CAAD Case 235/2016-T: ISP Tax on Electricity Self-Producers

Process: 235/2016-T

Date: November 8, 2018

Tax Type: ISP

Summary

CAAD Case 235/2016-T addressed whether a Portuguese electricity producer consuming part of its own production qualifies as a 'self-producer' under ISP (Tax on Petroleum and Energy Products) legislation. The company A..., SA challenged Assessment Act imposing €76,185.49 in ISP tax on self-consumed electricity during 2012-2013. The core dispute centered on interpreting Article 4(1)(b) of the Portuguese ISP Code (CIEC) in light of Article 21(5) of EU Directive 2003/96/CE, which establishes conditions for energy tax exemptions for self-producers. The taxpayer held exemptions for natural gas used in electricity production and cogeneration but lacked authorization for self-consumed electricity, hadn't registered as an Electricity Sector Operator, and didn't measure self-consumed quantities with meters. The Portuguese tax authorities determined ISP was due on unmeasured self-consumed electricity. Given the complexity of harmonizing Portuguese law with EU directives regarding self-producer definitions, the Arbitral Tribunal made a preliminary reference to the Court of Justice of the European Union (CJEU) in 2017, suspending proceedings. The CJEU issued its judgment on June 27, 2018 (Case C-90/17), clarifying the interpretation of self-producer status for energy tax purposes. This landmark case demonstrates the interaction between Portuguese tax arbitration, EU energy taxation directives, and the preliminary ruling mechanism, establishing important precedent for electricity producers regarding ISP obligations on self-consumed energy and the scope of exemptions available under both Portuguese and European law.

Full Decision

ARBITRATION AWARD

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Paulo Lourenço and Sofia Cardoso, appointed by the Ethics Council of the Centre for Administrative Arbitration to form an Arbitral Tribunal, hereby agree:

I – REPORT

On 20 April 2016, A..., SA., holder of a collective entity card and tax identification number n.°..., with registered office at ..., ...-... ..., ..., filed a request for constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law n.º 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by Article 228 of Law n.º 66-B/2012, of 31 December (hereinafter, abbreviated as LFTM), seeking a declaration of illegality of the Assessment Act n.º..., of 04-08-2014, in the total amount of € 76,185.49, comprised of € 71,197.17 relating to Tax on Petroleum and Energy Products, € 4,986.52 relating to compensatory interest and € 1.80 relating to the assessment form, and of the dismissal of the Administrative Review submitted against the aforementioned assessment.

To substantiate its request, the Claimant alleges, in summary, that it cannot be qualified as a self-producer of electrical energy for purposes of article 4(1)(b) of the TCPEP, taking into account the provisions of the third paragraph of Article 21(5) of Directive 2003/96/CE.

On 21-04-2016, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.

The Claimant failed to appoint an arbitrator, wherefore, pursuant to Article 6(2)(a) and Article 11(1)(a) of the LFTM, the President of the Ethics Council of CAAD appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of the mandate within the applicable deadline.

On 14-06-2016, the parties were notified of these appointments and did not manifest any intention to challenge any of them.

In accordance with the provisions of Article 11(1)(c) of the LFTM, the Collective Arbitral Tribunal was constituted on 01-07-2016.

On 19-09-2016, the Respondent, duly notified for that purpose, submitted its reply defending itself solely through challenge.

Taking into account the principles of procedural economy and prohibition of useless acts, the holding of the meeting referred to in Article 18 of the LFTM was waived, as was the submission of arguments by the parties.

A period of 30 days was set for the issuance of a decision, following the submission of arguments by the Tax Authority, which period was extended twice by 30 days.

On 12-01-2017, an arbitral award was issued determining a preliminary reference to the CJEU, as well as suspension of the proceedings.

On 03-07-2018, the Judgment of the CJEU of 27-06-2018, issued in Case C-90/17, concerning the preliminary reference determined in these proceedings, was received in the case file.

The parties were given the opportunity to exercise their right to be heard with respect to the content of the said judgment, which the Claimant did.

The period referred to in Article 21(1) of the LFTM was extended.

The Arbitral Tribunal is materially competent and is regularly constituted, pursuant to Articles 2(1)(a), 5 and 6(1) of the LFTM.

The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to Articles 4 and 10 of the LFTM and Article 1 of Ordinance n.º 112-A/2011, of 22 March.

The proceedings are not affected by any nullity.

Therefore, there is no obstacle to the examination of the merits of the case.

Having considered all of the foregoing, the Tribunal hereby issues the following decision:

II. DECISION

A. FINDINGS OF FACT

A.1. Facts Found to be Proven

A Supervisory Action (ANF n.º .../2014) was initiated by Customs B... against the company A..., SA, NIPC ... .

The procedure covered, in its scope, the period between 01/01/2012 and 31/12/2013.

The claimant carries on the activity of electricity production of thermal origin (CAE 035112), and was the holder, on the date of the period covered by the ANF:

of an exemption authorization for the use of natural gas in electricity production or electricity and heat production (cogeneration), under Article 89(1)(d) of the TCPEP (Exemption Authorization n.º 2013/...- administrative procedure n.º COG .../2013 – exemption code 1P05 – allocation to electricity production, for the combined cycle plant ..., ...–PT...MJ);
of an exemption authorization for the use of natural gas as industrial fuel in installations subject to PNALE or an ARCE (Article 89(1)(f) of the TCPEP): Exemption Authorization n.º 2011/...- administrative procedure n.º .../CELE – exemption code 1P14 – industrial fuels – CELE and ARCE, for the combined cycle plant ..., ...–PT...MJ;

The Claimant, on the same date, was not the holder of any exemption authorization for electricity consumed in its installations, under Article 89 of the TCPEP, was not registered as an Electricity Sector Operator (OSE), nor was it the holder of exempt recipient status for electricity use.

The Claimant consumed part of the electricity produced by it, electricity for which no meters were installed for its measurement/quantification, nor any supporting documents, since there was no transaction.

The information provided by the company regarding self-consumed quantities was cross-referenced with information requested from the General Directorate of Energy and Geology.

The quantities of self-consumed electricity were determined in the ANF, for 2012 and 2013, for which no declaration of introduction into consumption had been submitted, under Article 10 of the TCPEP.

It was determined in the ANF that a debt of Tax on Petroleum and Energy Products (TPEP) existed in the amount of € 71,197.17, plus compensatory interest in favor of the State in the amount of € 4,986.52.

The now Claimant exercised the right of prior hearing.

A Final Report of the ANF was prepared on 21/07/2014, which analyzed the prior hearing submitted, maintaining the conclusions already contained in the draft conclusions, of which the Claimant was duly notified.

The said Final Report contains, among other things, the following:

"5. A... does not have, but meets the conditions to have an exemption of type 1P18 – ELECTRICITY – CELE and ARCE, which would allow it to use electricity with exemption in its installations that are subject to PNALE/ARCE. This authorization would allow the use with exemption from TPEP of all electricity consumed in A...'s installations, both the electricity used for electricity production or for maintaining the capacity to produce electricity, as well as the electricity used in the administrative part or in installations related to social activities (regardless of origin, produced by the company itself or imported);

The company is not registered as an Electricity Sector Operator (OSE), nor is it the holder of exempt recipient status for electricity use. A... consumes a small part of the electricity it produces (self-consumption). To proceed with the introduction into consumption of electricity produced and consumed in the company itself, A... will necessarily have to register as an Electricity Sector Operator, pursuant to Article 96-A(1) and (2) of the TCPEP."

It also appears in the same Report:

"It is important to note that A... has electricity production as its activity and that electricity production benefits from TPEP exemption with respect to electricity used to produce electricity or to maintain the capacity to produce electricity, under Article 89(2)(a) of the TCPEP. Furthermore, since A... is covered by the CELE/ARCE regime, it meets the conditions to benefit from the TPEP exemption provided for in Article 89(2)(e) of the same article of the TCPEP, an exemption that is more comprehensive than the aforementioned one, since it grants TPEP exemption not only to electricity consumed for electricity production and maintaining the capacity to produce electricity, but to all electricity consumed in A...'s installations, whether in the productive, administrative or social part.

But there remains a problem, neither of the two exemptions mentioned is granted automatically, they depend on prior recognition by the competent customs authority, under Article 89(7) of the TCPEP. This is to say that, although A... meets the requirements for the benefit of TPEP exemption with respect to all electricity consumed in its installations (whether imported or self-produced), a small step is missing, which involves A... requesting from Customs B... the benefit of the exemption.

Following what has been explained above, we can say that if A... were already the holder of exempt recipient status for electricity, it would not have to bear the TPEP with respect to self-consumed electricity, and the REN supplier could have proceeded with the introduction into consumption of electricity supplied to A... without collection of TPEP, relying on the invocation of the exemption granted to this company.

With respect to self-consumed electricity, that is, electricity produced and consumed in A..., it will always have to be introduced into consumption by the company itself, for which purpose it must establish itself as an electricity sector operator, under Article 96-A of the TCPEP. As long as A... does not have exempt recipient status it will have to pay the TPEP corresponding to the introduction into consumption of electricity. After obtaining exempt recipient status, it will continue to submit the respective Declarations of Introduction into Consumption with respect to self-consumed electricity, but with TPEP exemption, as no TPEP payment is due."

The assessment of the tax found to be owed was carried out by Customs B... (assessment registration 2014/..., of 01/08/2014), and the now Claimant was notified for payment, by office letter n.º..., of 05/08/2014.

An administrative review was submitted against the assessment act, which was processed by the Tax Authority's Department of Services for Special Consumption Taxes and Vehicle Tax (DSIECIV), under process number .../2015, and was dismissed by Dispatch of 07/01/2016 from the Director of that Department of Services (issued in the exercise of delegated authority).

The Claimant paid the assessed amount on 14-08-2014.

The Claimant operates, and operated during the period covered by the ANF, the Combined Cycle Plant at ... ("Plant"), a thermoelectric plant, located in ..., with a capacity of 990 MW.

A... is, and was during the period covered by the ANF, a combined cycle plant with an installed capacity of 990 MW, consisting of three generation units of 330 MW each, each composed of a gas turbine and a steam turbine in series, producing approximately 9% of national energy.

The Plant produces, and produced during the period covered by the ANF, electricity using natural gas, and electricity is also used in its internal operation.

The Plant is, and was during the period covered by the ANF, also prepared to use diesel oil when such becomes necessary.

The process of electricity production requires, and required during the period covered by the ANF, energy (natural gas or diesel oil and electricity) together with other elements such as water and secondary raw materials, such as oils and chemical reagents.

In the internal operation of the Plant, a small part of the electricity produced by the installation is, and was during the period covered by the ANF, consumed.

These electricity consumption occurrences occur, and occurred during the period covered by the ANF, due to the industrial design and configuration of the Plant.

In this sense, there are, and were during the period covered by the ANF, consumption of a small part of the electricity produced by A...

Such consumption is, and was during the period covered by the ANF, carried out and inherent to the electricity production process.

A... operates, and operated during the period covered by the ANF, the Plant under a Power Purchase Agreement ("PPA") - energy purchase agreement ("CAE"), which was concluded under Decree-Law n.º 183/95, of 27 July.

Under this agreement, A... sells, and sold during the period covered by the ANF, the energy produced in the Plant to REN.

Within the national electricity system, it is, and was during the period covered by the ANF, qualified as a Producer.

Within the electricity production sector, A... is, and was during the period covered by the ANF, classified in the legal regime of electricity production in ordinary regime.

A.2. Facts Found Not to be Proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Reasoning for Facts Found to be Proven and Not Proven

With regard to findings of fact, the Tribunal is not required to pronounce on everything alleged by the parties; rather, it has the duty to select the facts that matter for the decision and distinguish proven from unproven matters (see Article 123(2) of the CPTPT and Article 607(3) of the CPC, applicable pursuant to Article 29(1)(a) and (e) of the LFTM).

In this way, the facts relevant to the judgment of the case are selected and delineated based on their legal relevance, which is established in light of the various plausible solutions to the question(s) of law (see former Article 511(1) of the CPC, corresponding to current Article 596, applicable pursuant to Article 29(1)(e) of the LFTM).

Thus, taking into account the positions taken by the parties, in light of Article 110(7) of the CPTPT, the documentary evidence and the administrative file attached to the record, the facts listed above were found to be proven and material to the decision.

B. MATTERS OF LAW

The sole and fundamental question that this arbitral tribunal must decide in these tax arbitration proceedings is whether the Claimant is or is not qualifying as a self-producer, for purposes of Article 4(1)(b) of the TCPEP and, as such, a passive subject of the assessed tax on consumption.

The said Article 4, in item (b) of its paragraph 1, provides that:

"The passive subjects of special consumption taxes are: (...) b) in the case of supply of electricity to the final consumer, the suppliers as defined in specific legislation, suppliers for electric mobility, producers who sell electricity directly to final consumers, self-producers and consumers who purchase electricity through transactions in organized markets;".

With relevance to the assessment of the question to be resolved, the following provisions of the TCPEP also provide:

Article 7:

"1 – The taxable event of the tax is the production or importation in the national territory of the products referred to in Article 5, as well as their entry into that territory when coming from another Member State.

2 – By way of derogation from the foregoing, the taxable event of the tax is the moment of supply to the final consumer of electricity and natural gas by suppliers as defined in specific legislation.";

Article 9:

"1 – For purposes of this Code, introduction into consumption of products subject to tax is considered to be: (...) g) the supply of electricity to the final consumer, self-consumption and the acquisition of electricity by final consumers in organized markets;";

Article 88:

"1 – The following are subject to tax on petroleum and energy products: (...) d) electricity covered by NC code 2716.

6 – The following are not subject to tax: petroleum and energy products consumed in the installations of an establishment producing such products, except those used for purposes unrelated to that production."

Article 89:

"1 – The following are exempt from tax: petroleum and energy products that, demonstrably: (...) d) are used in the production of electricity, electricity and heat (cogeneration), or city gas, by entities that conduct such activities as their main activity, with regard to products classified under NC codes 2701, 2702 and 2704, NC codes 2710 19 61 to 2710 19 69, NC code 2711 (...)

2 – Exempt from tax is the electricity that, demonstrably, is:

a) Used to produce electricity, and to maintain the capacity to produce electricity;";

Article 96-A:

"1 – Electricity suppliers registered and licensed in accordance with applicable legislation, who supply to the final consumer, including suppliers of electricity for electric mobility, must register with the competent customs authority, for purposes of compliance with the tax obligations provided for in this Code. (...)

3 – The quantities of electricity to be declared for introduction into consumption are the quantities invoiced to end consumer customers."

In assessing the question at issue, the following provisions of Council Directive 2003/96/CE, of 27 October 2003, which restructured the EU framework for taxation of energy products and electricity, must also be taken into account:

Article 14:

"1. In addition to the general provisions laid down in Directive 92/12/EEC relating to tax-exempt uses of taxable products, and without prejudice to other Community provisions, the Member States shall exempt the following products under conditions which they fix with a view to ensuring correct and straightforward application of such exemptions and to prevent fraud, tax evasion or abusive practices:

Energy products and electricity used to produce electricity and electricity used to maintain the capacity to produce electricity. However, on grounds of environmental policy, the Member States may subject these products to tax without having to observe the minimum rates of taxation laid down in this Directive. In that case, the taxation of these products shall not be taken into account for the purposes of observing the minimum rate of taxation applicable to electricity as laid down in Article 10;";

Article 21:

"1. In addition to the general provisions which determine the taxable event and the provisions relating to payment laid down in Directive 92/12/EEC, the taxation that applies to energy products shall also become due where one of the taxable events referred to in Article 2(3) of this Directive occurs.(...)

The consumption of energy products in the installations of an establishment that produces energy products shall not be considered a taxable event if it concerns energy products produced in the installations of the establishment. Member States may also consider as not being a taxable event the consumption of electricity and other energy products not produced in the installations of that establishment, as well as the consumption of energy products and electricity in the installations of an establishment producing fuels intended to be used in the production of electricity. If it is for purposes unrelated to the production of energy products and in particular for the traction of vehicles, the consumption shall be considered a taxable event. (...)
For the purposes of Articles 5 and 6 of Directive 92/12/EEC, electricity and natural gas shall be subject to taxation, which shall be due at the moment of supply by the distributor or reseller. Where the delivery for consumption takes place in a Member State where the distributor or reseller is not established, the tax of the Member State of delivery shall be due by an undertaking which must be registered in the Member State of delivery. The collection and recovery of the tax shall always be carried out in accordance with the rules laid down by each Member State.(...)

An entity that produces electricity for own consumption is considered to be a distributor. By way of derogation from the provisions of Article 14(1)(a), Member States may exempt these small producers of electricity, provided that they tax the energy products used for the production of that electricity."

Essentially, and from a literal perspective, the necessary starting point of statutory interpretation, the Claimant argues that the reference to "self-producer" contained in Article 4(1)(b) of the TCPEP should be read in accordance with the terms defined in Decree-Law n.º 20/81, of 28 January, which considers as such the "owner, natural or legal person, of installations that accessorily produce electrical energy", whereas the Respondent argues that, given the absence of a specific definition in the TCPEP and tax legislation in general, a common sense meaning should be used for this term, considering as a self-producer anyone who produces, wholly or partially, for his own use.

While it is true that the text of the law yields no argument in either direction, the basis for the interpretation to be made of the provision in question must be sought within the legal system, with a view to ensuring, insofar as possible, coherence of meaning.

In this perspective, it becomes essential to establish the meaning of the provision in the third paragraph of Article 21(5) of Directive 2003/96/CE.

In this context, it is necessary to determine whether, in light of that text, and particularly given the content of the second part of that paragraph, only small producers of electricity should be considered as distributors, as an "entity that produces electricity for own consumption", for purposes of the first part of that same paragraph and Article 1 of the same article.

The doubt arises because the Portuguese text of the Directive, in the second part of the paragraph in question, uses the demonstrative pronoun "these" before the expression "small producers", suggesting, as the Claimant argues in the proceedings, that the first part of that paragraph is restricted to "small producers" that produce electricity for own consumption.

Given that the Directive's wording in Spanish is analogous to the Portuguese, but the English, French, Italian and German versions do not contain any expression analogous to the aforementioned demonstrative pronoun used in the Portuguese and Spanish versions, the question arises whether it was indeed the intention of the Community legislator, in the third paragraph of Article 21(5) of the Directive in question, to restrict the qualification of "distributor", for purposes of the first paragraph of that number, to "small producers" that produce electricity for own consumption, or whether, rather, that qualification as "distributor" encompasses all entities that produce electricity for own consumption, regardless of their size, as electricity producers.

By the foregoing, a preliminary reference was determined to the CJEU, and the following questions were formulated:

Pursuant to the third paragraph of Article 21(5) of Directive 2003/96/CE, should entities that produce electricity for own consumption, in order to be considered a distributor and subject to tax under the first paragraph of Article 21(5) of the Directive, be small producers, leaving other entities (those that are not small producers) that produce electricity for own consumption excluded from that distributor status, or should all entities that produce electricity for own consumption (regardless of their size and whether they do so as a main or ancillary economic activity) that are not exempt as small producers under the second part of the third paragraph of said Article 21(5) of the Directive be considered distributors and subject to tax under the first paragraph of the same Article 21(5) of the Directive?;

In concrete terms, can an entity such as the one at issue in these proceedings, which is a large producer of electricity that produces approximately 9% of national energy for sale to the national grid, be considered an "entity that produces electricity for own consumption" as referred to in Article 21(5) of Directive 2003/96/CE, when only a small part of the electricity it produces is consumed in the production of new electricity itself, as an integral part of its production process?

In response to the said questions, and in a judgment issued in Case C-90/17, the CJEU made the following declaration:

"Article 21(5), third paragraph, and Article 14(1)(a), of Council Directive 2003/96/CE, of 27 October 2003, restructuring the EU framework for taxation of energy products and electricity, should be interpreted as meaning that an entity such as the one at issue in the main proceedings, which produces electricity for own consumption, regardless of its significance and of the economic activity which it pursues as its main activity, must be considered a 'distributor' within the meaning of the first of those provisions, whose consumption of electricity for the purposes of electricity production is, however, covered by the mandatory exemption provided for in the said Article 14(1)(a)."

Having regard to the decision of the European Court, it is therefore determined that the Claimant must be considered a "distributor".

However, in order to fully comply with the determination of that high Court, it must be considered that the Claimant is covered by the exemption enshrined in Article 14(1)(a) of Council Directive 2003/96/CE, of 27 October 2003.

With regard to this matter, the CJEU stated:

"38 It follows that any entity, in particular the one at issue in the main proceedings, which produces electricity for own consumption, regardless of its significance and of the economic activity pursued as its main activity, must be considered a 'distributor' within the meaning of Article 21(5), third paragraph, of this Directive.

39 Secondly, it should be noted that this conclusion regarding the taxable event at issue does not, however, put in question the fact that the economic activity carried out by the entity that produces electricity for own consumption is relevant for the purposes of applying the exemptions provided for by that Directive.

40 Indeed, Article 14(1)(a), first sentence, of Directive 2003/96, according to which energy products and electricity used to produce electricity and electricity used to maintain the capacity to produce electricity are exempt from taxation, cannot be disregarded for the purposes of assessing the tax situation of an entity such as the one at issue in the main proceedings.

41 In this regard, it should be recalled that this provision is binding on the Member States, subject to the option given to them by Article 14(1)(a), second sentence, of Directive 2003/96 to derogate from this exemption regime on grounds of environmental policy (see, to that effect, Judgment of 7 March 2018, Cristal Union, C‑31/17, EU:C:2018:168, paragraphs 26 to 28). However, it does not appear from the file before the Court of Justice that the Portuguese Republic has availed itself of that option.

42 It follows that the use, by an entity such as the one at issue in the main proceedings, of a part of the electricity it produces, for the purposes of electricity production, although it constitutes a taxable event by virtue of Article 21(5), first and third paragraphs, of this Directive, must be exempt from taxation under Article 14(1)(a) of that Directive. Any other interpretation would be contrary to the objectives pursued by the latter, as recalled in paragraphs 34 and 35 of this judgment. On the one hand, the electricity thus produced would necessarily be subject to double taxation. On the other hand, this could lead to unequal treatment between entities such as those at issue in the main proceedings and other electricity producers that supply themselves with energy products and electricity from third parties for the purposes of their own production, which would constitute a source of distortions of competition (see, to that effect, Judgment of 7 March 2018, Cristal Union, C‑31/17, EU:C:2018:168, paragraph 33).

43 However, it should be noted that Directive 2003/96 does not regulate the question of how proof of the use of energy products for purposes that entitle to exemption is to be provided. On the contrary, as is clear from Article 14(1) thereof, that Directive places on Member States the responsibility for fixing the conditions for the exemptions laid down therein, with a view to ensuring correct and straightforward application of such exemptions and to prevent fraud, tax evasion or abusive practices. Nevertheless, in exercising the power they have to fix the conditions to which the exemptions provided for in Article 14(1) of that Directive are subject, Member States must respect the general principles of law which form part of the legal order of the Union, including in particular the principle of proportionality (Judgment of 2 June 2016, Polihim‑SS, C‑355/14, EU:C:2016:403, paragraphs 57 and 59).

44 Accordingly, although Member States may provide for the imposition of a financial penalty in the event of breach of formal requirements (see, to that effect, Judgment of 2 June 2016, ROZ‑ŚWIT, C‑418/14, EU:C:2016:400, paragraph 40), such a breach cannot deprive the entity of the benefit of the mandatory exemption provided for in Article 14(1)(a) of Directive 2003/96 if the material requirements for its application are satisfied (see, to that effect, Judgment of 13 July 2017, Vakarų Baltijos laivų statykla, C‑151/16, EU:C:2017:537, paragraph 51).

45 In light of the above, the answer to the questions submitted is that Article 21(5), third paragraph, and Article 14(1)(a), of Directive 2003/96 should be interpreted as meaning that an entity such as the one at issue in the main proceedings, which produces electricity for own consumption, regardless of its significance and of the economic activity which it pursues as its main activity, must be considered a 'distributor' within the meaning of the first of those provisions, whose consumption of electricity for the purposes of electricity production is, however, covered by the mandatory exemption provided for in the said Article 14(1)(a)."

The exemption to which Article 14(1)(a) of Council Directive 2003/96/CE, of 27 October 2003, refers has a counterpart in national law in Article 89 of the TCPEP, already cited above.

In the present case, and as results from the findings of fact established as proven, the Claimant, on the date of the tax events, was not the holder of any exemption authorization for electricity consumed in its installations, under Article 89 of the TCPEP, was not registered as an Electricity Sector Operator (OSE), nor was it the holder of exempt recipient status for electricity use.

Nevertheless, and in compliance with the judgment issued by the CJEU in Case C-90/17, it must be considered, in an interpretation of national law consistent with Community law, that "although Member States may provide for the imposition of a financial penalty in the event of breach of formal requirements (...), such a breach cannot deprive the entity of the benefit of the mandatory exemption provided for in Article 14(1)(a) of Directive 2003/96 if the material requirements for its application are satisfied".

This means that, without prejudice to the application of financial penalties for non-compliance with formal requirements, the exemption provided for in Article 89(1)(d) of the TCPEP, which is the relevant one in this case, must apply whenever the respective material requirements are met, that is, whenever, for present purposes, energy products are used for the production of electricity, by entities that conduct such activities as their main activity.

In the present case, there is no doubt that the Claimant has electricity production as its main activity, and that the electricity produced by it and consumed in the installations where it was produced was used in its production process, and it is further proven that the quantities of self-consumed electricity by the Claimant were determined in the ANF.

Moreover, the Final Report of the ANF itself recognizes that: "A... does not have, but meets the conditions to have an exemption (...), which would allow it to use electricity with exemption in its installations that are subject to PNALE/ARCE. This authorization would allow the use with exemption from TPEP of all electricity consumed in A...'s installations, both the electricity used for electricity production or maintaining the capacity to produce electricity, as well as the electricity used in the administrative part or in installations related to social activities (regardless of origin, produced by the company itself or imported)", and that tax was assessed only for formal reasons, specifically because "The company is not registered as an Electricity Sector Operator (OSE), nor is it the holder of exempt recipient status for electricity use".

As summarized in that report, "although A... meets the requirements for the benefit of TPEP exemption with respect to all electricity consumed in its installations (whether imported or self-produced), a small step is missing, which involves A... requesting from Customs B... the benefit of the exemption"

Now, having regard to the CJEU judgment issued in the preliminary reference formulated in these tax arbitration proceedings, that missing "small formal step" cannot prevent the granting of the exemption, which is mandatory by virtue of Article 14(1)(a) of Council Directive 2003/96/CE, of 27 October 2003, without prejudice, obviously, to any financial penalties that may be applicable to the case.

In this way and for the reasons stated, the assessment that is the subject of the present arbitration must be annulled, to the extent that the request made here is well-founded.

With regard to the request for indemnification interest made by the Claimant, Article 43(1) of the General Tax Law provides that indemnification interest is due when it is determined that there was an error attributable to the services from which resulted payment of the tax debt in an amount higher than legally owed.

In this case, the error that affects the annulled tax act is attributable to the Tax and Customs Authority, which carried it out, wrongly, on its own initiative, without correctly interpreting the national law in light of Community law.

As was stated in the Judgment of the Supreme Administrative Court of 18-01-2017, issued in case 0890/16:

"the fact that the illegality determining the success of the challenge is materialized in a violation of a Community norm also does not imply treatment similar to that which addresses the application of norms that are declared unconstitutional, since the Tax Authority 'has no margin to disapply norms not yet declared unconstitutional, whereas in the case of Community law provisions what is at issue is the application of norms that are in force directly in the internal legal order and, more than that, prevail over internal law norms, and Member States cannot apply any rule of internal law that conflicts with EU law rules.'"

The Claimant therefore has the right to be reimbursed for the amount paid (in accordance with Articles 100 of the General Tax Law and 24(1) of the LFTM) by virtue of the annulled act and also to be indemnified for the wrongful payment through the payment of indemnification interest by the Tax Authority, from the date of payment of the amount until reimbursement, at the legal default rate, under Articles 43(1) and (4) and 35(10) of the General Tax Law, Article 559 of the Civil Code and Ordinance n.º 291/2003, of 8 April.

C. DECISION

In these terms, this Arbitral Tribunal decides to find the arbitration claim made entirely well-founded and, in consequence:

Annul the Assessment Act n.º..., of 04-08-2014, in the total amount of € 76,185.49, comprised of € 71,197.17 relating to Tax on Petroleum and Energy Products, € 4,986.52 relating to compensatory interest and € 1.80 relating to the assessment form, as well as the act of dismissal of the Administrative Review submitted against the aforementioned assessment;
Condemn the Tax Authority to refund the amount of tax wrongly paid by the now Claimant, and to the payment of indemnification interest, in accordance with the terms indicated above;
Condemn the Respondent in the costs of the proceedings, in the amount fixed below.

D. Value of the Dispute

The value of the dispute is fixed at € 76,185.49, under Article 97-A(1)(a) of the Code of Tax Procedure and Process, applicable by virtue of Article 29(1)(a) and (b) of the LFTM and Article 2 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The amount of the arbitration fee is fixed at € 2,448.00, under Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the claim was entirely well-founded, under Articles 12(2) and 22(4) of the LFTM and Article 4(4) of the cited Regulation.

Parties shall be notified hereof.

Lisbon, 8 November 2018

The Presiding Arbitrator

(José Pedro Carvalho)

Arbitrator Member

(Paulo Lourenço)