Summary
Full Decision
ARBITRAL DECISION
The Arbitrators José Pedro Carvalho (Presiding Arbitrator), João Taborda da Gama and Paulo Mendonça, designated by the Deontological Council of the Administrative Arbitration Centre to form an Arbitral Tribunal, hereby decide:
I – REPORT
On 24 April 2016, A…, S.A., holder of the sole registration number and legal entity number …, with registered office at …, no.…, …, …, union of the parishes of … and … and Municipality of Cascais, filed a petition for constitution of an arbitral tribunal, under the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011 of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, with the wording introduced by Article 228 of Law No. 66-B/2012 of 31 December (hereinafter, for short, designated RJAT), seeking a declaration of illegality of the VAT assessment act No. 2016…, of 2016-01-12, in the amount of €651,911.18 (six hundred and fifty-one thousand nine hundred and eleven euros and eighteen cents).
To substantiate its petition, the Claimant alleges, in summary, that the per mille criterion applied by the Claimant to calculate deductible VAT does not cause distortions in taxation, since there are no differentiating factors in the construction cost of the units allocated to hotel operations and the construction cost of the remaining units of the property, and that the criterion applied by the Respondent is not substantiated, has no adherence to the reality of the property and generates distortions in taxation, whereby the assessment violates the provisions of Articles 23(2) of the CIVA and 9 of Decree-Law No. 21/2007.
On 26-04-2016, the petition for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.
The Claimant did not appoint an arbitrator, whereby, under the provisions of Article 6(2)(a) and Article 11(1)(a) of the RJAT, the President of the Deontological Council of the CAAD designated the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable period.
On 14-06-2016, the parties were notified of these designations and did not manifest any wish to refuse any of them.
In accordance with the provision of Article 11(1)(c) of the RJAT, the collective Arbitral Tribunal was constituted on 01-07-2016.
On 19-09-2016, the Respondent, duly notified for that purpose, presented its response, raising exceptions and objections.
On 16-11-2016, the hearing referred to in Article 18 of the RJAT took place, where the witnesses presented by the Claimant were examined at the hearing.
On 02-01-2017, the deadline referred to in Article 21(2) of the RJAT was extended by 60 days.
Having been granted a period for the presentation of written submissions, these were presented by the parties, commenting on the evidence produced and reiterating and developing their respective legal positions.
On 24-02-2017, the deadline referred to in Article 21(2) of the RJAT was further extended by 60 days.
A period of 30 days was fixed for the rendering of the final decision, following the presentation of submissions by the Respondent.
The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with Articles 2(1)(a), 5 and 6(1) of the RJAT.
The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with Articles 4 and 10 of the RJAT and Article 1 of Ordinance No. 112-A/2011 of 22 March.
The case does not suffer from nullities.
Thus, there is no obstacle to the examination of the merits of the case.
Having considered all the above, it falls to us to render
II. DECISION
A. FACTUAL MATTERS
A.1. Facts found as proven
1. The Claimant commenced its activity on 1992-12-16, having as its corporate purpose the acquisition of immovable property for lease or intended for other forms of onerous exploitation; the acquisition of property for resale; as well as the development of projects for construction and rehabilitation of property with one of the aforementioned purposes, corresponding to CAE Rev. 3 – 68100.
2. For VAT purposes, the Claimant was registered under the normal regime with quarterly periodicity, from 2007-03-30, and moved to the monthly periodicity regime from 2016-01-01.
3. In 2014, the Claimant carried out a real estate project, …, in the …, municipality of …, a development consisting of a building intended for a hotel and apartments.
4. The aforementioned building comprises 6 storeys above the floor level and 4 storeys below the floor level, with a total construction area of 28,147.33 m², of which 15,330.81 m² are not accountable for purposes of the index.
5. The part intended for the hotel was classified as five-star, the residential part was classified by the Claimant itself as luxury housing, both by location, construction, areas and finishes.
6. This classification was obtained based on the score determined according to the quality of facilities, equipment, leisure and business services and products, as well as environmental, energy and urban components.
7. According to the deed of constitution of horizontal property ownership, the property, recorded in the urban property register under provisional article P1…, comprises 88 (eighty-eight) autonomous units, identified by the letters "A" to "CT", part of which (62) allocated to tourist operation activities ("B" to "BR") and the remaining to residential use and parking/storage ("A" and "BS" to "CT").
8. The property has 160 (one hundred and sixty) parking spaces, 93 (ninety-three) of which are integrated in the units intended for residential use, 59 (fifty-nine) integrated in units allocated to hotel operations, 6 (six) integrated in unit A, and the remaining 2 (two) are common areas intended for persons with reduced mobility.
9. In the elements contained in the permanent property certificate of the property in question, it states that: "Unit 'CT' has exclusive use of an area of 202.03 m² of the roof terrace, with swimming pool, sanitary installation, bar and private lifting platform.".
10. On 2014-12-04, the Claimant and B…, S.A., with registered office at Rua …, no.…, ..., in Lisbon, in the capacity of managing entity and representing the Closed Real Estate Investment Fund C…, with the tax identification number…, executed a deed of sale and purchase, by which the property of 62 autonomous units of the above-mentioned property was transferred to the said Fund, identified by the letters "B" to "BR", intended exclusively for the operation of a hotel unit and related and complementary activities.
11. It was recorded in the aforementioned deed that the sale of all units was effected with waiver of VAT exemption, under Decree-Law 21/2007, of 29/01, whereby VAT at the normal statutory rate of 23% was added to the price.
12. For this operation, the Tax Service of Cascais-… issued a certificate of waiver of exemption in the transfer of the aforementioned autonomous units.
13. On the said date (2014-12-04), B…, S.A., in the capacity of managing entity and representing the Closed Real Estate Investment Fund C…, leased to a company called "D…, S.A.", with registered office at …, …, in…, union of the parishes of … and …, municipality of Cascais, with the sole registration number and legal entity number …, the aforementioned 62 autonomous units which it had acquired, so that the lessee company would operate them for hotel purposes.
14. This lease was effected with waiver of VAT exemption, under Decree-Law 21/2007, of 29/01, certificates of waiver of exemption in the lease of immovable property having been issued by the Tax Service of Cascais-… relating to the 62 units subject to the lease.
15. The VAT incurred by the Claimant was entered in its accounts under account 27.8.1.10004 (VAT on Building Expenses), relating to invoices from suppliers of materials and services for the construction of the property called "…" and totalled €6,760,765.34 (six million seven hundred and sixty thousand seven hundred and sixty-five euros and thirty-four cents).
16. In the VAT declaration relating to the last quarter of 2014, presented by the Claimant on 2015-02-16, it exercised the right to deduction of the VAT incurred regarding the construction of the units of the property which were intended for hotel activity and which it had sold with waiver of exemption, namely, in relation to the construction of units "B" to "BR", sold to the Closed Real Estate Investment Fund C….
17. The Claimant, in that declaration, determined a deductible amount of €2,386,384.02 (two million three hundred and eighty-six thousand three hundred and eighty-four euros and two cents) and, subtracting the tax determined in favour of the State, in the amount of €435,706.89, requested reimbursement of €1,950,792.49 (one million, nine hundred and fifty thousand seven hundred and six euros and forty-nine cents).
18. The determination of the deductible VAT amount - €2,386,384.02 (two million three hundred and eighty-six thousand three hundred and eighty-four euros and two cents) - was made by applying the percentage of 35.30% to the total amount of VAT incurred, in the amount of €6,760,765.34 (six million seven hundred and sixty thousand seven hundred and sixty-five euros and thirty-four cents).
19. The percentage of 35.30% corresponds to the sum of the per mille shares of the 62 autonomous units sold to the Closed Real Estate Investment Fund C…, in accordance with the deed constitutive of horizontal property ownership.
20. The per mille share of each autonomous unit was calculated according to its respective gross construction area, corresponding to the sum of the gross private area, to which coefficient 1 was applied, and the gross dependent area, consisting of the area of their respective parking spaces, verandas, terraces and storage areas, to which coefficient 0.30 was applied.
21. The construction cost per m² of the gross private area of the autonomous units intended for residential use used was similar to the construction cost per m² of the gross private area of the autonomous units intended for hotel operations, and the construction cost per m² of the gross dependent area of the autonomous units intended for residential use used was equal to the construction cost per m² of the gross dependent area of the autonomous units intended for hotel operations, the same construction cost per m² being considered for hotel and residential areas.
22. The per mille share assigned to each unit in the deed of horizontal property ownership corresponds to the area each occupies in the property, with gross private areas valued at coefficient 1 and gross dependent areas valued at coefficient 0.30.
23. The Claimant was subject to an inspection action carried out under Service Order No. OI2015…, with dispatch of 2015-06-02, whose acts were initiated on 2015-07-14 and concluded on 2015-11-24, with the objective of ascertaining the legitimacy of the reimbursement request, relating to the last tax period of 2014 aforementioned.
24. From the Claimant's accounting records and supporting documentation, it appears that it did not effect actual allocation regarding any of the expenses incurred with the construction of the property, nor does it possess elements which would permit such allocation.
25. During the inspection, no clarification was requested of the Claimant regarding the possible existence of differences in construction costs for the areas of units allocated to hotel operations and the areas of units intended for residential use.
26. The Claimant became aware of the draft inspection report on 2015-12-03, which proposed partial approval of the VAT reimbursement request, in the amount of €1,298,881.31, as a consequence of corrections made, in the amount of €651,911.18 (six hundred and fifty-one thousand nine hundred and eleven euros and eighteen cents), relating to the period under review.
27. The value of the corrections resulted from the application of the percentage of 25.65% to the total amount of VAT incurred by the Claimant, in the amount of €6,760,765.34 (six million seven hundred and sixty thousand seven hundred and sixty-five euros and thirty-four cents).
28. The draft Inspection Report justified the said percentage by considering it more appropriate to use the criterion of construction cost per unit (which weighs the area of each unit and its average construction cost), rather than the per mille criterion (which only takes into account the area of the units), in determining the tax to be deducted, regarding the part of the development allocated to operations subject to VAT.
29. The methodology used in the 2nd assessment referred to included visits to the building, and to determine construction costs, the value of €1,000.00/m² was applied to the hotel units and €2,000.00/m² to the residential units.
30. The Claimant exercised the right of prior hearing and presented a report whereby the common costs of the property total 57.4%, the specific costs of the areas allocated to hotel operations represented 22.4% and the specific costs relating to the areas allocated to residential use represented 20.2%.
31. The Inspection Report states, among other things, the following:
i. "Although we are dealing with the use of a commonly accepted criterion, in this case, this criterion can indeed create distortions, since the analysis of the tax to be deducted (amount of tax incurred that was imputed to the construction of the hotel) did not take into account the specificity of the property in question, imputing costs according to area, thus considering the same construction cost per m² for areas with such distinct uses as hotel, residential and parking/storage, disregarding, in particular, the materials and equipment used in a differentiated manner in the units intended for residential or hotel use";
ii. "Thus, in order to validate the per mille criterion used by the taxpayer (in accordance with the first part of Article 23(2) of the CIVA) to determine the deductible tax in the construction of the property and, subject of the reimbursement request, the Tax Authority resorted to other objective criteria, namely, elements that make up the calculation of the Tax Property Value of the units that comprise the property.";
32. The Head of the Tax Service of Cascais…, by dispatch of 2015-01-07, promoted the second assessment of all autonomous units of the property, with the exception of units A and BA, under the provisions of Article 76(3) of the CIMI, considering that the tax property value, determined in accordance with Articles 38 and following of the CIMI, was distorted in relation to the normal market value, because the property had characteristics that differentiated it from the normal pattern for the area and the tax property value was lower by more than 15% of the normal market value.
33. The tax property value of the autonomous units, in the second assessment, was determined by the cost method, with the President of the Assessment Commission and the Representative of the Municipal Council of … creating a working basis to be presented to all representatives of the taxpayers, under which, among other criteria, a construction cost of €2,000.00/m² of weighted area was fixed for the residential units and €1,000.00/m² of weighted area for the hotel units.
34. The representatives of the taxpayers opposed this criterion, and there was a tie in the voting, which was broken by the casting vote of the President of the Commission, imposing the criterion which he and the Representative of the Municipal Council of … had previously defined.
35. The Tax Authority took as its basis the values of construction cost per unit used to calculate the Tax Property Value of the autonomous units in the second assessment, and concluded that the units intended for residential and parking use represent a total of 74.35%, while the units allocated to hotel operations represent a total of 25.65%, and that this criterion was the most appropriate because it weighs the area of each unit and its average construction cost.
36. The terms of the second assessment are silent as to the specific materials and equipment used in the units intended for residential and hotel use, stating that the property is intended for a hotel unit and residential use, is located in a privileged area, partially in public maritime domain withdrawn from use, and has contemporary good quality architecture.
A.2. Facts found as not proven
1. The building referred to in points 3 and following of the proven facts has differences in terms of finishes, namely in the finishes of luxury apartment units.
A.3. Reasoning on proven and not proven factual matters
As regards the factual matters, the Tribunal does not have to pronounce on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and to distinguish proven from not proven matters (see Article 123(2) of the CPPT and Article 607(3) of the CPC, applicable by virtue of Article 29(1)(a) and (e) of the RJAT).
In this way, the facts relevant to the judgment of the case are chosen and determined according to their legal relevance, which is established having regard to the various plausible solutions of the legal question(s) (see previous Article 511(1) of the CPC, corresponding to current Article 596, applicable by virtue of Article 29(1)(e) of the RJAT).
Thus, taking into account the positions assumed by the parties, in light of Article 110(7) of the CPPT, the documentary evidence and the procedural file appended to the case, the facts listed above were considered proven, being relevant to the decision.
No allegations made by the parties were not given as proven or not proven, presented as facts, consisting of strictly conclusive statements, incapable of proof and whose truthfulness must be assessed in relation to the concrete factual matter above consolidated.
Neither were facts given as proven or not proven that are incompatible with the factual matter given as proven and not proven.
The fact given as not proven, alleged by the Respondent in its response, derives from the lack of sufficient evidence in that regard, clearly not sufficing the fact given as proven in point 9 of the factual matter, presented by the Respondent as an example, but without anything demonstrating that it is an example and not an exception, as indicated by the witnesses heard.
B. ON THE LAW
a. On the exception.
The Respondent begins by raising "the dilatory exception of absolute lack of jurisdiction of the arbitral forum to consider the matter to which the partial denial of the reimbursement requested relates and which underlies the act challenged in the present case, whereby the same cannot proceed, considering that there is no doubt that the subject of the present request for arbitral decision translates into the partial denial of the reimbursement that the Claimant had formulated upon submission of the periodic declaration of the last quarter of 2014, in which it requested reimbursement in the global amount of €1,950,792.49." And that "We are not, then, as regards this request of the Claimant, dealing with a tax assessment act, self-assessment act, withholding at source or payment on account capable of being considered by this arbitral jurisdiction.".
As was written in the Decision rendered in the arbitral case 238/2013T of the CAAD, furthermore cited by the Claimant, in an understanding that is maintained:
"As was already noted, the Tax Authority and Customs Authority alleges that acts of partial denial of reimbursement effected by way of compensation are not covered by the jurisdiction of arbitral tribunals in tax matters operating at the CAAD.
In this respect, and having regard to the legal framework outlined above, it must be concluded that there is no express provision for the jurisdiction of the arbitral tribunals operating at the CAAD to consider the legality of acts denying requests for reimbursement of amounts paid, in compliance with previous assessment acts.
However, in the case at hand, as can be seen from the document reproduced in section (f) of the factual matter fixed, it was the Tax Authority and Customs Authority itself that effected a VAT accounting operation for reimbursement which it called 'VAT ASSESSMENT DEMONSTRATION', to which it assigned an 'ASSESSMENT NUMBER' and an 'ASSESSMENT DATE', and stated, in the final part, that the Claimant 'is hereby (…) notified of the VAT assessment relating to the period to which the operations relate, as a result of which reimbursement is due in the amount determined, as per the above demonstration' and 'From the assessment effected, you may, at the competent Tax Service, file an administrative grievance or judicial challenge in accordance with Articles 70 and 102 of the CPPT'.
That is: in light of the available documentary elements, it must be concluded that, in concrete terms, an assessment act was performed, whether rightly or wrongly. Such act, embodied in the document notified to the Claimant comprising the demonstration of VAT assessment No. 2013 …, dated 20-02-2013, will, in addition to the other assessments, be the subject of the present case, referable to the provision of Article 2(a) of the RJAT.
The legality of such act – whether performed rightly or wrongly – is capable of being assessed and falls directly within the jurisdiction of the arbitral tribunals operating at the CAAD, whereby the invoked exception of absolute lack of jurisdiction should fail.
Even if this were not the case, for a long time it has been held that taxpayers should not be prejudiced in the exercise of procedural rights when they are induced into error by acts of competent public entities, a rule which has explicit manifestations, for the courts, in Article 157(6) and Article 191(3) of the CPC of 2013 (previous Articles 161(1), 198(3)) and for acts of the administration, in Article 7 of the CPA and Article 60(4) of the CPTA.
That is, it has been understood, in summary, that when a taxpayer is induced to use a particular procedural remedy by a particular conduct of the Administration, the latter cannot seek to prevent knowledge of the merits of the request, using the inadequacy of the procedural means whose use it itself, objectively, induced.
In the case, there is moreover doctrine, (JOSÉ XAVIER DE BASTO and GONÇALO AVELÃS NUNES), defending that "a reimbursement contested by the fiscal administration is entirely equivalent to a tax assessment and the means of reacting against this act of the administration, which denies or revokes a reimbursement, are identical to those the law makes available to taxpayers to annul, in whole or in part the tax assessment", a thesis which is in line with the application, determined by Article 22(11) and (13) of the CIVA, to acts denying reimbursement requests of the administrative and contentious challenge means of VAT assessment acts, provided for in Article 93 of the same Code.
In this context, being the Tax Administration itself that in the notification identified the act notified as being a VAT assessment, inducing the Claimant to use a procedural means adequate to its challenge, and it not being certain that such qualification is wrong (as cannot but be understood when it is noted that the adequacy of such qualification is affirmed by two reputed university professors of tax law), always, also by this means, the exception raised by the Tax Authority and Customs Authority should be judged to fail.".
Also in the present case, the Tax Authority effected a VAT accounting operation for reimbursement which it called 'VAT ASSESSMENT DEMONSTRATION', to which it assigned an 'ASSESSMENT NUMBER' (2016…) and an 'ASSESSMENT DATE' (2016-01-12), and stated, in the final part, that the Claimant 'is hereby (…) notified of the VAT assessment relating to the period to which the operations relate, as a result of which reimbursement is due in the amount determined, as per the above demonstration' and 'From the assessment effected, you may, at the competent Tax Service, file an administrative grievance or judicial challenge in accordance with Articles 70 and 102 of the CPPT', an act which is the subject of the present request for arbitral decision[1], and which falls within the provision of Article 2(1)(a) of the RJAT, the exception invoked thus failing.
Without prejudice, it will be said that, given the regime of the VAT Code, it appears that, also materially, the act performed should be qualified (as formally it was) as an assessment.
In fact, only the cases in which the reimbursement request is refused in accordance with Article 22(11) ("when the taxpayer has not provided elements allowing assessment of the legitimacy of the reimbursement, as well as when the deductible tax relates to a taxpayer with a non-existent or invalid tax identification number or which has suspended or ceased its activity in the period to which the reimbursement relates."), which is not the case, should it be considered that there is not an assessment act[2].
Cases, such as the present, in which the Tax Authority effects, ex officio, a compensation correcting the declaration presented by the taxpayer, and in which there is no amount to be paid, should be considered directly covered by the regime of Article 93 of the CIVA, which, precisely because there is no tax to be paid, provides, in its (2), that the "deadline for administrative review, for administrative grievance and for judicial challenge is counted from the day following receipt of the notification referred to in the previous number", unlike the general regime, of Article 97 of the VAT Code and Article 102(1)(a) of the CPPT, to which it refers, which establish as the initial term the "Deadline for voluntary payment of the tax liabilities legally notified to the taxpayer", a term which would be incapable of application in the case of compensations with no tax to be paid.
That aforementioned provision of Article 93 of the CIVA expressly qualifies the acts to which it relates, in which there is no tax to be paid, as assessment acts, which moreover is consonant with the materiality underlying them, since the amounts to which the taxpayer is creditor are, themselves, amounts relating to tax, whereby, even if the Tax Authority is setting a benefit in favour of the taxpayer, one should not lose sight of the fact that such benefit relates to tax paid by that party, whereby the act in question will always be referable to the unilateral determination of a tax amount, as is typical of assessment acts.
b. On the merits.
The issue to be decided in the present arbitral proceedings is formulated in a few lines, its essential features being the following:
è The Claimant sold, waiving VAT exemption, a set of autonomous units intended for installation of a hotel development, units that were part of a property containing other units intended for residential use;
è In view of such waiver, it presented the competent request for reimbursement of the tax incurred with the construction of the units in question;
è Disagreeing with the calculation method applied by the Claimant, which was based on the percentage of area occupied by the units in question within the property as a whole, the Tax Authority corrected the tax reimbursement amount downward, using as a criterion it considered more appropriate, the construction cost shown in the terms of the 2nd assessment of the autonomous units, carried out under Article 76(3) of the CIMI.
It is this correction whose legality we must now determine.
*
At stake, in the legal sphere, is the application of Article 23 of the CIVA, which, among other things, provides that:
"1 - When the taxpayer, in the exercise of its activity, carries out operations conferring a right to deduction and operations not conferring such a right, in accordance with Article 20, the deduction of tax incurred in the acquisition of goods and services which are used in the performance of both types of operations is determined as follows:
a) Where it is a good or service partially allocated to the performance of operations not arising from the exercise of an economic activity provided for in Article 2(1)(a), the non-deductible tax as a result of such partial allocation is determined in accordance with (2);
b) Without prejudice to the provision of the preceding paragraph, where it is a good or service allocated to the performance of operations arising from the exercise of an economic activity provided for in Article 2(1)(a), part of which does not confer the right to deduction, tax is deductible in the percentage corresponding to the annual amount of operations giving rise to deduction.
2 - Notwithstanding the provision of paragraph (1)(b), the taxpayer may effect deduction in accordance with the actual allocation of all or part of the goods and services used, based on objective criteria allowing determination of the degree of use of such goods and services in operations conferring the right to deduction and in operations not conferring such right, without prejudice to the General Directorate of Taxation being able to impose special conditions on it or bring such procedure to an end in the event it is found that they cause or may cause significant distortions in taxation.
3 - The tax administration may oblige the taxpayer to proceed in accordance with the provision of the preceding number:
a) When the taxpayer exercises distinct economic activities;
b) When application of the process referred to in (1) leads to significant distortions in taxation."
*
Before proceeding, it is necessary to clarify the rules on burden of proof applicable.
In accordance with Article 74(1) of the LGT which provides that "The burden of proof of facts constituting the rights of the tax administration or of taxpayers falls on whoever invokes them.".
In application of such criterion, and taking into account that what is at stake is the right to reimbursement which the Claimant seeks to exercise, it would be concluded that the burden of proof of the prerequisites for such – in this case, the suitability of the percentage of costs incurred to be allocated to the units for which it waived VAT exemption - would fall on the Claimant.
However, Article 75(1), also of the LGT, provides that "The statements of taxpayers presented in accordance with the law are presumed true and made in good faith, as well as the data and determinations entered in their accounting or records, when these are organized in accordance with commercial and tax legislation, without prejudice to the other requirements on which the deductibility of expenses depends".
In this case, the Claimant presented, in accordance with the law, its periodic VAT declaration for the last quarter of 2014, in which it exercised its right to deduction, and determined the amount of tax to be reimbursed.
Article 344 of the Civil Code provides that the rules relating to the burden of proof "are reversed when there is a legal presumption", whereby, in accordance with such provision, and given the aforementioned legal presumption of Article 75(1) of the LGT, the rule of burden of proof fixed in Article 74(1) of the LGT should be understood as reversed, with respect to the suitability of the percentage of costs to be allocated to the units for which it waived VAT exemption.
Thus, in this case, we must determine whether or not the criterion used by the Tax Authority, in the assessment act in question, is suitable.
In fact, the Claimant, in accordance with the law, presented its tax declaration, possessing properly organized accounting, and the Tax Authority seeking to make, as it did, corrections to such declaration, "It is incumbent on the Tax Authority to bear the burden of proof of the fulfilment of the legal (binding) prerequisites for its action, in particular if aggressive (positive and unfavourable)"[3].
*
As already referred to above, to determine the percentage of costs incurred with the construction of the autonomous units regarding which the Claimant waived VAT exemption, the Tax Authority used the value of construction costs used in the second assessment performed for purposes of the CIMI, applying them to the units intended for hotel and residential use.
From the outset, it should be said that the Claimant's submissions are not subscribed to, according to which such operation would be absolutely prohibited, since Article 76(3) of the CIMI provides that the assessment to which it refers, and which is at stake "is relevant only for purposes of IRS, IRC and IMT".
In fact, the circumstance that the assessment in question has formal effect for IRS, IRC and IMT purposes does not prevent it from having a material basis, duly substantiated, which can be transposed for other purposes, constituting, in essence, a substantiation by reference to that material basis set out therein, permitted by way of Article 77(1) of the LGT.
However, such means that outside the scope of IRS, IRC and IMT covered by the provision of the said Article 76(3) of the CIMI, it cannot automatically refer to the assessment made in accordance with that rule, and claim that the data therein value per se, independently of its material support.
That is, in summary, the reference made by the Tax Authority to the assessment performed in accordance with the CIMI should be understood as such, that is, as a substantiation reference, which should be assessed and judged in its materiality, with the legality of its use not being automatically guaranteed by any eventual consolidation in the legal order of the assessment act to which the reference was made.
It is necessary, thus, in light of the above and having in mind that at stake is the application of Article 23(1)(b) of the CIVA, set out above, to determine, based on the available elements, whether the value of construction costs defined in the second assessment performed for purposes of the CIMI is, or is not, materially substantiated, in terms of being able to affirm, beyond any reasonable doubt, as was noted, in this case falls on the Tax Authority, that the proportion of costs incurred with the construction of the units allocated to hotel use and residential use was, respectively, of 1 (1000) to 2 (2000).
*
Having reviewed the documentation relating to the procedure of the second assessment performed in accordance with the CIMI, on which the tax act in question is based, it is found that, indeed, and as the Tax Authority states, in the same was set as the construction cost of the units intended for hotel use the amount of €1,000.00/m², while the same cost for the units intended for residential use was set at the amount of €2,000.00/m².
However, having reviewed that same documentation, no material support is found for the values set.
In fact, and although the assessment terms state that "the experts moved to the building, where they could observe the standard solution of the residential units, ascertain the location, the type of construction, constructive solutions and materials employed", the fact is that such mention is standardized (the same for all units), and is not accompanied by a concrete description, namely regarding the type of construction and materials employed that were found, regarding any of the units.
Thus, having reviewed all relevant documentation, no basis is found for the values assigned to the two types of units, other than the mere subjective sensitivity of the assessors.
Moreover, objectively considered, the assessment on which the tax act in question is based reveals major limitations permitting the conclusion that it departs from reality, and it should be noted, from the outset, the uniformity of value relative to the two types of units, when, as the Tax Authority itself notes in the case, some will have swimming pools and/or lifting platforms, others will not, and it is notoriously the case that, where there are parts of units more expensive per m² than others, such as kitchens and bathrooms, their respective value will be, tending to be, all the more diluted the larger the typology of the unit, it being also noted that the assessment terms themselves mention that they attended to "necessary equity", which also denotes the departure from the objective reality of the facts.
The Respondent itself in the case advances nothing concrete in the direction of sustaining the values used in the assessment act subject of the present arbitral action, concentrating the essence of its argument in discrediting the cost distribution used by the Claimant, which as was noted is presumed true, when, as was noted, it is its burden of demonstrating the legality of the tax act it defends, and consequently of the cost distribution carried out therein.
Although the Respondent states that "it uses data proven by independent, competent and specialized technicians in the areas under analysis to support the objective criterion it determined", in truth, neither from the assessment sheets nor from any other element made available is it possible to determine which data the said technicians based the criterion they used on.
The circumstances pointed out by the Respondent do not prevent the foregoing, that the "rules defined in the CIMI" were complied with, and that "the intervening parties (sellers and buyers) were assured the means of participation in taking the final decision through prior hearing", since such circumstances are relevant to the validity of the act, a condition for the applicability of the assessment to the taxes referred to in the provision of Article 76(3) of the CIMI, but reveal nothing of what was concretely considered in the assessment in question.
Similarly, it not being questioned that, as the Respondent states, "The criterion used by the Tax Authority was defined by the Assessment Commission composed of technicians with adequate training who moved to the building", it also reveals nothing about which characteristics of the concrete units in question were considered, and how, to define such criterion.
Nor can the Tax Authority's action sub iudice be validated on the basis of the circumstances, reiterated by the Respondent, that the Claimant did not adopt the criterion of actual allocation, since it was not obliged to do so, and moreover, there is no record that, based on what was found, the Tax Authority has even resorted to the prerogative conferred by Article 23(3)(b) of the CIVA, and it is still true that the Respondent is not right when it states that the Claimant "did not opt for the application of objective criteria", since the criterion adopted by it, the per mille, is well known to be an objective criterion, the Tax Authority itself recognizing that it is a "commonly accepted criterion".
It should also be noted that it is not considered legitimate that, in light of the non-use by the Claimant of a criterion of actual allocation (which, as pointed out, it was not obliged to use), the Tax Authority can proceed on the basis of a judgment of "reasonableness of the per mille criterion adopted by the Claimant in determining the deductible tax" to apply "a substantiated criterion and more consonant with the situation", since the applicable rules do not license any discretion to the Tax Authority, on the contrary, for example, of rules such as Article 31(2) of the CIRC.
In this way, not considering the assessment subject of the present arbitral case duly substantiated in fact and, consequently, in law, the same should be annulled.
*
The Claimant cumulates with the request to annul the tax acts subject of the present case, the request to condemn the Tax Authority to payment of compensatory interest.
Article 22(8) of the applicable CIVA provides that "Reimbursements of tax, when due, must be effected by the Tax Authority and Customs Authority by the end of the 2nd month following that of presentation of the request or, in the case of taxpayers registered in the monthly reimbursement regime, within 30 days following that of presentation of the said request, after which taxpayers may request the liquidation of compensatory interest in accordance with Article 43 of the general tax law.".
In the case at hand, it is manifest that the illegality of the assessment act now annulled is imputable to the Tax Authority, which, on its own initiative, performed it without legal support.
Consequently, the Claimant is entitled to compensatory interest, in accordance with Articles 22(8) of the CIVA, 43(1) of the LGT and 61 of the CPPT. The compensatory interest is calculated on the basis of its value, until payment to the Claimant, at the statutory rate, in accordance with Articles 43(1) and (4) and 35(10) of the LGT, 61 of the CPPT and 559 of the Civil Code and Ordinance No. 291/2003 of 8 April (without prejudice to any subsequent alterations to the statutory rate).
*
C. DECISION
In view of the foregoing, this Arbitral Tribunal decides to judge the arbitral petition filed to be entirely well-founded and, in consequence:
a) The VAT assessment act No. 2016…, of 2016-01-12, in the amount of €651,911.18, is annulled;
b) The Respondent is condemned to payment of compensatory interest, in the terms discriminated above;
c) The Respondent is condemned to pay the costs of the case, in the amount of €9,792.00.
D. Case Value
The case value is fixed at €651,911.18, in accordance with Article 97-A(1)(a) of the Tax Procedure and Process Code, applicable by force of Articles 29(1)(a) and (b) of the RJAT and Article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings.
E. Costs
The arbitration fee is fixed at €9,792.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the petition was entirely well-founded, in accordance with Articles 12(2) and 22(4), both of the RJAT, and Article 4(4) of the said Regulation.
Let notice be given.
Lisbon, 6 April 2017
The Presiding Arbitrator
(José Pedro Carvalho)
The Arbitrator Member
(João Taborda da Gama)
The Arbitrator Member
(Paulo Mendonça)
[1] Which the Respondent itself ultimately acknowledges, at the end of its submissions, stating that "there is no error attributable to the services in the issuance of the assessment challenged" (emphasis ours).
[2] And, even in those cases, the arbitrability of such acts can be considered, given the recognized equivalence between the tax arbitral process and the process of judicial challenge, and the provision of Article 22(13) of the said CIVA.
[3] Cf. Decision of the Administrative Court of Appeal of Southern Region of 16-01-2007, rendered in case 00911/03, available at www.dgsi.pt.
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