.1.1.5. Costs/Expenses incurred with C... Operation

EXTERNAL SUPPLIES AND SERVICES AND PERSONNEL EXPENSES

The taxpayer incurred charges that it accounted for as cost/expense of the fiscal year - and deducted VAT by the pro-rata method - associated with the following types of services contracted with third parties, the majority on a monthly basis:

The specialized work expenses include, among others, condominium management charged by K..., Lda. (NIPC. ...), for the amount (monthly fee) of €5,000.00. The year 2014 also includes specialized consultation services associated with the contract concluded with client D....

The conservation and repair expenses of spaces are, individually, of small value (generally under €1,000 per invoice). Higher-value works, called conservation, repair and improvement works of C..., were capitalized to Tangible Fixed Assets accounts and subject to annual capital recovery (already addressed above).

The company's cost structure, underlying the management of the business center, also includes personnel expenses - dependent workers:

It is therefore noteworthy that B...'s activity, as developed, is conducted in active management mode.

• In summary, and excluding the rent charged by the FUND, the structure of costs directly affecting active management of C..., exceeds approximately €710,000 in 2012, €792,000 in 2013 and €871,000 in 2014, amounts exceeding the billing for services (indexed to "Rent").

TANGIBLE FIXED ASSETS (TFA)

Beyond the aforementioned expenses, the taxpayer incurred substantial costs from TFA depreciation, where the works at C... are accounted for.

These also reinforce the finding that the spaces do not constitute mere leasing, but rather constitute the provision of services of granting space adapted for the exercise of an economic activity (commerce, services, industry) - always introducing improvements ["up-grades"] in services provided.

(...)

These works include, for example, painting of spaces, metalwork services and electrical installation, ventilation, plasterboard covering, installation of mezzanines, door placement, video surveillance systems, among many others.

As previously mentioned, the largest investment was made during 2014, with adaptation works of Space... for installation of D..., whose total exceeded €712,000 - Civil construction works, metalwork, metalworking, electricity, ventilation, sheet metal coverings, etc. This will be a subject to be developed and explored further since the expenses were depreciated, in 2014, at 100%, that is, in full.

CONCLUSION

It is found that the inputs of C..., beyond the mere rents (passive) owed to the Fund, are constituted by significant portions of services provided by third parties and subordinate work (personnel expenses). Such values exceed common services and other service provisions billed by B... to its clients [on rent-indexed basis], which demonstrates that the rental business has associated monthly inputs that reflect participatory and active action in the development and promotion of activities developed in C...- Active Management.

As can be verified, the amounts billed for Common Services and Other Services fall far short of supporting the inherent expenses, revealing extremely negative margins, contrary to the margins calculated for Exempt Rents. It alone reveals a deviation of billing subject to VAT toward exempt billing.

(...)

III.1.1.6. Legal and Tax Framework of Contracts, as Applied under VAT, by the Taxpayer

Contrary to tax provisions under VAT, the taxpayer took the position that it was dealing with contracts of pure and simple leasing and, under VAT, the rents were treated as exempt by application of article 9, paragraph 29 of CIVA.

Now, for purposes of this tax, the leasing of real property is considered a service provision subject to VAT, in accordance with the residual concept of service provision provided in paragraph 1 of article 4 of the VAT Code (CIVA).

However, the general principle that tax shall be assessed on any service provision rendered for valuable consideration by a taxpayer, provides for certain exemptions, among which paragraph 29 of article 9 of CIVA, which determines that the leasing of real property is exempt from VAT [this is a derogation to the general rule].

As is evident from the analysis of the contracts and the billing issued (description of invoices), the taxpayer distinguishes three components in the remuneration earned, with reference to each leasing entity:

1. A part which it called "rent" - without VAT assessment;

2. Another which it called "condominium service", where it included all expenses for enjoyment of common areas and services, as previously detailed - with VAT assessment at normal rate;

3. A third called "Common Service Provision" or "Service Provision A and/or Service Provision E and/or Service Provision G and/or Forklift Service Provision and/or Other Service Provision", which included the value of water, electricity, gas and others, billed individually to each client - with VAT assessment at normal rate, and still other service provisions of reduced value.

The accounting and tax treatment applied reflects these distinctions and distortions as shown in Table 12, which expresses the clear discrepancy between the two formulations of the business aspects.

As noted, the company considered the part which it calls "rents" as constituting operations subject but exempt from VAT in accordance with paragraph 29 of article 9 of CIVA, and the remaining values as being subject to tax and not exempt therefrom, and proceeded to assess VAT, at the normal rate in force in each of the years.

III.1.1.7. Legal and Tax Framework of Contracts, as Due, under VAT

After detailed analysis of the conditions of the contracts and the substance/nature of the operations developed by B..., it is concluded that the economic and social function performed by C... departs from that of the lease contract, since it does not fit within the notion of granting temporary enjoyment of space, for consideration, where other elements would be subsidiary. Limiting ourselves to an abstract or purely formal examination is not possible; it was necessary to identify the economic function of the contract, that is, the concrete function which the same is objectively called to perform.

National legislation defines the concept of real property leasing as the contract by which one of the parties undertakes to provide the other the temporary enjoyment of a thing, in this case a real property, for consideration, as provided in article 1022 of the Civil Code, as amended by Law no. 6/2006, of 27 February, which approved the New Urban Rental Regime.

To the concept of real property leasing shall be applicable the provision of paragraph 2 of article 11 of the General Tax Law, which provides that "whenever in tax norms terms specific to other branches of law are used, they must be interpreted in the same sense as they have therein, unless otherwise directly provided by law. That is, since this is a concept imported from another branch of law, in this case Civil Law, and as it is not defined by the VAT Code, it should be interpreted in the same sense attributed to it by the Civil Code.

Also the Court of Justice of the European Communities (CJEC) defines the concept of real property leasing for purposes of VAT exemption as the economic transaction in which the owner of a real property grants to the lessee the right to occupy the real property in exchange for payment of a rent (consideration) for a stipulated period.

The leasing of real property, in the sense of passive placement at the disposal of the lessee, should be the preponderant service provision of the economic transaction, defined for VAT exemption. Now, it shall only be covered by this provision the granting of enjoyment of a "bare walls" real property, it being that this concept is not limited to the fact that the lease is accompanied, or not, by certain property, furnishings or utensils but, rather, relates to the suitability or not of the real property for the exercise of a business activity.

In this way, all situations are to be excluded from the exemption that, despite sharing some of the preponderant elements of lease contracts, are essentially characterized by integrating other service provisions indissociable and connected with the enjoyment of the real property, and that imply an active exploitation of these real properties, beyond the simple grant of temporary enjoyment of the asset - the real property constitutes an incidental but essential condition. The lessee cannot dispense with the associated services since these integrate the "package", the "set", "an indivisible whole" because, if he wished to dispense therewith, these could not be distinguished nor supplied by third parties.

By all elements gathered, we find that we are dealing with a reality equivalent to a business center, and that the contracts concluded between the management entity and the users can be likened to contracts for use of a shop in a shopping center.

Such contracts assume the qualification of atypical and unnamed contracts - taking into account their dynamic, functional and business aspects (as already mentioned).

Specifically regarding the contracts concluded with I... and J..., these assume the qualification of exploitation grant.

For VAT purposes, both cases are subject to identical tax treatment.

Conclusion:

Given all of the foregoing, for purposes of the VAT Code, the activity developed by B... constitutes, in its entirety, a service provision as defined in the residual concept of paragraph 1 of article 4 of CIVA, being as such taxable and not covered by the exemption provided in paragraph 29 of article 9 of CIVA.

Art. article 4, paragraph 1 of CIVA: transactions carried out for valuable consideration that do not constitute transfers, intra-community acquisitions or imports of goods - broad and residual concept

III.1.1.8. Failure to Assess VAT

The monthly billing without tax assessment (the part called Rents), was accounted for/recognized in account 72310001 - Rents.

Since the company submitted its VAT returns with quarterly frequency, the value subject to VAT and the Tax to be assessed is calculated quarterly in the following table, while safeguarding that the annual totals are different from the balances of the accounts mentioned above due to the fact that they are corrected for the effect of the principle of specialization of fiscal years, that is, in each of the fiscal years:

• the profit billed in the prior year was deducted and

• the profit billed in that fiscal year and accounted for in account 282 - Income to be recognized was added.

(...)

In the Tax Inspection Report relating to the second inspection, which forms part of the administrative file, the content of which is hereby incorporated, and contains identical reasoning to that of the Tax Inspection Report relating to the first inspection, the following is stated, among other matters:

"COMMERCIAL SUBLEASE CONTRACT" CLAUSES

Space Lease for Dance Academy and Gym – L..., Lda

• Clause 4a - The subleased premises (C...) are intended exclusively for dance academy and gym...

(...)

• Clauses 3a and 5, point 1 - The agreed monthly rent is €1,818.18..., for the fraction designated Building D11_D13, with 400 m²...

• Clause 6, point 1 - All exterior conservation, maintenance and improvement works are the responsibility of B...;

• Clause 6, points 2 and 3 - All interior conservation, maintenance and improvement works are the responsibility of sublessees and shall become an integral part of the property...; Any works to be carried out by sublessees or installation of equipment (air conditioning, surveillance and fire, etc), or advertising on the facade, must be previously submitted for approval by B..., given in writing... with all necessary elements so that it can pronounce itself, namely projects and descriptive notes...;

• Clause 7, point 1 - Expenses related to installation and consumption of water, electricity, telephone, air conditioning, fuels and fire network as well as common services with a monthly value corresponding to 10% of the rent amount plus VAT at the legal rate in force... are the responsibility of sublessees...;

(...)

• Clause 8a, point 1 - B... shall make available a total of 3 parking spaces in a location to be defined....

These parking spaces are for common use and are made available to B...'s client companies and consequently to the clients of those same companies.

• Clause 8a, point 2 - Sublessees undertake to comply with the Internal Regulations drawn up for the use and enjoyment of the common areas of the business complex, namely with respect to circulation, parking, loading and unloading, entry and exit of vehicles and personnel, so as to achieve a functional, efficient and safe business complex for all users;

(...)

• Clause 8a, point 3 - In the event of non-compliance with any obligation on the part of the lessees, particularly with regard to payments, B... may prevent entry to the business center and the subleased facilities to representatives, workers, or any other persons or entities sent or related indirectly... changing the respective locks and exercising the right of retention with respect to all goods, property and equipment deposited there...

(...)

• Clauses 8a and 11 - The contracts further establish that B... may assign its contractual position; by contrast, clients cannot do so (referred to as intuitus personae).

(...)

• In the decisions on the administrative appeals, the following is stated, among other matters:

(...) "The tax inspection services, after analyzing the conditions of the contracts and the substance/nature of the operations developed by B... SA, concluded that the economic and social function performed by C... departed from the lease contract, since it did not fit within the notion of granting temporary enjoyment of space for consideration, where other elements are subsidiary.

A new classification was effected that excluded the VAT exemption applied by the claimant, on the understanding that although they share certain preponderant elements of lease contracts, the sublease contracts concluded by C... are characterized by integrating other service provisions indissociable and connected with the enjoyment of the real property and that involve active management of these properties that go beyond the simple granting of enjoyment of the asset.

In accordance with paragraph 29 of article 9 of CIVA "the leasing of real property is exempt from tax. This exemption does not cover the leasing of areas for collection or collective parking of vehicles or any other leasing of real property resulting in the onerous transfer of exploitation of a commercial or industrial establishment".

The legislator intended to remove from the scope of the exemption of paragraph 29 of article 9 of CIVA, situations that although sharing some of the preponderant elements of real property leasing, are essentially characterized by integrating service provisions connected to real property enjoyment and that involve active exploitation of real property, beyond simple enjoyment of the asset.

From the jurisprudence of the Court of Justice of the European Communities, it is derived that for purposes of VAT exemption, the concept of real property leasing is characterized as an economic transaction in which the owner of a real property grants to the lessee the right to occupy the real property and to exclude others from it, in exchange for payment of a rent, for a stipulated period.

The leasing of real property in the sense of passive placement of the real property at the disposal. Thus, any provision that goes beyond this scope should not benefit from the exemption of paragraph 29 of article 9 of CIVA.

The tax administration's understanding on this matter is in the direction of distinguishing pure and simple real property leasing situations from other situations in which that lease provides the lessee with a certain added value.

Hence the concept of "bare walls" used by the inspector who prepared the final report, which limits the exemption of real property leasing to situations where the granting of the real property is not accompanied by any property installed on the real property or the provision of furnishings and/or utensils, as well as when it is a leasing of real property that even though not accompanied by any property or furnishings, is intrinsically prepared for the exercise of a business activity.

In the specific case of the leasing of spaces by the claimant, it is verified that although the latter claims that the essence of the contracts it concludes is leasing, in reality it is not the leasing of mere walls, since the spaces are located in a building/organization that makes available to its clients other services, namely energy services, communications, transportation, cleaning of common areas, parking, publicity, among others, without which the spaces would not be suitable for the exercise of their activities.

These spaces, even though not operating under the exact rules of a shopping center, are located in a building/organization such as C..., which makes available the necessary elements (energy services, communications, transportation, cleaning and common areas, parking, publicity among others) so that these spaces, even potentially, have profit capacity and ability to attract clientele, whereby their leasing falls outside the scope of the exemption of paragraph 29 of article 9 of CIVA.

We thus understand that the arguments brought in these proceedings are not likely to alter the understanding contained in the Inspection Report insofar as it is not proven that the claimant concludes with its clients lease contracts susceptible to classification under the VAT exemption provided in paragraph 29 of article 9 of CIVA."

Furthermore, with respect to the binding information provided by the claimant here, it answers an individual and concrete question posed by a specific taxpayer. In the same sense, see the Judgment of the Tax Court South of 22-11-2011, case no. 03013/09, in www.dgsi.pt: "(...) once the information is provided on the taxpayer's situation, the tax services are bound not to proceed otherwise, if the facts identified and provided in the law are verified, except in compliance with a court decision. If the Code does not set any validity period for the information provided, it must be noted that it has, nonetheless, two reference terms. On the one hand, it refers to the facts stated by the taxpayer; on the other, it refers to the legal classification that the services make of them. Thus, the information provided loses any validity if the facts occur in terms different from those presented to the services, particularly if they occur with contours that were concealed from it." We mean by this to say that the Tax Authority, when providing the binding information, did so based on the elements presented by the then applicant to the specific question posed. It does not, therefore, purport to respond generally and abstractly to all similar situations.

Despite safeguarding the concrete and individual nature of the binding information presented, it seems to us that the analysis and conclusion advanced in the Inspection Report regarding the qualification of the aforementioned "atypical" contracts, was consistent with the solution referenced in that information.

Let us see. The binding information presented makes reference to and transcribes certain points of another binding information (L201 2006049), namely point 22, which tells us the following: "(...) the concept of 'bare walls' is not limited to the fact that the lease is accompanied or not by certain property, furnishings or utensils, it is intrinsically related to the productive capacity of the real property, or rather the preparation for the exercise of a business activity." (our emphasis)

Now, with the inspection of the contracts in question carried out, and following what is taught by the rules of Audit, the inspection did nothing more than conduct a sample of these same contracts. And it did so of six contracts representative of approximately 25% of total Rent billing. From the analysis performed, it was possible to conclude that the claimant here presents itself as an "integrated business park since the leasing of space is accompanied by centralized management of the entire business complex, translated into a broad set of services provided to its clients - the spaces are prepared for the exercise of an economic activity, both in static form (installation conditions) and dynamic form (business operation)." (cf. page 30 of Inspection Report). Thus allowing the conclusion that all of the C... space has productive capacity and is prepared for the exercise of a business activity. Furthermore, the claimant provides active management, attracting public, thus giving business expectations to whoever establishes themselves there. For that reason, the understanding that the contracts in question constitute pure leasing cannot prevail.

Given the foregoing, making comparison to the CJEU Judgments cited in the initial pleading, we do not agree with the argument of the claimant here that the Tax Services used a restrictive interpretation for the legal classification of the correction claimed here, since they are distinct situations from the one analyzed here.

Now, given the elements contained in the Inspection Report, the fact that there are service provisions stands out, regarding which, although the legal requirements for said operations to benefit from VAT exemption were not met, the taxpayer did not proceed to assess the VAT owed. In this way, compensatory interest must be deemed owed, because as results from the Inspection Report, the delay in assessment is both objectively and subjectively attributable to the claimant, in accordance with article 35 of the General Tax Law and 96 of CIVA -, there being no grounds to exclude its responsibility for the delay in assessment.

• The C... (C...) comprises approximately 130 spaces for leasing in a gross area of approximately 70,000 m² ready for leasing, the majority of offices, warehouses and with some commercial spaces (testimony of witness M... and Tax Inspection Report);

• The group of companies in which B... is included has operated C... since 2002 - and has maintained, since the beginning, the same type of activity and operation (testimony of witnesses M... and N...);

• Office ... of the VAT Services Directorate, of 13/11/2002, considered that the activity of a shopping center promoter "falls within article 9, paragraph 30, of CIVA (current article 9, paragraph 29, of CIVA) as it is configured as a mere lease, and is thus exempt from VAT regarding its active transactions, without the right to deduction of tax concerning its passive transactions" (article 164 of the arbitration application and document no. 8 attached thereto not contested);

• There was the conviction in the Applicant, arising from contracts with the Tax Authority and tax consultants, that it should declare itself as a taxpayer exempt from VAT, under article 9, paragraph 29, of VAT, regarding the leasing activity, that being the understanding of the Tax Authority at the time the activity began, including as to shopping center spaces (testimony of witness M... and document no. 8 attached to the arbitration application, the content of which is hereby incorporated);

• The Applicant, since the beginning of C...'s operation, has always assessed VAT and presented the respective periodic returns to the Tax and Customs Authority in which it applied tax exemption to the leases it made, without the Authority raising any objection to alleged incorrectness of such conduct, for approximately 10 years (articles 165 and 166 of the arbitration application not contested);

• The Applicant's conduct is not motivated by intent of tax evasion or tax savings and would indeed prefer to be a fully taxable subject and not exempt from VAT - to be able to deduct all VAT on the initial and subsequent works of several million euros, without prejudicing the leasing possibilities since the lessees would be normal VAT taxpayers, who could deduct the VAT they would be subject to (articles 168 and 169 of the arbitration application and testimony of witness N...);

• In decision of 09-10-2012, by the Under-Director General of Taxes, legal substitute of the Director-General, a copy of which is document no. 9 attached to the arbitration application, the content of which is hereby incorporated, issued in binding information that was converted into generic guidance ([1]), the following is stated, among other matters:

"17. In this manner, service provisions related to common areas of a real property, although associated with use of the leased asset, are not an integral part of the leasing transaction.

1. Such understanding is found, in particular, in the Judgment of the Court of Justice of the European Union (CJEU), relating to case C-572/07, of 11 June 2009, which considers, in point 24 that 'since the leasing of apartments and the cleaning of common areas of a real property can (...) be dissociated from one another, the said leasing and said cleaning cannot be considered to constitute a single provision in the sense of the case law of the Court,' whereby 'the leasing of a real property and the service of cleaning common areas of that real property must (...), be considered autonomous transactions, dissociable from one another, with the said service not falling within the scope of that provision' (article 13, B, subparagraph b), of the Sixth Directive, which corresponds to current article 135 of Directive 2006/112/EC).

2. Thus, it is not because accessory service provisions are mentioned in the contract, related to the management and maintenance of common interior and exterior areas of the building, that the transaction is excluded from the exemption provided in paragraph 29 of article 9 of CIVA.

(...)

1. In this manner, despite the leasing of the real property and the service provisions related to the management and maintenance of common areas of the real property constituting autonomous transactions and dissociable from one another, when the lease contract considers these transactions jointly, it may have a different classification based on the form of the consideration provided therein.

Thus, when the consideration provided in the contract comprises:

(i) One component relating to the rent of the real property and another component relating to the complementary service provision to the lease, the amount relating to the leasing of the real property is exempt in accordance with paragraph 29 of article 9 of CIVA and, the amount relating to the service provision is subject to VAT assessment at the rate defined in subparagraph c) of paragraph 1 of article 18 of the said Code.

(ii) A single component, without autonomization and discrimination of values (either of the rent of the real property or of the service provision), the same shall assume the nature of an unnamed contract, and thus, the consideration thereof shall be subject in its entirety to tax assessment at the rate defined in subparagraph c) of paragraph 1 of article 18 of CIVA.".

• Between 2012 and 2015, B... had on average approximately 100 leased spaces per year (testimony of witness M...);

• The building in which C... is located was an old factory, and B... had to carry out major remodeling works, having to decide on the VAT regime in which its activity would be classified (testimony of witness M...);

• The Applicant leased C... to B..., NIPC ... and concluded contracts with various clients called "commercial sublease contracts";

• In these sublease contracts, the Applicant did not assess VAT on rents and did not deduct VAT borne on works performed (testimony of witnesses M... and N...);

• Given the location of C..., far from the city center, it was necessary for it to have establishments capable of meeting the daily needs of workers at companies operating there, hence the existence of space for restaurant, hairdresser, gym and para-pharmacy, intended primarily for workers at C... (testimony of witness M...);

• Two lessees (E... and F...), had in spaces leased for offices small areas of open-to-public space of C... used for show-room (testimony of witnesses M... and N...);

• The vast majority of space rental contracts for offices and warehouses, not open to the public, in which the rent price corresponds to the availability of the leased real property, in bare walls, which the sublessees then adapted, at their own expense, according to their needs (testimony of witness M...);

• Only 4 shops in C... were open to the public – restaurant, hairdresser, gym, para-pharmacy – with the intended audience being workers at C..., although access was possible by other persons, as only parking area access was controlled (testimony of witnesses O... and M...);

• Since the intended audience of public-facing shops are workers at C..., no integration of shops is carried out by the Applicant with the objective of attracting clientele or integrated management of spaces, since the leased offices are not open to the public (testimony of witness O...);

• The sublessees of spaces possess keys or access codes to their respective spaces, being able to make entries and exits at the time they wish and remain there as long as necessary (testimony of witness P...);

• In two of the subleased real properties by the Applicant, two small show-rooms were created by sublessees (testimony of witness M...);

• These show-rooms were accessible to the general public, in addition to workers at C... (testimony of witness Q...);

• C... operated without imposed schedules for sublessees (testimony of witness M...);

• Each subleased unit paid a fixed monthly rent for the availability of the real property, without VAT assessment, as C... considered applicable the exemption provided in paragraph 29 of article 9 of CIVA, and a share in common costs, determined as a percentage of rent, a value on which VAT was charged at normal tax rate, as C... understood these to be service provisions subject to VAT and not exempt (testimony of witnesses M... and Q...);

• These common costs included the values of services the Applicant ensured of cleaning, security and conservation of exterior spaces in common areas (testimony of witnesses M... and Q...);

• The Applicant did not provide sublessees with either transportation, or internet, either fixed or wi-fi, or TV, or water, or electricity, or gas, being those who contracted directly with specialized companies for this purpose (testimony of witness M...);

• In the years 2014 and 2015, no transportation service was ensured by the Applicant nor was it contracted with any of the sublessees (testimony of witness M...);

• None of the Applicant's clients raised any doubts about the qualification of the contracts as subleases (testimony of witness M...);

• In C... there is a space adapted for catering and beverages that from 2008 to 2010 was operated by I..., Lda. and from 2011 onwards by J..., Lda;

• The contract concluded with company I... was called "Business Establishment Exploitation Concession Contract I...", with content partially described in the Tax Inspection Report, which is hereby incorporated;

• From 2011 onwards, the same space intended for catering and beverages came to be used by company J..., based on a contract that was designated "Commercial Sublease Contract", with clauses partially reproduced in the Tax Inspection Report, which is hereby incorporated;

• The Municipal Chamber of ... certified that C... "does not have the characteristics of a large retail surface, thus is not subject to the authorization provided in Dec. Law no. 21/2009", because "the majority of units are intended for service and/or industry use", and "the sum of units intended for commerce is slightly above 5,000 m², a value lower than that defined in subparagraph c) of point 1 of article 2 of Dec. Law no. 21/2009 (8,000 m²), only one unit has a gross construction area greater than 2,000 m² (unit CO - 2,526 m²), however its use is intended for services and industry" (article 121 of the arbitration application, not contested);

• It is established as proven that the contracts expressly transcribed in the Tax Inspection Report have the content reproduced therein;

• On 17-01-2018, the Applicant submitted the application for constitution of arbitral tribunal that gave rise to these proceedings.

2.2. Unproven Facts

It was not proven that the Applicant paid the amounts assessed.

Payment was not alleged, nor is it proven by any document attached to the record.

2.3. Reasoning for Fixing the Facts

The facts were established based on the documents attached to the arbitration application and which form part of the administrative file and the witness evidence referred to in the facts points.

The witnesses appeared to testify with impartiality and with personal knowledge of the facts they reported.

3. Law

3.1 Reasoning for the Assessments Challenged

3.1.1. Reasoning of the Tax Inspection Report

The Applicant A..., SA, was previously designated as B..., SA.

In a tax inspection, the Tax and Customs Authority understood that "B... has as its main activity, effectively, the promotion and development of Management of C..., contracting the leasing of spaces and providing the services necessary to support and manage these spaces and all structures and infrastructure common to C... (C...)".

The following is stated in the Tax Inspection Report:

– "As is evident from analysis of the contracts and billing issued (description of invoices), the taxpayer distinguishes three components in the remuneration earned, with reference to each leasing entity:

1. A part which it called "rent" - without VAT assessment;

2. Another which it called "condominium service", where it included all expenses for enjoyment of common areas and services, as previously detailed - with VAT assessment at normal rate;

3. A third called "Common Service Provision" or "Service Provision A and/or Service Provision E and/or Service Provision G and/or Forklift Service Provision and/or Other Service Provision", which included the value of water, electricity, gas and others, billed individually to each client - with VAT assessment at normal rate, and still other service provisions of reduced value".

– "the company considered the part which it calls "rents" as constituting operations subject but exempt from VAT in accordance with paragraph 29 of article 9 of CIVA, and the remaining values as being subject to tax and not exempt therefrom, and proceeded to assess VAT, at the normal rate in force in each of the years".

The Tax and Customs Authority understood that

– For the qualification of contracts concluded between the manager of C... and its clients, the following elements are highlighted:

B...'s Clients undertake to:

1. Pay a monthly remuneration, constituted by the sum of two components:

• One fixed;

• Another percentage intended to share in expenses and charges with the functioning and use of the business center;

1. Respect, in the facilities, the finishes and decoration of spaces, the quality standards of materials and aesthetics adopted for the center and to submit to the manager's approval, works to be performed;

2. Respect the Internal Regulations and consequently the normal functioning of the business complex - private areas and common areas.

The Manager undertakes to:

1. Provide the right to use spaces as defined in the contract, namely access to common use areas;

2. Undertake to provide services of common interest to the Business Center - security, publicity, cleaning services, park access, operating conditions, and guarantee access and proper functioning of common use areas;

3. The manager is also responsible for monitoring the operation of spaces (observance of operating hours, line of business exercised, compliance with Internal Regulations and other contract clauses);

In contracts that do not stipulate all these characteristics/conditions, new elements are evident that characterize the business as a grant to exploitation. Example: the contract with company J....

– all these characteristics qualify the Business Center as an integrated business park since the lease of space