Process: 244/2015-T

Date: December 7, 2015

Tax Type: IVA

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 244/2015-T) addresses the VAT reimbursement rights of Portuguese IPSS (Private Institutions of Social Solidarity) under Decree-Law 20/90 of January 13, 1990. The petitioner, a social institution operating a nursing home, day care center, and home support service in Guimarães, contested an additional VAT assessment of €45,946.27 issued by the Tax Office in December 2014. The tax authority claimed the institution received excess VAT refunds for expenses incurred in 2011-2012 related to construction and expansion of its facilities. The central legal dispute involves the interpretation of amendments introduced by Article 130 of Law 55-A/2010 and Article 179 of Law 64-B/2011, which reduced the VAT refund entitlement to 50% for certain expenses. The petitioner argued that having obtained approval for public co-financing by December 31, 2010, it was entitled to full VAT refunds regardless of whether the financing covered total construction costs. The tax authority contended the 50% reduction applied to amounts exceeding approved public financing. Additional disputes concerned: classification of furniture acquisitions (whether subject to the annual limit of €9,975.96 under Article 2(1)(b)); eligibility of consulting services related to the financing application process; and the legality of revoking previously approved VAT refund decisions years after payment. The case was submitted to the sole arbitrator Joaquim Silvério Dias Mateus under the Legal Framework of Tax Arbitration (RJAT). The proceeding raised fundamental questions about the scope of VAT benefits for social solidarity institutions, the temporal limits on tax authority reassessment powers, and the proper interpretation of transitional rules following legislative amendments to social sector tax benefits.

Full Decision

ARBITRATION DECISION

I. REPORT

  1. Subject Matter of the Petition

A…, NIPC …, with registered office at Rua …, no. …, …, GUIMARÃES, hereby requests the establishment of an arbitral tribunal and contests an additional assessment of value added tax (VAT), in the amount of € 45,946.27, issued by the Tax Office of Guimarães … and notified by official letter no. …, dated 16.12.2014, from the aforesaid Tax Office, on the grounds of excess VAT refund under Decree-Law no. 20/90, of 13.01.

In accordance with the provisions of article 6(1) of the Legal Framework of Tax Arbitration (RJAT), approved by Decree-Law no. 10/2011, of 20.01, the Esteemed President of the Ethics Council of CAAD appointed as sole arbitrator the undersigned, Joaquim Silvério Dias Mateus, who accepted the appointment within the legally prescribed period without any objection from either party regarding his appointment, and the arbitral tribunal was established on 26 June 2015.

As there were no matters to examine and decide referred to in article 18 of the RJAT, it was decided not to hold the meeting provided for therein, and in the absence of any dispute regarding matters of fact, the production of testimonial evidence was waived.

The parties, duly notified, submitted no arguments, and 15 December 2015 was set as the deadline for issuing the arbitral decision.

  1. Grounds of the Petition

The requesting institution based its claim to have the entire additional assessment annulled on the following arguments, which are summarized below.

It alleges, first, that the tax authority now respondent approved all of its VAT refund requests which it presented pursuant to and in compliance with the rules set forth in Decree-Law 20/90, of 13 January, concerning costs incurred in the course of its statutory activity in the years 2011 and 2012, and refunded the corresponding tax without any objection, and therefore it would be illegal to proceed in 2014 to revoke the decisions approving those requests.

Furthermore, the petitioner disagrees with the interpretation which the respondent gives to Decree-Law 20/90 and the amendments to which it was subject through article 130 of Law 55-A/2010, of 31.12 and article 179 of Law no. 64-B/2011, of 30.12.

In fact, while the respondent authority seeks the reimbursement of € 19,975.05 relating to the item "Buildings and other constructions" based on the reduction to 50% of VAT borne provided for in article 179(2) of Law 64-B/2011, which, according to it, should apply to acquisitions of goods and services related to the construction/expansion work of the real property used for the Nursing Home, Day Care Center and Home Support Service, in the part that exceeded the amount of approved financing, the petitioner contends that the rule which reduced the VAT to be refunded to 50% does not apply to it given that nowhere is it required that the financing cover the entire cost of the work and that, on the contrary, since on 31.12.2010 the petitioner already had the decision approving the application for public co-financing, as provided for in article 130(2) of Law 55-A/2010 and article 179(2) of Law 64-B/2011, it was entitled to the refund of all VAT borne with the expenses incurred with the said work.

Beyond the situation described, the petitioner also disagrees with the respondent's claim regarding the refund relating to the acquisition, in 2012, of "basic equipment" goods which, according to the respondent, exceeded by € 7,878.34 the limit set in article 179(2), regarding the refund relating to expenses for "studies, projects and supervision" in the years 2010, 2011 and 2012 whose refunded VAT exceeded by € 2,242.50 the legal limit provided for in said article 179(2), regarding the refund relating to expenses for the acquisition of "goods or services relating to fixed asset elements" whose refunded VAT exceeded by € 13,504.38 the same limit and also the limit provided for in article 2(1)(b) of Decree-Law 20/90, which determines that only VAT borne on acquisitions whose annual value does not exceed € 9,975.96 is refundable, as well as regarding the refund relating to expenses from 2011 and 2012 concerning invoices for "consulting services in the context of monitoring the application", in the amount of € 2,346.00, which according to the respondent was also unduly refunded for not relating to the construction and expansion of the nursing home building.

The petitioner does not accept the aforementioned limitations on the refund right which are incorporated in the contested additional assessment invoking, in particular, disagreements regarding the interpretation of Decree-Law 20/90 and the amendments introduced to it reducing the refund right to 50%, as well as regarding the classification and framing of certain expenses under the said legislation.

As to the latter, the petitioner focuses on the expenses relating to "goods or services relating to fixed asset elements" which, in its view, should not be covered by the limit provided for in article 2(1)(b) of Decree-Law 20/90, since it was the purchase of furniture to equip the expanded building and this purchase should be framed in article 2(1)(a) and not in article 2(1)(b) of Decree-Law 20/90 and also in the expenses incurred with "consulting services relating to the application process" for financing from public funds for expansion of the property in question and the monitoring of that process which, according to the petitioner, are related to the said work and consequently should be framed in article 2(1)(a) of Decree-Law 20/90, with no limitation or reduction applying to it.

The petitioner concludes by requesting the full annulment of the additional VAT assessment, in the amount of € 45,946.27.

  1. Response of the Respondent Authority

Based on the inspection report which served as the basis for the contested additional assessment, the amount of this assessment results from the sum of a set of tax amounts which, according to the respondent authority, were unduly refunded to the petitioner.

Thus, according to the respondent, the following amounts were unduly paid to the petitioner since, in accordance with article 179(2) of Law 64-B/2011, it was only entitled to receive 50% of VAT borne with certain expenses and not their entirety as was unduly done.

This is the case for:

  1. The amount of € 19,975.05 of VAT borne in 2012 debited in invoices relating to the item "buildings and other constructions";

  2. The amount of € 7,878.34 of VAT borne in 2012 debited in invoices relating to the acquisition of "Basic Equipment";

  3. The amount of € 2,242.50 of VAT borne in 2011 and 2012 debited in invoices relating to costs for "studies, projects and supervision";

The respondent further alleges that the amount of € 13,504.38 of VAT borne on the acquisition of movable property acquired in 2012 was also unduly paid to the petitioner, since, in accordance with article 2(1)(b) of Decree-Law 20/90, the maximum amount to be refunded regarding VAT borne on the acquisition of this type of goods is limited to purchases of € 9,975.96, and that by application of article 179(2) of Law no. 64-B/2011 only 50% of the VAT borne would be refundable;

According to the respondent, tax amounts were also unduly refunded in the sum of €2,346.00 borne in invoices relating to expenses for consulting services incurred with the application for the financing project of public money which, according to the same respondent, do not fall within the scope of the expenses of the work.

The respondent concludes by stating that the request for arbitral pronouncement should be ruled unfounded.

  1. Preliminary Matters

The arbitral tribunal is materially competent and was regularly established, the parties have legal capacity and standing.

Since the proceeding does not suffer from any defects and no issues were raised that would prevent the examination of the merits of the case, the conditions are met for the arbitral decision to be issued.

II. GROUNDS

  1. Matters of Fact. Facts Found to be Proven

Based on the documents attached to the proceedings by both the petitioner and the respondent, the following relevant facts are found to be proven, not contested by either party.

The petitioner is a private institution of social solidarity (IPSS), as such registered with the social security services since 2008, having as its statutory purpose, in summary, to provide support services to children, young people, persons with disabilities, the elderly and the most vulnerable in general, as well as the prevention and remedying of situations of deprivation and other economic and social vulnerabilities, being exempt from VAT under article 9(6) of the General VAT Code (CIVA).

The contested additional assessment, in the amount of € 45,946.27, was issued by the Tax Office of Guimarães … based on an internal inspection action carried out by the Services of the Finance Directorate of … between January and March 2013, following a request for VAT refund (refund request no. …) submitted by the petitioner on 2013-01-02, under Decree-Law no. 20/90, of 13/01, in the amount of € 57,523.80.

It is also proven that the petitioner submitted on 10.04.2009 an application to the European Social Fund/POPH Human Potential (no. …/2009/…) in order to obtain financial support for the project of "expansion of the nursing home, day care center and home support service", which was approved on 20 July 2010 with the award of total financing of € 1,003,460.22, of which € 894,002.07 was allocated to "building and other constructions", € 91,578.11 to the acquisition of "basic equipment" and € 17,880.04 to "intangible fixed assets - expenses for studies, projects and supervision" (See inspection report and documents submitted by the petitioner).

The petitioner submitted a document referring to the "financing structure" for "Expansion of the Nursing Home, Day Care Center and Home Support Service" in which the amounts of financing are listed, indicating that the Contribution of the European Social Fund (ESF) was € 301,038.07 (30% of the total), the National Public Contribution (social security budget) was € 301,038.07 (30% of the total) and the private contribution was € 401,384.09 (40% of the total).

Following the approval of the financing, it was also proven that the construction contract for the execution of the building work in question was signed on 9 June 2011, at the price of € 1,139,027.15, plus VAT at the applicable rate, totaling the final amount of € 1,401,003.34, with the work being completed in November 2012 (See Board Decision no. 142, of 20 April 2011 and construction contract dated 9 June 2011).

The inspection report informs that the now petitioner was submitting requests for VAT refund incurred with the costs of executing the work, pursuant to article 2(1)(a) of Decree-Law 20/90, during the period of that execution, which were paid by the competent services of the tax administration.

In the years 2010, 2011 and 2012 the petitioner submitted other requests for VAT refund relating to the acquisition of other goods and services related to the exercise of its activity, namely, to the acquisition of equipment, to expenses for studies, projects and inspections, to the acquisition of other fixed asset goods and to the acquisition of consulting services, such requests being duly identified in the proceedings and whose analysis and framing are also the subject of this arbitral decision.

As regards evidence, it is finally noted that the invoices on which the VAT subject to the refund requests was debited were not attached to the proceedings, and it is accepted for the purposes of this arbitral decision the classification of the expenses and their integration in the situations provided for in articles 2(1)(a) and (b) of Decree-Law 20/90 contained in the documents submitted and in which the petitioner and respondent agree.

  1. Matters of Law

The case at hand concerns the applicability of the tax benefits provided for in Decree-Law 20/90, of 13 January, in force in the years 2010 to 2012, with the amendments it underwent in those years.

The petitioner begins its invocation of the illegality of the additional assessment by stating that it submitted the refund requests following the correct procedure and that as such they were processed and decided, and there is therefore no ground to revoke the previous decisions and now issue the contested additional assessment.

Although the petitioner has not stated which rule it considers violated, it is invoked, with the respondent, the provision of article 6(3) of Decree-Law 20/90, which provides for the possibility of an additional assessment being issued in relation to tax that is deemed to have been unduly refunded.

This is a mandatory power of the tax administration that, within the limitation period, in accordance with the provisions of article 94 of the General VAT Code (CIVA) and article 45 of the General Tax Law (LGT), proceeds to correct the original assessments and the tax amounts it refunds to taxpayers whenever it subsequently detects that they were unduly refunded.

As regards the other grounds presented, let us begin by analyzing the wording of the provisions of Decree-Law 20/90 relevant to the case at hand and which, in 2010, was as follows (wording given by Law no. 52-C/96, of 27.12):

"Article 2, no. 1. The VAT Administration Service shall proceed to refund an amount equivalent to the VAT borne by private institutions of social solidarity, as well as by the Santa Casa da Misericórdia de Lisboa, regarding the following operations:

a) Acquisitions of goods or services related to the construction, maintenance and preservation of real property used wholly or mainly in the pursuit of their respective statutory purposes provided they are contained in invoices of a value not less than € 997.60, excluding VAT;

b) Acquisition of goods or services relating to corporeal fixed asset elements subject to depreciation used solely and exclusively in the pursuit of their respective statutory purposes, with the exception of vehicles and their repairs, provided they are contained in invoices of individual value not less than € 99.76, excluding VAT, and whose total value, during the financial year, does not exceed € 9,975.96, excluding VAT."

In the meantime, in the years in which the operations connected with the VAT contained in the contested additional assessment were carried out, the wording of the said Decree-Law 20/90 underwent some restrictions, of which we shall highlight those that could affect said assessment.

Thus, in a chapter entitled "Various Provisions with Tax Relevance", Law no. 55-A/2010, of 31.12.2010 (Budget Law for 2011), in its article 130, revoked article 2 of Decree-Law 20/90, following which private institutions of social solidarity, from 1 January 2011 onwards, ceased to be entitled to be refunded of the VAT borne on expenses for construction, maintenance and preservation of real property used for their statutory purposes and on the purchase of other equipment used for the same purposes.

However, article 130(2) of the said law provided for a transitional rule with the following wording:

"The right to refund of an amount equivalent to the VAT borne by private institutions of social solidarity and by the Santa Casa da Misericórdia de Lisboa regarding the operations provided for in articles 2(1)(a) and (b) of Decree-Law no. 20/90, of 13 January, shall remain in force with regard to operations that are ongoing on 31 December 2010, as well as those that, as part of programmes, measures, projects and actions subject to public co-financing supported by the National Strategic Reference Framework, the Investment and Expenditure Development Programme of the Central Administration or by revenues from social games, are on that date in progress, already contracted or with a decision approving the application".

In turn, article 179(1) of Law no. 64-B/2011, of 30/12 (Budget Law for 2012), determined that "without prejudice to the provision of the following number (number 2 of this article which is transcribed below) are restored, during the year 2012", among other legal provisions, "articles 2(1)(a) and (b) of Decree-Law no. 20/90, of 13 January (…), which had been revoked by article 130(1) of Law no. 55-A/2010, of 31 December".

However, the restoration carried out did not come with the same quantitative scope as before since article 179(2) of the same law now determined that "The refund provided for in articles 2(1)(a) and (b) of Decree-Law no. 20/90, of 13 January, is made in an amount equivalent to 50% of the VAT borne, except in cases of operations covered by article 130(2) of Law no. 55-A/2010, of 31 December, regarding which the right to refund of an amount equivalent to the VAT borne shall remain in force".

In view of these legislative amendments, it is found that the refund of VAT relating to operations provided for in articles 2(1)(a) and (b) of Decree-Law 20/90 came to have the following temporal framework:

  1. As regards operations provided for in the aforementioned articles 2(1)(a) and (b) of the cited no. 1 (as regards this article limited to annual acquisitions up to € 9,975.96) that were carried out and completed by 31 December 2010, the right to full VAT refund existed and was not affected by the said amendments;

  2. The refund would also be full for operations relating to the construction, maintenance and preservation of movable property (article (a)), which were already in progress at 31 December 2010 and for operations that had been the subject of programmes, measures, projects or actions of public co-financing supported by the National Strategic Reference Framework or by the Investment and Expenditure Development Programme of the Central Administration that on that same date of 31 December 2010 were already in progress, already contracted or whose application had already been formally approved;

  3. From the above rule it follows that the right to full VAT refund provided for in article (a) did not depend on the law in force on the date of issuance of the invoices but rather on the law in force on the date of commencement of execution of the work "related to the construction, maintenance and preservation of real property" that gave rise to the issuance of those invoices or, if an application for public co-financing of the said programmes had been submitted, the law in force on the date on which the application was approved or on which the operation was contracted;

  4. As regards the refund referred to in article (b), the acquisition of "goods or services relating to corporeal fixed asset elements subject to depreciation" would have had to occur before 31 December 2010 or, if carried out after that date, the right to full deduction would be maintained (for purchases of value not exceeding € 9,975.96) if the purchase had been co-financed with public funds on the same terms and conditions;

  5. Thus, in the case of invoices issued in the years 2011 and subsequent years relating to any operation initiated before 31 December 2010 or, if not the case, relating to operations that had applied for public co-financing from the QREN or the Central State Administration and, on that same date, were already contracted or whose application was formally approved, would not be affected by any quantitative limitation and the VAT evidenced in them should be fully refunded;

  6. Another rule to be derived from the legal regime set out above is that in the case of operations that have applied for public co-financing provided for in the programmes set out in article 130(2), the right to refund of the VAT borne with the execution of those operations depends exclusively on the fact that it is an operation co-financed with an application approved before 31 December 2010 or already contracted and does not depend on the amount of that financing covering all or only part of the costs of the operation;

  7. On the other hand, since the restoration rule determined that the effects of the restoration would be applicable "during the year 2012" only, it is found that as regards operations whose commencement of execution, in the case of real property, or whose execution, as regards purchases of equipment, occurred between 1 January 2011 and 31 December 2011, without public co-financing, could not benefit from any VAT refund borne on their construction or acquisition (subsequent restorations of Decree-Law 20/90 are outside the scope of the situations that need to be analyzed and decided in these proceedings);

  8. As regards operations whose commencement of execution, in the case of real property, or whose completion, in the case of equipment purchases, occurred after 1 January 2012, the VAT refund was reduced to 50%.

In light of the rules summarized above, insofar as applicable, we can now frame the various situations subject to the contested additional assessment by the request for arbitral pronouncement.

Thus, as regards the VAT relating to expenses borne in 2011 and 2012 integrated in the item "buildings and other constructions" which, as was demonstrated, were co-financed by public funds granted through an application approved before 31 December 2010, the right to refund is full and is not subject to the reduction sought by the respondent.

In fact, this solution was clearly provided for by the second part of article 130(2) and reaffirmed by article 179(2), transcribed above, which, contrary to the position stated in the inspection report which was also adopted in the respondent's response, do not make the VAT refund depend on the amount of public financing granted nor determine that beyond that financing the refund would be reduced to 50%.

As the legislative expression itself indicates, the operation had to be co-financed, there had to be public financing added to private financing and the financing had to be approved by 31 December 2010.

Article 130(2) transcribed above is quite clear in determining that there was maintained, without any limitation, "The right to refund of an amount equivalent to the VAT borne (…) with regard to operations that are ongoing on 31 December 2010, as well as those that, as part of programmes, measures, projects and actions subject to public co-financing supported by the National Strategic Reference Framework, the Investment and Expenditure Development Programme of the Central Administration or by revenues from social games, are on that date in progress, already contracted or with a decision approving the application".

In turn, article 179(2) came to reduce to 50% the VAT to be refunded "except in cases of operations covered by article 130(2) of Law no. 55-A/2010, of 31 December, regarding which the right to refund of an amount equivalent to the VAT borne shall remain in force".

As can be seen, nowhere is it written that there would only be place for full VAT refund corresponding to the amount of contracted financing or that the refund would be only 50% as to amounts exceeding that value.

It is true that the contracted value was € 1,003,460.22 and that the final cost of the work exceeded that value by € 173,696.10.

However, the tax administration not only failed to challenge the petitioner's argument regarding the increase in the cost of the work but also presented no evidence that the excess amount was not applied to the costs of that same work.

According to the law, what is benefited by the VAT refund and the measure of that benefit is, on the one hand, the quality of the recipient and, on the other hand, the nature of the expense and its allocation, and financing and its origin were erected, in the face of a change in the law, only as relevant element to define whether the IPSS could or could not access that benefit and under what conditions. No more than this.

Now, as prescribed in article 9(2) of the Civil Code, in the interpretation of legal provisions "the legislative intent that does not have in the letter of the law a minimum of verbal correspondence, however imperfectly expressed, cannot be considered by the interpreter".

It is therefore ruled that the petition is well-founded as regards the annulment of the contested additional assessment in the part relating to VAT borne with expenses relating to the real property for "expansion of the nursing home, day care center and home support", in the amount of € 19,975.05.

As regards the VAT borne in 2012 by expenses for "Basic Equipment", the inspection report, adopted in the response of the tax authority, considers that the refund should be full in relation to the amount of approved financing and only 50% as to the excess amount, thus calculating that the excess refunded tax was € 7,878.34.

With the petitioner and respondent agreeing that these expenses should be considered integrated in article 2(1)(a) of Decree-Law 20/90 which, unlike article (b), does not establish limits as to its amounts, the invoked articles 130 and 179 also do not establish any limit as to these amounts, with the VAT refund depending only on the fact that there was co-financing and that the application was approved before 31 December 2010, conditions which, as found to be proven, were met in the case at hand.

Thus, with the same grounds already presented for the previous situation, it is ruled that the petition is well-founded as regards the annulment of the contested additional assessment in the part relating to VAT borne with expenses relating to "basic equipment" integrated in the real property used for the nursing home, day care center and home support of the petitioner, in the amount of € 7,878.34.

As regards the expenses for "studies, project and supervision", relating to the years 2010, 2011 and 2012, the respondent authority, as presented in the inspection report, considered that the excess refunded VAT was € 2,242.50, invoking the same grounds presented for the previous situations, that is, the amount of expenses in this item, in the amount of € 38,250.00, regarding which the refund request was submitted and obtained of the corresponding tax, in the amount of € 8,490.00, exceeded the amount of approved financing which was € 17,880.04.

Thus, based on the accounts presented, the amount of excess paid VAT was € 4,485.00, and the petitioner would be entitled to only 50% of this amount, that is, to the aforementioned € 2,242.50.

Now, contrary to the respondent's position, since these expenses were likewise considered integrated in article 2(1)(a) of Decree-Law 20/90, which does not establish any limit to the amount of expenses for the purposes of VAT refund, it is found that the invoked articles 130 and 179 also do not establish any limit as to these amounts, with the VAT refund depending only on the fact that there was co-financing within the scope of an application approved before 31 December 2010, conditions which, as found to be proven, were met in the case at hand.

It is therefore ruled that the petition is well-founded as regards the annulment of the contested additional assessment in the part relating to VAT borne with expenses relating to "basic equipment", in the amount of € 2,242.50.

As regards the expenses relating to the year 2012 with goods or services relating to "fixed asset elements" the contested additional assessment considers that the sum of € 13,504.38 was unduly refunded.

The ground stated in the inspection report which served as its basis relates to the fact that a refund request was submitted relating to expenses in the amount of € 91,878.64, the amount of which thus exceeded the limit of € 9,975.96 provided for in article 2(1)(b) of Decree-Law 20/90.

Based on the calculation presented in the inspection report, the petitioner would only be entitled to obtain a refund of 50% of the VAT corresponding to said value of € 9,975.96, that is, € 1,147.23 (9,975.96 x 23%: 50%).

With the petitioner not contesting that it was paid the sum of € 14,651.61, based on the request which it duly submitted to the Tax Administration services, and with the argument that such expenses should be integrated in article 2(1)(a) of Decree-Law 20/90 not holding, it is found that that amount indeed far exceeded the sum provided for in article 2(1)(b) of Decree-Law 20/90 whose terms, combined with the restoration and 50% reduction operated by article 179(2) of Law no. 64-B/2011, provide that the refund would only be € 1,147.23.

In these terms, the petition for annulment of the contested additional assessment is partially unfounded as to the amount of € 13,504.38.

Finally, the contested additional assessment also contains the amount of € 2,346.00 evidenced in invoices issued in 2011 and 2012 relating to expenses incurred with "consulting services" in the context of monitoring the application project for public financing submitted by the petitioner.

The petitioner's position that the expenses giving rise to the VAT in question should be considered an expense of the construction of the real property and accordingly be framed in article 2(1)(a) of Decree-Law 20/90 is not supported.

In fact, based on the evidence produced, it was expense for obtaining services upstream of the construction/expansion operation of the building used as nursing home, day care center and home support service and not expense for the acquisition of goods or services directly integrated in the said work, and therefore did not fulfill the legal requirement, provided for in the cited article (a), of being concerned with tax borne on "Acquisitions of goods or services related to the construction, maintenance and preservation of real property".

It is therefore ruled that the petition for partial annulment of the contested assessment is unfounded as to the amount of € 2,346.00.

DECISION

In these terms, the arbitral tribunal decides to rule that the petition for annulment of the contested additional assessment is partially well-founded as to the amount of € 30,095.89 and to rule it unfounded as to the amount of € 15,850.38, condemning the petitioner and the respondent in costs in proportion to the amounts in which they failed.

Value of the Proceeding

Based on the provision of article 315(2) of the Civil Procedure Code (CPC), article 97-A(1)(a) of the Tax Procedure Code (CPPT) and article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceeding is set at € 45,946.27.

Costs

Pursuant to article 12(2) and article 22(4) of the Legal Framework of Tax Arbitration (RJAT), as well as article 4(4) of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached thereto, costs are set at € 2,142.00, with € 738.94 charged to the petitioner and € 1,403.06 charged to the respondent authority.

Notification

Lisbon, 7 December 2015

The Arbitrator,

(Joaquim Silvério Dias Mateus)

Frequently Asked Questions

Automatically Created

What is the right of IPSS institutions to VAT reimbursement under Decree-Law 20/90 in Portugal?
Under Decree-Law 20/90 of January 13, 1990, IPSS institutions (Private Institutions of Social Solidarity) in Portugal have the right to reimbursement of VAT borne on certain acquisitions related to their statutory activities. Article 2(1)(a) provides for VAT refunds on construction, expansion, or improvement of real property intended for statutory purposes without annual value limits. Article 2(1)(b) covers VAT on acquisition of goods and services relating to fixed asset elements, subject to an annual limit of €9,975.96. The regime was subsequently amended by Law 55-A/2010 and Law 64-B/2011, introducing transitional rules that reduced refund entitlements to 50% for expenses exceeding approved public co-financing amounts, particularly affecting construction projects with partial public funding.
Can the Portuguese tax authority revoke previously approved VAT refund decisions for social solidarity institutions?
Portuguese tax law establishes time limits for administrative review of tax decisions through the principles of legal certainty and legitimate expectations. When a tax authority approves VAT refund requests and makes payments to IPSS institutions, the subsequent revocation of those decisions raises questions of procedural legality and temporal limits. The petitioner in this case argued that revocation in 2014 of refund decisions approved and paid in 2011-2012 violated legal certainty principles. However, tax authorities maintain powers to correct erroneous refunds through additional assessments when they discover that payments exceeded legal entitlements, subject to statutory limitation periods. The legality of such revocations depends on factors including the applicable limitation period, whether the initial approval constituted a definitive administrative decision, and whether the institution acted in good faith based on reasonable interpretations of complex transitional legislative provisions.
How does the 50% VAT reduction rule under Article 179 of Law 64-B/2011 apply to IPSS construction costs?
Article 179(2) of Law 64-B/2011 of December 30, 2011, introduced a critical limitation on VAT reimbursement for IPSS construction projects. This provision stipulates that when social institutions have applications for public co-financing approved, they are entitled to refund only 50% of VAT borne on expenses that exceed the approved public financing amount. The rule's application involves determining: (1) whether the institution had an approved financing decision by the relevant date; (2) what portion of total construction costs was covered by approved public funding; and (3) whether the 50% reduction applies to the entire project or only to expenses exceeding the financing threshold. In this case, the tax authority calculated that €19,975.05 in VAT on buildings and constructions, €7,878.34 on basic equipment, and €2,242.50 on studies, projects, and supervision exceeded financing limits and should have been refunded at only 50%. The petitioner contested this interpretation, arguing that having obtained financing approval by December 31, 2010, under transitional provisions of Law 55-A/2010, entitled it to full refunds.
What is the CAAD arbitration procedure for challenging additional VAT assessments in Portugal?
The CAAD (Centro de Arbitragem Administrativa) arbitration procedure for challenging VAT assessments follows the Legal Framework of Tax Arbitration (RJAT) approved by Decree-Law 10/2011 of January 20. The taxpayer initiates the process by filing a petition requesting establishment of an arbitral tribunal and contesting the specific tax assessment. The President of the CAAD Ethics Council appoints an arbitrator (or panel of arbitrators), who must accept the appointment within the prescribed period. Parties may object to arbitrator appointments. Once the tribunal is established, it examines preliminary matters under Article 18 of RJAT and may hold a preliminary meeting if necessary. If there are no factual disputes requiring testimonial evidence, the tribunal may proceed directly to written submissions. Parties are notified and given opportunities to submit arguments. The tribunal then issues its decision within the established deadline. In this case, the sole arbitrator was appointed in June 2015, no preliminary meeting was held due to absence of disputed facts, and the decision deadline was set for December 15, 2015.
Does the VAT reimbursement limit under DL 20/90 apply when public financing does not cover total construction costs?
The interaction between DL 20/90 VAT reimbursement limits and partial public financing presents a complex interpretive question. The petitioner argued that Article 2(1)(a) of Decree-Law 20/90 permits full VAT refunds on construction and expansion expenses without requiring public financing to cover 100% of costs. The institution maintained that having an approved public co-financing application by December 31, 2010, satisfied the transitional requirements under Article 130(2) of Law 55-A/2010 and Article 179(2) of Law 64-B/2011, entitling it to full VAT refunds regardless of whether financing covered all expenses. The tax authority took the contrary position that the 50% VAT reduction rule applies specifically to the portion of expenses exceeding approved public financing amounts. This interpretation would require institutions to bear 50% of VAT costs on self-financed portions of construction projects. The dispute highlights ambiguity in legislative drafting regarding whether the 50% limitation applies: (a) only when no public financing is approved; (b) proportionally to the self-financed portion; or (c) not at all when any financing approval exists by the transitional date.