Summary
Full Decision
ARBITRAL DECISION
The arbiters Councillor Jorge Lopes de Sousa (arbiter-president, designated by the other Arbiters), Prof. Doctor Clotilde Celorico Palma (designated by the Taxpayer) and Dr. Emanuel Augusto Vidal Lima (designated by the Tax and Customs Authority) to form the Arbitration Court, constituted on 05-07-2017, agree as follows:
1. Report
A…, SA., a commercial corporation incorporated as a limited company, with registered office at Street …, …, …-… Lisbon, holder of the single identification number of collective person and registered in the Commercial Registry Office of Lisbon …, hereinafter referred to as "Claimant", came, under the provisions of articles 2nd, no. 1, item a), and 10th, nos 1 and 2, of Decree-Law no. 10/2011 of 20 January (hereinafter "RJAT"), and of articles 1st and 2nd of Ordinance no. 112-A/2011 of 22 March, to request the Constitution of an Arbitration Court, with a view to the declaration of illegality of the VAT assessment no. 2016…, period 201201, in the amount of € 114.620,04 (Doc. no. 2016…), of the assessment of compensatory interest of VAT no. 2016… and of the assessment of default interest no. 2016… (Doc. no. 2016…), period 201201, in the amount of € 21.875,92, being € 136.495,96 the total amount of the assessments.
The Claimant also requests the reimbursement of the amount paid, plus indemnificatory interest at the legal rate.
The Respondent is the TAX AND CUSTOMS AUTHORITY.
The Claimant designated as Arbiter Prof. Doctor Clotilde Celorico Palma, under the provisions of article 6th, no. 2, item b), of the RJAT.
The request for constitution of the Arbitration Court was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 10-04-2017.
Pursuant to the provisions of item b) of no. 2 of article 6th and no. 3 of the RJAT, and within the period set out in no. 1 of article 13th of the RJAT, the maximum director of the Tax Administration service designated as Arbiter Dr. Emanuel Augusto Vidal Lima.
The Arbiters designated by the Parties designated as President Arbiter Councillor Jorge Lopes de Sousa, who accepted the designation.
On 20-06-2017 the parties were duly notified of this designation, having not expressed the intention to refuse the designation of the arbiters, in accordance with the combined provisions of article 11th no. 1, items a) and b) of the RJAT and of articles 6th and 7th of the Code of Ethics.
In accordance with the provisions of item c) of no. 1 of article 11th of the RJAT, the collective arbitration court was constituted on 05-07-2017.
The Tax and Customs Authority submitted a response, defending the inadmissibility of the request for arbitral ruling.
On 24-11-2017, the meeting provided for in article 18th of the RJAT took place, in which witness evidence was produced and it was decided that the process would proceed with successive written submissions.
The Claimant presented submissions.
The Arbitration Court is competent, the parties enjoy legal personality and capacity, are legitimate and are duly represented (arts. 4th and 10th, no. 2, of the same diploma and art. 1st of Ordinance no. 112-A/2011, of 22 March).
The process does not suffer from nullities and no obstacle arises to the examination of the merits of the case.
2. Facts
2.1. Proven Facts
The following facts are considered proven:
a) The Claimant A…, SA - has as its object the rental, purchase, sale or resale of real estate, management of own real estate, administration and exploitation of real estate, provision of related services and other related activities (document no. 3 attached to the request for arbitral ruling, whose contents are hereby reproduced);
b) The Claimant began its activity on 30-12-2009, being classified as an exempt taxpayer under the terms of article 9th of the VAT Code, taking into account the declaration of start of activity it presented;
c) The Claimant is part of GROUP B… ("THE GROUP"), held by C…, SGPS, the share capital of which is entirely held by group D…, with registered office in Germany;
d) THE GROUP operates hemodialysis clinics in Portugal, located in hospital centers, in rented properties and in own properties;
e) The Claimant "was created to centralize all real estate where the group's companies carry out their activities, with the intention that these real estate not be subject to rental market variations";
f) The group's real estate assets were made up of properties where hemodialysis clinics were located;
g) The real estate that was the property of C…, SGPS was transferred to the assets of the present Claimant which took over the management of said real estate;
h) The concentration of real estate was carried out within the framework of a restructuring operation of the Group which also involved the merger of several companies into a single legal entity, E…, S.A. (currently F…, S.A);
i) The following identified companies are among the entities that were merged into E…, S.A. (currently F…, S.A., hereinafter referred to collectively as "F…"), and which held part of the real estate assets transferred to the present Claimant:
· G…, LDA;
· H…, SA;
· I…, LDA;
· J…, SA;
j) Following the transfer of real estate to the Claimant, lease agreements were entered into between the latter and F… as documents nos. 12 to 21 attached to the request for arbitral ruling, whose contents are hereby reproduced;
k) In the lease agreements, entered into on 30-12-2009, with amendments dated 30-12-2010, it states, among other things:
– that the "Leased Property" is given in lease by the Claimant, defined in the agreement as the property that is the subject matter of each one (First Clause of the agreements);
– that the leases are for indefinite time and "the parties may terminate the agreement, after at least 15 years from the beginning of its term" (Second Clause of the agreements amended);
– that each of the properties was intended for the installation and operation of a medical clinic by the Tenant (Third Clause of the agreements);
– that the rents are established in a fixed monthly amount paid by the eighth working day of the month prior to the one to which it refers, being updated annually according to the coefficients of update in force (Fourth Clause of the agreements amended);
– the Tenant is authorized to carry out at the leased property the works necessary for the pursuit of the activity it carries out there, namely the works necessary to comply with the legally required technical requirements (Eighth Clause of the agreements);
– at the end of the lease agreement the Tenant undertakes to return the Leased Property to the Landlord clean and in good condition, except with regard to normal deterioration resulting from prudent use of the facilities" and may choose "for the removal of all works that cannot be considered infrastructure of the leased property (Tenth Clause of the agreements);
l) An inspection procedure was carried out on the Claimant, conducted by the Finance Directorate of Lisbon, under Service Order no. OI2016…, of 25-02-2016, in which a report (RIT) was prepared which is contained in document no. 32, whose contents are hereby reproduced, which states, among other things the following:
(...)
In terms of VAT:
The A… is a taxpayer of Value Added Tax (VAT), as provided for in item a) of number 1 of article 2 of the VAT Code (CIVA), approved by D.L.394-B/84, of 26 December, being classified in the Exemption Regime of art. 9 of the CIVA, since 2009/12/30, as per the declaration of start presented by the TP.
(...)
III DESCRIPTION OF FACTS AND GROUNDS FOR PURELY ARITHMETIC CORRECTIONS
III.1 DESCRIPTION OF FACTS
The A…, SA was created to centralize all real estate where the group's companies carry out their activity, with the intention that these real estate not be subject to rental market variations.
Thus, real estate owned by the B… group companies in Portugal were transferred to the assets of A…, SA. the company having taken over its management, consequently carrying out its lease to the group's companies.
The acquisitions of real estate were carried out in the year of constitution of A…, SA, between 29 and 31 December 2009, and lease agreements were drawn up on the same date, with the exception of buildings still under construction (in … and …). In these properties, lease agreements were drawn up on 01-05-2012 and 02-09-2010, respectively in … and … .
The real estate held by the TP are ten, located in Abrantes, Barreiro, Évora, Grândola, Guarda, Lumiar (Lisbon), Portalegre, Santa Maria da Feira, Setúbal and Tavira.
The real estate was acquired from several companies:
- G…, Lda, TIN…;
- J…, SA, TIN…;
- H…, SA, TIN…;
- I…, Lda, TIN…;
- E…, SA, TIN… .
All companies were merged in the last company referred to, E…, SA, TIN…, which is the current F…, SA.
In 2012, F…, SA is the only entity that makes the payment of the rents of the real estate held by the TP.
A summary table of lease agreements was prepared, which is contained in Annex 3.
Through analysis of the respective lease agreements and amendments, it is verified that there are common to all agreements the following items:
- lease for indefinite time;
- the leased property is intended for the installation and operation of a medical clinic, for the exercise of the activity that constitutes the object of the tenant's business;
- the tenant is authorized to carry out at the leased property the works necessary to comply with the technically required standards for the pursuit of the activity it carries out there.
The A… set an initial rent, which was determined as the result of a percentage of the expected business value, in the amount of 16.6%, with the rent being annually updated according to the rent update coefficient provided for in specific legislation. Payment of rent was stipulated up to the eighth working day of the month prior to the one to which it refers.
In the lease agreements, in addition to the stipulated monthly rent, it was also established the payment as a deposit for the respective leased property, an amount corresponding to the value of the annual rent initially agreed, payable by the end of the year 2012, also subject to annual updates in accordance with the rent update coefficient provided for in specific legislation:
In 2010, rents and deposits were invoiced according to the nominal value of the agreements. In 2011, rents were also invoiced according to the nominal value of the agreements.
In 2012, up to September, inclusive, rents were invoiced according to the nominal value of the agreements; In October, rents for the Lumiar, Évora and Barreiro properties were also invoiced according to the nominal value of the agreements.
Also in October, calculations of rents were carried out with the updates resulting from the application of the rent update coefficients, provided for in specific legislation, as per the table below:
The deviations calculated for 2010 are relative to adjustments in rents (invoiced) so that these are correct according to the agreements and so that they do not have decimal values.
The deviations calculated for 2011 and 2012, derive from the application of the rent update coefficients, identified above and were calculated for both rents and deposits.
The calculations of these deviations are set forth in Annex 2, which the TP sent and which are hereby fully reproduced.
However, for better understanding, the totals of the deviations for each year are as follows:
With regard to the property in …, given that the lease agreement was signed in May 2012, the deposit was also invoiced in that month; however, due to an oversight by the TP, the amount of €623.262,86 was invoiced. However, the deposit relating to the property in …, was contracted in the amount of €436.284,00; updated by the rent update coefficients, the amount to be invoiced would be €451,572.00. The TP corrected this oversight, issuing credit note no. NC…, on 2012/11/08, in the amount of €171.690,86 (€623.262,86-€451.572.00).
Thus, at the level of invoicing for the year 2012, we have the values of rents for that year, the deposit for the property in …, in the amount of €451,572.00, invoiced in May 2012 and the updates resulting from the application of the rent update coefficients; these updates include the years 2010, 2011 and 2012, regarding rents and deposits and are set forth in the invoices issued in October 2012 and November 2012, which are contained in Annex 4.
The TP issues invoices with VAT exemption under no. 29 of art. 9 of the CIVA, as per copies of a monthly example of the invoices issued, which are contained in Annex 4.
However, it is understood, in the present case, that the lease of all the properties mentioned, is considered a provision of services subject to VAT and not exempt from the tax, in terms of item a) of no. 1 of art. 1, combined with no. 1 of art. 4, both of the CIVA, with the grounds stated in section III.2 of this report.
The aforementioned updates, although they are amounts relating to previous years, were invoiced in the fiscal year in question, therefore, according to item a) of no. 1 of art. 8, the tax is due at the moment of invoice issuance.
Thus, in relation to the invoicing issued in the year 2012, the following table was prepared to verify the monthly taxable base, to which the VAT rate in force for the provision of services should be applied, in terms of item c) of no. 1 of art 18 of the CIVA, of 23%.
III.2 GROUNDS FOR PURELY ARITHMETIC CORRECTIONS
In accordance with item a) of no. 1 of art. 1, combined with no. 1 of art. 4, both of the CIVA, the lease of real property is considered a provision of services subject to VAT.
However, the general principle of taxation, according to which the tax is levied on any provision of services carried out for a fee by a VAT taxpayer, provides for certain derogations, among which, no. 29 of art. 9 of the CIVA, which provides that the lease of real property is exempt, except in the situations described in its respective items a) to e).
This exemption results from the transposition into the national legal order of the provisions of item l) of no. 1 of article 135 of Directive 2006/112/EC of the Council, of 28 November, regarding the common system of value added tax, which establishes that: "1. The Member States shall exempt the following operations: (...) I) The Lease of Real Property".
The scope of the expression "lease of real property" contained in this legal provision was not defined in the Sixth Directive or in Directive 2006/112/EC of the Council, of 28 November 2006.
National legislation defines the concept of lease of real property, as provided for in article 1022 of the Civil Code, in the wording introduced by Law no. 6/2006, of 27 February, which approved the New Urban Rental Regime: "Lease is a contract by which one of the parties undertakes to provide the other with the temporary enjoyment of a thing, by means of compensation." These characteristics of the lease contract constitute its essential elements, and must not only be present in the lease operation but, moreover, must be the predominant characteristics in that economic operation.
More particularly, the lease of real property, in the sense of a passive placement of the real property at one's disposal, must be the preponderant performance of that economic operation.
The exceptions to the exemption correspond to economic operations that encompass not only situations of actual lease of real property, but also other types of characteristics arising from other contracts and which, for that reason, lose the quality of mere placement at one's disposal of places or surfaces of real property in exchange for compensation linked to the passage of time.
In these operations we are facing contracts where the importance of another type of services is paramount in relation to the simple lease of space, namely, installations or areas duly prepared and equipped to give continuity to the exercise of a commercial and/or industrial activity.
Thus, all situations must be excluded from the exemption which, despite sharing some of the elements of the lease contract, are essentially characterized by integrating other provisions of services ancillary to the enjoyment of the property and which imply active exploitation of the real property, beyond the simple temporary enjoyment of the property.
It is further stated that the tax administration has used a precise criterion that makes it possible to distinguish situations of lease of real property, pure and simple - mere rental - from other situations where that rental, under the conditions in which it is carried out, provides the tenant with a certain added value.
Thus, only the lease of real property for residential purposes or for non-residential purposes - commercial, industrial or agricultural - is exempt from VAT when carried out "bare walls", in the case of urban property or urban part in mixed properties, or "only the land" in the case of rural properties.
However, the concept of "bare walls" is not limited to this, it must be interpreted in light of the idea of differentiation between the civil law concept of lease of real property (in terms of article 1022 of the Civil Code), the contract by which one of the parties undertakes to provide the other with the temporary enjoyment of a thing, by means of compensation, and the concept of temporary transfer of business or transfer of business exploitation (in terms of article 1109 of the Civil Code, in the wording of Law no. 6/2006, of 27 February - New Urban Rental Regime), temporary and onerously transfer of the enjoyment of the property or part thereof, together with the exploitation of a commercial or industrial establishment located therein.
That is, the concept "bare walls", is not limited to the fact that the lease is accompanied or not by certain items of equipment, furniture or utensils. It is intrinsically related to the productive capacity of the Property, or better, the preparation for the exercise of a business activity.
This concept allows, therefore, to limit the exemption of lease of real property to situations in which the transfer of the enjoyment of the property is not accompanied by any equipment items installed in the Property or accompanied by the supply of furniture and/or other utensils.
As already mentioned, the creation of A…, SA was a business decision for the management of the real estate of the B… group companies in Portugal.
Thus, on the very day of acquisition of the properties they were leased to the group companies that owned them, that is, a formal movement of change of ownership took place, but which, in reality, did not change the fact that those companies already carried out their activity in said properties.
In concrete;
i) G…, Lda sold the Abrantes property to the TP on 30/12/2009 and on the same date the lease agreement was signed.
ii) J…, SA carried out, on 29/04/1999, a financial lease agreement with K… for the acquisition of land for construction of a building intended for a hemodialysis clinic, in …; on 31/12/2009 carried out a contract of promise to buy and sell with the TP, in which tradition of the property was given and on the same date the lease agreement was signed, iii) H…, SA sold the property of … to the TP on 30/12/2009 and on the same date the lease agreement was signed,
iv) I…, Lda sold the property of … to the TP on 30/12/2009 and on the same date the lease agreement was signed.
Through consultation of the computer system (Taxpayer Registration Management System and Model 10) and consultation of the permanent certificate from the Commercial Registry Office, it is verified that these four companies, at the date of sale of those properties, had their registered office at the address thereof, had open business activity, aimed at the provision of health care, namely in the area of hemodialysis, had workers in their charge, namely … (see annex 3), SA, current F…, for construction of a hemodialysis clinic; on 29/12/2009 E… draws up a contract of promise to buy and sell of future property with the TP and on 16/09/2010 it is the TP itself that acquires the land lots from the Municipality. On 01/10/2010 a promise lease agreement is drawn up between F… and the TP of the hemodialysis clinic, to be built by A…, stating in it that: "The property to be built must meet the technical requirements necessary for the operation of said Hemodialysis Clinic" and that the lease agreement will be drawn up within 30 days of the issuance of the building use license for the purpose stated above.
With regard to the property of …, on 29/12/2009 a contract of promise to buy and sell was drawn up between E…, SA current F… and the TP, with the acquisition being conditional on the issuance of the building use license that enables the hemodialysis clinic; in this agreement tradition of the Property was given and on the same date the lease agreement was drawn up.
With regard to the property of …, on 29/12/2009 a contract of promise to buy and sell was drawn up between E…, SA, current F… and the TP, with the acquisition being conditional on the issuance of the building use license that enables the hemodialysis clinic; in this agreement tradition of the property was given, The deed of purchase and sale was drawn up on 02/09/2010, with the lease agreement being drawn up on the same date.
With regard to the properties of …, … and …, the deed of purchase and sale was drawn up on 30/12/2009, with the lease agreement being drawn up on the same date.
It was requested via email, to each of these municipalities a copy of the building use license.
The property of … has authorization from the Municipality for Installation of a hemodialysis treatment unit since 30/03/1982.
The property of … has a building use license for medical clinic since 23/02/2000.
The property of … has a building use license for hemodialysis clinic since 07/11/2007.
It is thus verified that at the date of drawing up of the lease agreements of all the properties in question, these were already authorized for the exercise of medical clinic, namely for hemodialysis treatments, that is, the properties were already duly prepared for the exercise of an activity, equipped with a minimum of conditions that go beyond the concept, necessarily restricted of "bare walls".
By the foregoing, the lease of these properties is not exempt from VAT, pursuant to no. 29 of art. 9 of the CIVA, being considered a provision of services subject to VAT, in accordance with item a) of no. 1 of art. 1, combined with no. 1 of art. 4, both of the CIVA.
CONCLUSION
The corrections to be made to the assessed VAT are those contained in the table below, taking into account also articles 16 and 27, both of the CIVA:
m) Following the inspection action, there were issued (among others that are not the subject of the present process), relating to the period 201201, the VAT assessment no. 2016…, in the amount of € 114.620,04, the assessment of compensatory interest no. 2016… and the assessment of default interest no. 2016…;
n) It is F… that carries out the installation of the equipment necessary for hemodialysis in the clinics, which are its property (testimony of witnesses L… and M…);
o) Some of the equipment can be reinstalled in other clinics, which has already happened (testimony of witness L… and M…);
p) F… had a rented space for hemodialysis activity, in Évora, which was replaced by another, with the space being returned to the landlord without any equipment, which is in its interest, to preserve the know-how used in the facilities, namely regarding the water, electricity and sewage networks, with F… being the one who contracts companies and bears the costs of dismantling and removal of equipment (testimony of witnesses L…, N… and O… and document no. 31 attached to the request for arbitral ruling, whose contents are hereby reproduced);
q) In the clinics of Évora and Portalegre the properties are the property of the Claimant with all equipment being property of F… (testimony of witness L…);
r) When the properties were transferred to the Claimant there was an external appraisal to determine their value, considering the empty spaces, with only the properties, without any equipment intended for hemodialysis, being acquired by it (testimony of witnesses N… and O…);
s) At the time of that transfer of ownership of the properties to the Claimant, the equipment that was installed in them remained the property of F…, being assets recorded in its accounting (testimony of witnesses N… and O…);
t) The Claimant is not the owner of any equipment intended for hemodialysis nor does it have technicians to perform them (testimony of witnesses N… and O…);
u) The leases of the properties had as their subject matter only the spaces, which are property of the Claimant, not including any service or supply or adaptation of any of the infrastructure to hemodialysis activity, which was always carried out by F…, this being what results from its accounting (testimony of witnesses L…, N… and O…);
v) In the fixing of the prices of the leases of the Claimant's properties, the Group seeks that market prices be adopted, this determination being referred to in the transfer pricing file (testimony of witness N…);
w) The transfer of the properties to the Claimant was aimed at satisfying the Group's financing needs (testimony of witness O…);
x) On 03-02-2017, the Claimant made the payment of the amounts assessed (documents nos. 1 and 2 attached to the request for arbitral ruling, whose contents are hereby reproduced);
y) On 07-04-2017, the Claimant presented the request for arbitral ruling that gave rise to the present process.
2.2. Unproven Facts
There are no facts relevant to the decision of the case that have not been proven.
2.3. Justification for the determination of facts
The proven facts are based on the documents attached by the Claimant and on the witness evidence produced.
The witnesses appeared to testify with impartiality and with personal knowledge of the facts they reported.
3. Law
Under article 4, no. 1, of the CIVA, "are considered as provisions of services the operations carried out for a fee that do not constitute transfers, intra-community acquisitions or imports of goods".
However, by virtue of the provisions of article 9, no. 29, of the CIVA, the lease of real property is exempt from VAT, except in the situations described in its items a) to e).
The Tax and Customs Authority understood that the leases of real property carried out by the Claimant to F… are not exempt from VAT, for the following reasons, in essence:
– "lease is a contract by which one of the parties undertakes to provide the other with the temporary enjoyment of a thing, by means of compensation";
– "the lease of real property, in the sense of a passive placement of the real property at one's disposal, must be the preponderant performance of that economic operation";
– "the exceptions to the exemption correspond to economic operations that encompass not only situations of actual lease of real property, but also other types of characteristics arising from other contracts and which, for that reason, lose the quality of mere placement at one's disposal of places or surfaces of real property in exchange for compensation linked to the passage of time";
– "are thus, to be excluded from the exemption all situations that, despite sharing some of the elements of the lease contract, are essentially characterized by integrating other provisions of services ancillary to the enjoyment of the property and which imply active exploitation of the real property, beyond the simple temporary enjoyment of the property";
– "only the lease of real property for residential purposes or for non-residential purposes - commercial, industrial or agricultural - is exempt from VAT when carried out in "bare walls", in the case of urban property";
– "the concept "bare walls", is not limited to the fact that the lease is accompanied or not by certain items of equipment, furniture or utensils. It is intrinsically related to the productive capacity of the Property, or better, the preparation for the exercise of a business activity";
– "this concept allows, therefore, to limit the exemption of lease of real property to situations in which the transfer of the enjoyment of the property is not accompanied by any equipment items installed in the property or accompanied by the supply of furniture and/or other utensils";
– "at the date of drawing up of the lease agreements of all the properties in question, these were already authorized for the exercise of a medical clinic, namely for hemodialysis treatments, that is, the properties were already duly prepared for the exercise of an activity, equipped with a minimum of conditions that go beyond the concept, necessarily restricted of "bare walls".
Thus, the Tax and Customs Authority made the disputed assessment on the understanding that such exemption does not apply, because with the lease agreements there was not only transfer of the enjoyment of the property ("bare walls"), but also the enjoyment of equipment for hemodialysis treatments.
The evidence produced contradicts this conclusion, as the Claimant only acquired the properties that were leased to the group companies that owned them, without any equipment intended for hemodialysis that was installed therein, which continued to belong to the respective companies that owned them, and which never formed part of the Claimant's assets.
Thus, having only been availability of the properties by the Claimant and not of any equipment installed therein nor of utensils or furniture existing therein, both at the date of conclusion of the lease agreements and subsequently, it must be concluded that, with the agreements, the Claimant only transferred availability of the properties, "bare walls", which is what it owned.
In these terms, it is concluded that the agreements concluded embody "lease of real property", for the purposes of no. 29) of article 9 of the CIVA, therefore, with none of the exceptions provided in its items being verified, the exemption is applicable.
Consequently, the disputed assessment is illegal, due to a violation of this norm, which justifies its annulment, in accordance with the provisions of article 163, no. 1, of the Administrative Procedure Code subsidiarily applicable pursuant to article 2, item c), of the General Tax Law.
3.1. Assessment of compensatory interest
The assessment of compensatory interest is based on the assessment of VAT (article 35, no. 8, of the General Tax Law), therefore the defects affecting the VAT assessment have repercussions on the assessment of compensatory interest, also justifying its annulment.
3.2. Issues prejudiced as to knowledge
Being to judge as well-founded the request for arbitral ruling as to the VAT assessments and compensatory interest disputed, based on a defect of violation of law, which provides stable and effective protection of the interests of the Claimant, the knowledge of the remaining issues raised becomes moot, being unnecessary (article 130 of the Code of Civil Procedure).
4. Reimbursement of amounts paid and indemnificatory interest
The Claimant paid the amounts assessed of € 114.620,04 of VAT and compensatory interest and default interest in the amount of € 21.875,92, being € 136.495,96 the total amount paid.
In accordance with the provisions of item b) of article 24 of the RJAT, the arbitral decision on the merits of the claim that is not subject to appeal or challenge binds the Tax Administration from the end of the period provided for appeal or challenge, this being required to, in the exact terms of the founding of the arbitral decision in favor of the taxpayer and until the end of the period provided for the spontaneous execution of the decisions of the judicial tax courts, "restore the situation that would exist if the tax act subject to the arbitral decision had not been carried out, adopting the acts and operations necessary for this purpose", which is in line with the provision of article 100 of the General Tax Law [applicable by virtue of the provisions of item a) of no. 1 of article 29 of the RJAT] which establishes that "the tax administration is obliged, in case of total or partial founding of a gracious claim, judicial challenge or appeal in favor of the taxpayer, to the immediate and full restoration of the legality of the act or situation that is the subject of the dispute, including the payment of indemnificatory interest, if applicable, from the end of the period of execution of the decision".
Although article 2, no. 1, items a) and b), of the RJAT uses the expression "declaration of illegality" to define the jurisdiction of the arbitration courts operating in the CAAD, not making reference to condemnatory decisions, it should be understood that it comprises within its jurisdiction the powers that, in judicial challenge proceedings, are attributed to the tax courts, this being the interpretation that is in line with the meaning of the legislative authorization on which the Government based itself to approve the RJAT, in which it proclaims, as the first guideline, that "the tax arbitration process must constitute an alternative procedural means to the judicial challenge process and to the action for recognition of a right or legitimate interest in tax matters".
The judicial challenge process, although it is essentially an annulment process of tax acts, admits the condemnation of the Tax Administration to the payment of indemnificatory interest, as can be inferred from article 43, no. 1, of the General Tax Law, in which it is established that "indemnificatory interest is due when it is determined, in a gracious claim or judicial challenge, that there was an error attributable to the services from which results the payment of the tax debt in an amount greater than that legally due" and from art. 61, no. 4 of the Tax Code of Procedure and Process (in the wording given by Law no. 55-A/2010, of 31 December, which corresponds to no. 2 in the original wording), that "if the decision that recognized the right to indemnificatory interest is judicial, the period for payment is counted from the beginning of the period of its spontaneous execution".
Thus, no. 5 of article 24 of the RJAT, when it states that "payment of interest is due, regardless of its nature, in the terms provided for in the general tax law and in the Tax Code of Procedure and Process", should be understood as allowing the recognition of the right to indemnificatory interest in the arbitration process.
On the other hand, since indemnificatory interest is calculated on an amount to be reimbursed, in that jurisdiction to examine requests for indemnificatory interest is included the jurisdiction to examine the inherent requests for reimbursement.
It is necessary, therefore, to examine the request for reimbursement of the amount unduly paid, plus indemnificatory interest.
With the annulment of the assessments, there is a need for reimbursement of the amounts paid, as the acts of assessment that justified the payment no longer subsist in the legal order.
As regards indemnificatory interest, the substantive regime is regulated in article 43 of the General Tax Law, which establishes, as far as relevant here, the following:
Article 43
Undue payment of tax obligation
1 – Indemnificatory interest is due when it is determined, in a gracious claim or judicial challenge, that there was an error attributable to the services from which results the payment of the tax debt in an amount greater than that legally due.
2 – It is also considered that there is an error attributable to the services in the case where, although the assessment is made on the basis of the declaration of the taxpayer, this has followed, in its preparation, the generic guidelines of the tax administration, duly published.
The illegality of the assessments is attributable to the Tax and Customs Authority that carried them out of its own initiative, without the Claimant having any behavior that can be considered its cause.
Consequently, the Claimant is entitled to indemnificatory interest, in terms of articles 43, no. 1, of the General Tax Law, 61 of the Tax Code of Procedure and Process and 104, no. 6, of the Corporate Income Tax Code, from the date of payment (03-02-2017), calculated on the amount € 136.495,96, until this amount is reimbursed.
Indemnificatory interest is due at the legal supplementary rate, in terms of articles 43, nos. 1, and 35, no. 10 of the General Tax Law, of article 24, no. 1, of the RJAT, of article 61, nos. 3 and 4, of the Tax Code of Procedure and Process, of article 559 of the Civil Code and Ordinance no. 291/2003, of 8 April (or other or others that alter the legal rate.
5. Decision
In accordance with the foregoing, this Arbitration Court agrees to:
a) Judge the request for arbitral ruling as well-founded;
b) Annul the VAT assessment no. 2016…, period 201201, in the amount of € 114.620,04;
c) Annul the assessment of compensatory interest no. 2016… and the assessment of default interest no. 2016…, in the total amount of € 21.875,92;
d) Judge as well-founded the requests for reimbursement of the amount of € 136.495,96 and for indemnificatory interest, in the terms defined in section 4 of this award.
6. Case value
In accordance with the provisions of art. 305, no. 2, of the Code of Civil Procedure and 97-A, no. 1, item a), of the Tax Code of Procedure and Process and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is set at € 136.495,96.
Lisbon, 22-12-2017
The Arbiters
(Jorge Lopes de Sousa)
(Clotilde Celorico Palma)
(Emanuel Augusto Vidal Lima)
Frequently Asked Questions
Automatically Created