Process: 221/2015-T

Date: June 26, 2017

Tax Type: IVA

Source: Original CAAD Decision

Summary

Process 221/2015-T addresses a critical VAT exemption dispute concerning intra-community transfers of new vehicles. The case centers on whether Portuguese law (RITI articles 1(e) and 14(b)) can lawfully require purchasers to be established or domiciled in the destination Member State to qualify for VAT exemption under Article 138(2)(a) of EU Directive 2006/112/EC. The claimant argues that Portuguese requirements violate EU law principles by imposing conditions beyond those established in the VAT Directive, and that any fraud by the purchaser through temporary vehicle registration in Spain cannot be opposed against the supplier who acted in good faith. The Tax Authority contends that Member States retain authority under Article 131 to establish conditions preventing fraud and abuse. Citing CJEU jurisprudence (C-285/09), the tribunal acknowledges that while suppliers must prove dispatch to another Member State, national conditions must respect proportionality and legal certainty principles. However, finding no direct CJEU precedent on the specific questions raised, and noting that arbitral decisions are not subject to appeal under Portuguese law, the tribunal concluded that a preliminary ruling reference to the CJEU is mandatory under Article 267 TFEU. Two questions were formulated: whether Article 138 prohibits requiring buyer establishment in the destination state, and whether exemption can be denied when temporary registration occurred in the destination country. This case exemplifies CAAD's role in ensuring EU law compliance in Portuguese tax arbitration.

Full Decision

. 2, of the VAT Directive;

– direct effect of this VAT Directive in the case sub judice;

– error in the application of law resulting from the non-opposability to the Claimant of any possible fraud of the VAT system carried out by the buyer through temporary registration of the vehicle.

Articles 131 and 138, no. 2, letter a), of Directive no. 2006/112/CE of the Council, of 28-11-2006, establish the following:

Article 131

The exemptions provided for in Chapters 2 to 9 apply without prejudice to other Community provisions and under the conditions fixed by the Member States in order to ensure the correct and simple application of the said exemptions and to avoid any possible fraud, evasion or abuse.

Article 138

(...)

  1. In addition to the supplies referred to in no. 1, Member States shall exempt the following operations:

a) Supplies of new means of transport dispatched or transported outside its territory, but within the Community, with destination to the purchaser, by the seller, the purchaser or on account of these, carried out to taxable persons or to natural or legal entities which are not taxable persons, whose intra-community acquisitions are not subject to VAT by force of the provisions of no. 1 of article 3, or to any other person who is not a taxable person;

Articles 1, letter e), and 14 of the Intra-Community VAT Transactions Regime (RITI) establish the following, insofar as relevant here:

Article 1 - Objective Scope

Subject to value added tax (VAT) are:

(...)

e) Transfers of new means of transport carried out for valuable consideration, by any person, dispatched or transported by the seller, the purchaser or on account of these, from national territory, with destination to a purchaser established or domiciled in another Member State.

Article 14 - Exemptions in Transfers

Are exempt from tax:

(...)

b) Transfers of new means of transport provided for in letter e) of article 1;

The Tax and Customs Authority requested a preliminary ruling to the CJEU, which has been peacefully admitted by the CJEU in tax arbitral proceedings (as is seen from the judgment of 11-06-2015, given in case no. C-256/14).

The Parties cite the judgment of the CJEU of 07-12-2010, given in case no. C-285/09, in which it was held that:

40 With regard, in particular, to intra-community supplies, it follows from article 28° C, A, letter a), first paragraph, of the Sixth Directive that are covered by this concept and are exempt, under the conditions which the Member States set to ensure correct and simple application of exemptions and to avoid possible frauds, evasions and abuses, supplies of goods dispatched or transported, by the seller or purchaser or on account of these, outside the territory of one Member State, but within the Community, carried out to another taxable person or to a natural or legal entity which is not a taxable person, acting as such in a Member State different from the State of origin of the dispatch or transport of the goods.

41 The Court of Justice interpreted this provision to the effect that the exemption of intra-community supply is only applicable when the right to dispose of the goods as proprietor has been transferred to the purchaser and the supplier proves that such goods were dispatched or transported to another Member State and that, as a consequence of such dispatch or transport, the same physically left the territory of the Member State of supply (see judgments, already cited, Teleos and Others, n° 42, and Twoh International, n° 23).

42 The Court of Justice also found that, since the abolition of controls at the borders between Member States, it is difficult for the Tax Administration to verify whether goods have or have not physically left the territory of said Member State. For this reason, it is mainly on the basis of proofs supplied by taxable persons and their statements that the national tax authorities proceed with such verification (judgments, already cited, Teleos and Others, n° 44, and Twoh International, n° 24).

43 However, since no provision of the Sixth Directive specifically provides which proofs taxable persons are required to produce to benefit from the VAT exemption, this question, as results from the first period of article 28° C, A, of the Sixth Directive, is within the competence of the Member States (see judgment Collée, already cited, n° 24).

44 Accordingly, according to the said provision, on the one hand, it is incumbent upon the Member States to set the conditions under which they exempt intra-community supplies to ensure correct and simple application of said exemptions and prevent possible frauds, evasions and abuses.

45 However, in the exercise of their powers, the Member States must respect the general principles of law which are part of the legal order of the Union, in particular the principles of legal certainty and proportionality, as well as the protection of legitimate expectation (see, in this sense, judgments of 18 December 1997, Molenheide and Others, C 286/94, C 340/95, C 401/95 and C 47/96, Reports, p. I 7281, n° 48; of 11 May 2006, Federation of Technological Industries and Others, C 384/04, Reports, p. I 4191, nos. 29 and 30; and of 21 February 2008, Netto Supermarkt, C 271/06, Reports, p. I 771, n° 18). In particular, with regard to the principle of proportionality, the Court of Justice has already decided that, in accordance with this principle, the measures which the Member States are entitled to adopt must not go beyond what is necessary to achieve the objectives intended to ensure the correct collection of the tax and prevent fraud (see, in particular, judgment of 29 July 2010, Profaktor Kulesza, Frankowski, Jóźwiak, Orłowski, C 188/09, not yet published in the Reports, n° 26).

46 On the other hand, it results from the case-law of the Court of Justice that, to benefit from the exemption under article 28° C, A, letter a), first paragraph, of the Sixth Directive, it is incumbent upon the supplier of goods to prove that the conditions laid down for the application of this provision, including those imposed by the Member States to ensure correct and simple application of the exemptions and to prevent possible frauds, evasions and abuses, are fulfilled (see, in this sense, judgment Twoh International, already cited, n° 26).

This judgment does not clearly answer the questions which are raised in the present proceedings, and there is no known case-law of the CJEU on them.

Thus, there being no possibility of recourse regarding the questions raised, it is to be understood that a preliminary ruling is mandatory, in light of the provisions of article 267 of the Treaty on the Functioning of the European Union, which establishes that "whenever a question of this kind is raised in proceedings pending before a national court or tribunal whose decisions are not subject to a remedy of appeal provided by internal law, that court or tribunal shall refer the matter to the Court."

In these terms, the following questions are formulated in

Preliminary Ruling Referral

  1. Does letter b) of article 138 of Directive no. 2006/112/CE, of the Council, of 28-11-2006, prohibit national law norms [articles 1, letter e) and 14, letter b), of the Intra-Community VAT Transactions Regime] from requiring, for the recognition of the VAT exemption relating to the transfer of new means of transport carried out for valuable consideration and transported by the purchaser from national territory to another Member State, that the purchaser be established or domiciled in that Member State?

  2. Does letter b) of article 138 of Directive no. 2006/112/CE, of the Council, prohibit the denial of exemption in the Member State of origin of the transport in a situation in which the means of transport acquired was transported to Spain where it was subject to temporary registration, of a provisional nature and with the fiscal regime provided for in articles 8 to 11, 13 and 15 of Spanish Royal Decree no. 1571/1993, of 10 September?

  3. Does Article 138, no. 2, letter b) of Directive no. 2006/112/CE prohibit the requirement of payment of VAT to the supplier of the new means of transport in a situation in which it has not been determined whether the temporary registration regime ceased or not in any of the forms provided for in articles 11 and 15 of Spanish Royal Decree no. 1571/1993, of 10 September, nor whether VAT was or will be paid as a consequence of the cessation of that regime?

  4. Do letter b) of article 138 of Directive no. 2006/112/CE of the Council and the principles of legal certainty, proportionality and protection of legitimate expectation prohibit the requirement of payment of VAT to the supplier of the new means of transport dispatched to another Member State in a situation in which:

– the purchaser, before the dispatch, told the supplier that he resided in the Member State of destination and exhibited to him a document proving that he had been assigned in that Member State a foreign identification number, in which a residence was indicated in this latter Member State different from the one he stated;

– the purchaser subsequently presented to the supplier documents proving that the means of transport acquired had been submitted to technical inspection in the Member State of destination and had been assigned temporary registration there;

– it was not proven that the supplier collaborated with the purchaser to avoid payment of VAT;

– the customs services raised no obstacles to the annulment of the Vehicle Customs Declaration on the basis of the documents which the supplier had at its disposal?

We therefore agree to suspend the proceedings pending the ruling of the Court of Justice of the European Union on the referred questions, ordering the transmission of a letter, to be sent by the secretariat of the CAAD to that of the Court, with a request for a preliminary ruling, accompanied by a transfer of the proceedings, including copies of this judgment, the request for arbitral decision, the response of the Tax and Customs Authority and the submissions of the Parties, as well as a copy of the administrative file and of the documents attached to the procedural pleadings.

Lisbon, 30-11-2015

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(Conceição Gamito)

(Emanuel Vidal Lima)

SECOND DECISION

The Arbitrators Counsellor Jorge Lopes de Sousa (designated by the other Arbitrators), Dr. Conceição Gamito and Dr. Emanuel Augusto Vidal Lima, designated, respectively, by the Claimant and the Respondent, to form the Arbitral Tribunal, constituted on 15-06-2015, agree as follows:

1. Report

A…, LDA., a limited partnership company with registered office at Rua de … … and …, …-… Lisbon, with the unique registration number, legal entity identification number and tax identification number … (hereinafter abbreviated as "Claimant"), filed a request, pursuant to article 2, no. 1, of Decree-Law no. 10/2011, of 20 January (Legal Framework of Arbitration in Tax Matters, hereinafter "RJAT") and article 102 of the Tax and Administrative Procedure Code (CPPT), for the constitution of a Collective Arbitral Tribunal with a view to the annulment of VAT assessment no. …, dated 14-10-2014 and the assessment of compensatory interest no. …, of the same date.

The Claimant further requests that the Tax and Customs Authority be condemned to pay it indemnification interest.

The Respondent is the TAX AND CUSTOMS AUTHORITY (AT).

The Claimant designated as Arbitrator Dr. Conceição Gamito, pursuant to article 6, no. 2, letter b) of the RJAT.

The request for constitution of the arbitral tribunal was accepted by the President of the CAAD and automatically notified to the Tax and Customs Authority on 31-03-2015.

Pursuant to article 6, no. 2, letter b) and no. 3 of the RJAT, and within the period provided for in article 13, no. 1 of the RJAT, the highest official of the Tax Administration service designated as Arbitrator Dr. Emanuel Augusto Vidal Lima.

The Arbitrators designated by the Parties agreed to designate Cons. Jorge Lopes de Sousa as presiding arbitrator, who accepted the designation.

Pursuant to and for the purposes of article 11, no. 7 of the RJAT, the President of the CAAD informed the Parties of this designation on 28-05-2015.

Thus, in accordance with the provisions of article 11, no. 7 of the RJAT, with the period provided for in article 13, no. 1 of the RJAT having elapsed without the Parties having anything to say, the Collective Arbitral Tribunal was constituted on 15-06-2015.

The Tax and Customs Authority submitted a Response, in which it requests a preliminary ruling on the question "of the conformity of the AT's understanding as to the failure to verify the conditions for exemption, in light of no. 2, letter a) of article 138 of Directive 2006/112/CE of the Council, of 28 November 2006" (article 124 of the Response) and defends the inadmissibility of the claims.

On 05-10-2015, the meeting provided for in article 18 of the RJAT took place in which witness evidence was produced and it was decided that the proceedings would continue with successive written submissions.

The Parties submitted submissions.

The arbitral tribunal was properly constituted and is competent and no obstacles were raised to the consideration of the merits of the case.

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

The proceedings do not suffer from any defects.

By judgment of 30-11-2015, it was decided to proceed with a preliminary ruling to the CJEU, which ruled in the judgment of 14-06-2017, delivered in case no. C-26/16.

[Remaining factual sections repeat the same proven and unproven facts as in the first decision, with references to the same documents and evidence]

Frequently Asked Questions

Automatically Created

What is a preliminary ruling reference (reenvio prejudicial) in Portuguese tax arbitration?
A preliminary ruling reference (reenvio prejudicial) in Portuguese tax arbitration is a mandatory procedure under Article 267 TFEU whereby the Centro de Arbitragem Administrativa (CAAD) refers questions of EU law interpretation to the Court of Justice of the European Union (CJEU) when no higher court can review the arbitral decision. As established in Process 221/2015-T, when arbitral tribunals face novel EU law questions without clear CJEU precedent and their decisions are final, they must request preliminary rulings to ensure uniform interpretation of EU directives across Member States.
How does VAT exemption apply to intra-community transactions under EU Directive 2006/112/EC?
Under Article 138(2)(a) of EU Directive 2006/112/EC, intra-community supplies of new means of transport are exempt from VAT when dispatched or transported from one Member State to another. The exemption applies when: (1) the right to dispose of goods as owner transfers to the purchaser; (2) the supplier proves physical dispatch to another Member State; and (3) conditions set by Member States under Article 131 to prevent fraud are met. However, these national conditions must respect EU principles of proportionality, legal certainty, and legitimate expectations, and cannot exceed what is necessary to ensure correct tax collection.
Can the Portuguese Tax Authority (AT) deny VAT exemption on intra-community supplies?
The Portuguese Tax Authority can deny VAT exemption on intra-community supplies only within limits established by EU law. While Article 131 of the VAT Directive allows Member States to set conditions preventing fraud, evasion, and abuse, these conditions must be proportionate and cannot contradict the Directive's provisions. Process 221/2015-T questions whether Portuguese RITI requirements—specifically that purchasers be established or domiciled in the destination Member State—lawfully implement Article 138 or improperly restrict exemptions. The supplier's good faith compliance and proof of cross-border transport are critical factors; fraud by purchasers may not automatically disqualify suppliers who meet their documentary obligations.
What is the role of CAAD arbitral tribunals in resolving VAT disputes in Portugal?
CAAD (Centro de Arbitragem Administrativa) arbitral tribunals serve as specialized alternative dispute resolution bodies for Portuguese tax conflicts, offering binding decisions without possibility of judicial appeal on merits. In Process 221/2015-T, CAAD demonstrates its role in: (1) interpreting complex EU VAT law alongside domestic provisions; (2) ensuring EU law direct effect and supremacy; (3) protecting taxpayer rights against potentially incompatible national legislation; and (4) requesting preliminary rulings when acting as courts of last instance under Article 267 TFEU, thereby contributing to uniform EU law application across Member States.
How are compensatory interest claims handled in Portuguese tax arbitration proceedings?
Compensatory interest claims in Portuguese tax arbitration proceedings are ancillary to principal claims for tax refunds or annulment of tax assessments. While the text excerpt does not detail the specific compensatory interest analysis in Process 221/2015-T, Portuguese law generally entitles taxpayers to compensatory interest (juros indemnizatórios) when tax authorities illegally collect or retain taxes. The amount and period depend on the outcome of the principal claim. In cases involving preliminary rulings, interest calculation typically suspends pending CJEU response, then resumes from the date of illegal tax collection if the taxpayer prevails.