Summary
Full Decision
ARBITRAL DECISION
The arbitrators Cons. Jorge Manuel Lopes de Sousa (arbitrator-president), Dr. José Nunes Barata and Dr. ª Filipa Barros (arbitrator-members), designated by the Ethics Council of the Administrative Arbitration Center to form the Arbitral Tribunal, constituted on 14-07-2016, hereby agree as follows:
1. Report
A…, LDA., NIPC…, with registered office at Rua…, n.º…, …, …, hereinafter referred to as "Claimant", filed a request for arbitral decision pursuant to the Legal Framework for Arbitration in Tax Matters, approved by Decree-Law no. 10/2011, of 20 January (hereinafter referred to as LFAT), with a view to the annulment of VAT assessments relating to the fiscal years of 2010, 2011 and 2012.
The Claimant further requests that it be recognized the right to compensatory interest and indemnification for undue guarantee.
The respondent is the TAX AND CUSTOMS AUTHORITY.
The request for constitution of the arbitral tribunal was accepted by the President of CAAC and automatically notified to the Tax and Customs Authority on 13-05-2016.
Pursuant to the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the LFAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the Ethics Council designated as arbitrators of the collective arbitral tribunal the signatories, who communicated acceptance of the assignment within the applicable period.
On 29-06-2016 the parties were duly notified of such designation, and did not express any intention to refuse the designation of the arbitrators, pursuant to the combined provisions of article 11, no. 1, paragraphs a) and b) of the LFAT and articles 6 and 7 of the Code of Ethics.
Thus, in accordance with the provisions of paragraph c) of no. 1 of article 11 of the LFAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 14-07-2016.
The Tax and Customs Authority responded arguing that the petition should be judged without merit.
By order of 02-10-2016 it was dispensed with the holding of a meeting and decided that the proceedings continue with written submissions.
The parties submitted written submissions.
The arbitral tribunal was duly constituted, in accordance with the provisions of articles 2, no. 1, paragraph a), and 10, no. 1, of Decree-Law no. 10/2011, of 20 January, and is competent.
The parties are duly represented, have legal personality and capacity, are legitimate and are represented (articles 4 and 10, no. 2, of the same decree and article 1 of Order no. 112-A/2011, of 22 March).
The proceedings do not suffer from nullities and no exceptions were raised nor is there any obstacle to the consideration of the merits of the case.
2. Facts
2.1. Proven Facts
Based on the elements contained in the file and documents attached to the request for arbitral decision, the following facts are considered proven:
a) The Claimant is a VAT taxable person, classified, for VAT purposes, under the normal monthly periodicity regime, by option, since 01-01-1986;
b) An inspection was carried out on the Claimant by the Finance Office of Porto, accredited by inspection orders no. OI2014…, OI2014… and OI2014…;
c) The inspection procedure was motivated by the fact that, through analysis of the VIES system, it was ascertained that the company A…, Lda., with the NIF…, and the commercial designation "B…", declared intra-community supplies, in the fiscal years of 2010, 2011 and 2012, to the following companies based in Spain: ES – … C…, SL, ES - …– D… SL and ES –… – E… SL – Cfr. TIR.
d) In that inspection action, the Draft Tax Inspection Report was prepared, which is contained in the administrative file, whose content is given as reproduced;
e) The Claimant exercised the right to be heard on the Draft Tax Inspection Report, in the manner contained in the administrative file, whose content is given as reproduced;
f) Subsequently, the Tax Inspection Report was prepared, which is contained in the administrative file, whose content is given as reproduced, in which it states, among other things, the following:
1.2 - Brief description of the conclusions of the inspection action
Value Added Tax (VAT)
For VAT purposes, corrections to tax assessed are proposed, relating to operations subject to tax in accordance with article 1 of the VAT Code by the reasons set out in Chapter III, in the following amounts divided by the following periods:
(...)
III - Description of Facts and Grounds for Mere Arithmetic Corrections to Taxable Income
III.1 - Spanish Company(ies)
In order to ascertain the capacity of the companies based in Spain to carry out the operations contained in the VIES, and under the Frontier Cooperation Agreement for Direct Exchange of Tax Information concluded on 24/10/2006 between the authorities of the Portuguese Republic and the Kingdom of Spain, the following information was requested about these entities:
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All Portuguese and Spanish companies are engaged in the trade of textile items (fabrics and clothing).
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Please inform who are the holders of capital of the referred companies and their respective corporate bodies.
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To ascertain whether in the fiscal years 2009 to 2011 the companies complied with their tax declaration and payment obligations and what business volumes were declared by each one.
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As it is within our knowledge and confirmed by consultation in the VIES, the companies in question carried out transactions among themselves reaching very significant amounts, reaching millions of Euros per year. Thus, and in light of what was declared, please inform us whether the companies have structure, logistic capacity and human resources to carry out the declared operations.
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Collect the invoices supporting the intra-community transactions carried out and respective transport documents. Also collect the receipts of payments and receivings of those transactions.
The Spanish authorities, in response to the information requested, informed the following regarding each of the entities.
From the table and other information provided by the Spanish tax administration, it appears that the companies, in the years 2009 to 2011, have several points in common, namely:
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The address is the same;
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They did not respond to the notifications made by the Spanish Tax Administration, with only the notification made to the company D…, SL, being returned.
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The companies were not known by their neighbours;
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Despite being unknown at the registered office address and signs of inactivity, the tax obligations in 2 of the companies were partially complied with. The information sent by that Administration further states that, regarding the fulfilment of tax obligations that, when consumed, show negative or balanced values, in order to give rise to payment of tax of reduced amount, or give rise to no tax payment.
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The compliance with the formality of declaring to the VIES system the operations carried out;
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The responsible persons (partner/proxy) are common;
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There is no information in that Tax Administration's database that the companies had employees to whom they paid income.
III.2 - Indications found in other companies declaring sales to the Spanish companies
Inspection procedures were proposed to other companies with registered office in the territorial area of this Finance Office, accredited by external order for information collection. Some of these entities were subject to external visit to collect information relating to these transactions and some were notified by mail to present the respective sales invoices, transport documents and means of payment, as well as the respective purchase orders for the goods and contact person of the Spanish companies. The remaining suppliers from other Districts were also notified to exhibit these same elements.
From the analysis of the elements collected and the statements drawn up with the suppliers, the following relevant facts were ascertained:
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In relation to the contact person(s) and order method, it was found that almost all of them were made by the same 2 people. The orders were made either by telephone, fax or e-mail, to national numbers.
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These 2 people, in the fiscal years 2010 and 2011, earned income paid by entities based in national territory and even by the company identified in the transport documents and in the statement, as the carrier of goods to Spain.
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In certain situations it was stated that the same people, at an earlier date, made the same orders of the same products but the invoice was issued in the name of other Portuguese companies, whereas when we visited the same orders were again invoiced in the name of those companies.
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There were other entities that informed that no prior orders were placed, but that the driver himself, who identified himself as a worker of the transport company, who went to their facilities, would choose the product, taking the quantity sufficient for the money he carried to pay. This situation of cash payment by the driver was recurring with some suppliers.
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One of the circularized suppliers stated that although the invoices were issued in favour of the Spanish companies D…, SL and E…, Lda the goods were delivered by their vehicles at an address in Porto.
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From the analysis carried out, it was ascertained that when the transport of these goods is not carried out in vehicles of the transport company, F…, Lda, but by other transport entities, the goods are not delivered in Spain but in Porto.
These facts indicate that the actual transport of these sales from suppliers of the Spanish companies is not to Spain but to the general warehouse and distribution centre located in the city of Porto.
III.3 - Elements collected from company A…, Lda
From the elements analyzed, more specifically the transport documents, some inconsistencies were found, such as the load capacity of the vehicles indicated in the CMR being substantially lower than the weight of the goods transported, see for example the sales invoices of company A…, Lda, the CMRs and respective vehicles indicated in the CMRs, which are listed in the following table:
Questioned about some aspects of the relationship between company A…, Lda and the Spanish companies, more specifically whether there were contacts directly with the Spanish companies or with any Spanish worker, the managing partner said that the contacts were made only with the people who placed the orders, essentially by telephone. These were (are) of Portuguese nationality and, as mentioned earlier, earned income paid by entities based in national territory and had their tax domicile in national territory.
Regarding who they contacted to receive the billed amount, she said they were the same people who placed the orders.
Conclusion
Given that:
1 - The recipient companies of the goods had no physical structure nor personnel at their service that would allow them to carry out commercial, industrial or other activity;
2 - They were not known at the registered office address (common to all);
3 - They have common partners/proxies among them;
4 - It is a common practice for orders, between companies that declared Intra-Community Supplies of Goods (ICSG) and the Spanish companies, to be made by telephone, fax of national numbers, by the same people, with employment link with national companies that paid them dependent work income.
These situations combined with others referred to in point III.2, by themselves sufficient to question the departure of goods from national territory, and there is further:
5 - Transport documents were found with discrepancies between the load capacity of the vehicles, identified as having been used in the transport of goods sold by company A…, Lda, and the weight of the goods transported, that is, the weight of the goods transported exceeding the load capacity of the vehicle. Moreover, they are mostly light passenger vehicles, with only one being for cargo.
Given the above and the absence of other elements/facts that prove unequivocally that the goods in question left Portugal, it is concluded that they were consumed in national territory and are therefore considered internal goods supplies, subject to tax in accordance with article 1 of the VAT Code.
The sales invoices of company A…, Lda to those Spanish companies, which are listed in the table attached to this document, amount to:
Given the above, the following corrections are proposed, for VAT purposes:
(...)
VIII - Right to be Heard
The taxable person was notified, through our letter …/… of 14/10/2014, to exercise within a period of 15 days his right to be heard pursuant to article 60 of the LGT and 60 of the RCPIT.
In this context, the TP comes to allege the following:
1st - It appears from the Project of Corrections of the Inspection Report in response that this company, when contracting with the companies in question, and in the course of the same, acted with carelessness, perhaps complicity.
2nd - In fact, it follows from that document that the acquiring entities are "phantom" companies, without physical facilities or own human resources, acting with the sole purpose of simulating intra-community transactions and, thereby, evading the assessment and payment of VAT.
3rd - As this company had occasion to state, and now comes to reiterate, such suspicions lack foundation.
Regarding point 1 of the right to be heard, nowhere in the project notified to the TP was any assumption of carelessness and complicity of the TP with the situation referred to imposed.
Regarding the characterization of the Spanish companies, present in the report, the facts ascertained and described in point III 1, derive from information collected by the Spanish tax entity and are based on concrete facts. Likewise, in the project no purpose was presented by the acquirers of the situation verified, contrary to what was alleged by the TP in point 2nd.
4th - First, because, before the beginning of the commercial relationship that would come to be established, this company took care to validate through consultation to the finance portal on intra-community transactions of the VAT Information Exchange System (VIES) Validation no. VAT, it always resulted in a valid VAT number of the acquiring entities, to which the legal existence of the same would naturally be associated
5th - Then, because, monthly this company filled out and submitted the "Recapitulative Declaration", and it has never occurred, as a result of its processing, any sign of irregularity, on the part of the acquirers, precisely because, namely, these submitted, correlatively, the referred "Recapitulative Declarations" to the Spanish tax authorities.
6th - On the contrary, these always created the appearance and certainty that they were companies that carried out their activity within a framework of normality, stability, it being emphasized that, like what became customary in trade, orders were placed by electronic mail.
Regarding the arguments presented by the TP in these points, it must be informed to us, as described in point III.1, that the Spanish companies were legally established in Spanish territory, and that in this they complied with their legal declarative obligations to the local Tax Administration, with the exception of "C…, SL".
Thus, as indicated by the TP in point 6th the "appearance" was created that these companies exercised their activity within a framework of normality. However, this normality was merely formal because in physical terms and human capacity, the entities had no structure that would allow the exercise of the declared activity.
7th - In the same way that such orders were always received by the same collaborator of this company – G…- there was nothing surprising or unusual that those orders were presented by one or two same people.
8th - Besides and as it is easy to understand, from the moment this company - or any other placed in the same circumstances - accepts electronic media as a means of communication or binding - with all the conveniences and disadvantages inherent to it - it cannot, subsequently, rely on a level of formal rigor and requirements incompatible with that means of communication, such as the identity of whoever appears to subscribe to the electronic mail.
In points 7th and 8th the TP comes to argue that the means used for the placement of orders, through electronic mail, is a normal situation in commercial activity and there was nothing surprising and unusual that those orders were presented by one or two people. In relation to the people who placed the orders, in addition to what has already been said above, it should be noted that the manager of the TP, when questioned, stated in the statement that indeed the orders were made by two people, mostly by telephone, and one of them was the liaison link with other companies its clients with registered office in national territory. All commercial relationships with the Spanish companies were carried out with the same two people with no direct contact with the entities based in Spain. It should further be noted that the e-mail contained in the orders presented is @...com, and this person was referenced as a liaison link with previous clients based in Portugal, and at the time of placing the orders earned income from that Portuguese company ("H…") and even from the transport company. No employment relationship of these two people with the Spanish entities was ascertained.
9th - It is further the case that a substantial part of the payments were made by bank transfer or cheque, from a Spanish bank and account domiciled in Spain, which payments the latter never refused.
In point 9th of the right to be heard, the TP comes to state that a substantial part of the payments was made by bank transfer or cheque, from a Spanish bank. Regarding this payment question, no document was presented to corroborate the statements made. However, payments made with Spanish cheques and transfers are considered yet another means used by the Spanish companies, or someone on their behalf, to give form to Intra-Community Supplies of Goods, without any substance.
11th - Faced with the inquiry initiatives in the context of this report, in which it participated, this company immediately took care to inquire with the acquirers about the relevance of the suspicions raised by the Tax Administration, as a result of which it was clarified to it:
a) That the acquirers were registered in the competent Spanish bodies, namely in the Commercial Registry and in the "Labour and Welfare Registry".
b) They had the services and human resources necessary for the activity, such as accounting (contracted to third parties) and personnel assigned to commercial and logistics areas.
c) Those acquirers were also registered with the Spanish Social Security, paying monthly the contributions due.
d) They had a staff list and insurance contracted for work accidents.
e) The acquirers had, over time, their registered office installed in an Industrial Park located in Galicia, Spain, in accordance with the mentions contained in their correspondence and their administrative records.
The TP comes to indicate in point 11th that it inquired with the acquiring entities and that it collected various evidence that were described in paragraphs a) to e) of that same point.
It did not indicate who specifically it contacted for the collection of this information, whether they were the same people it usually contacted, or others.
The elements contained in point 11 were not minimally proven by the TP and the arguments presented are somewhat vague. For example, it indicates that the acquirers had over time their registered office in an industrial park located in Galicia. Now Galicia is a province of Spain, geographically with an area of relevance and which has quite a few Industrial Parks. It was not indicated by the TP at least which one. It was informed that the accounting was carried out by third parties and that it had staff assigned to commercial and logistics areas. However, the Spanish tax entities did not detect the registration of any employee of these companies, and they only paid income of reduced value to the managers and a proxy.
12th - It remains to say that this company is naturally unaware of the path taken by the goods it sold.
13th - Thus, and for this purpose, it will only reiterate that the "CMRs" demonstrate the actual departure of those goods outside the country. "The proof should be made through documents supporting the transport contract carried out, that is, the CMR (International Consignment Note, in land transport), and/or other documents that are legally required for the transport of the goods in question, as well as documents that allow the carrier to prove to its customer the delivery made".
In terms of documentation and destination of goods, in points 12th and 13th and the TP states it does not know the path taken by the goods and that the CMRs demonstrate the actual departure of the goods from the country.
As indicated above, in formal terms the documentation was correctly prepared, but physically the goods did not have as destination the address indicated in the same CMRs, due to the lack of physical facilities in that location of the acquiring entities, associated with all the physical inability to exercise the activity.
Conclusion:
The TP, in addition to the elements presented above relating to sales to the Spanish entities, in the right to be heard presented arguments, which were above rebutted, but presented no documentary element to corroborate the allegations. Thus, having the TP exercised its right to be heard timely and provided for in article 60 of the LGT and 60 of the RCPIT, it presented no fact that could alter the conclusions ascertained by the tax inspection, and the proposed corrections will be maintained.
g) Following the inspection, the following additional VAT assessments and compensatory interest were issued:
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Assessment no. …, relating to period 1110;
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Assessment no. …, relating to period 1109;
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Assessment no. …, relating to period 1108;
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Assessment no. …, relating to period 1107;
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Assessment no. …, relating to period 1106;
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Assessment no. …, relating to period 1105;
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Assessment no. …, relating to period 1104;
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Assessment no. …, relating to period 1103;
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Assessment no. …, relating to period 1102;
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Assessment no. …, relating to period 1101;
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Assessment no. …, relating to period 1012;
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Assessment no. …, relating to period 1011;
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Assessment no. …, relating to period 1010;
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Assessment no. …, relating to period 1009;
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Assessment no. …, relating to period 1008;
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Assessment no. …, relating to period 1007;
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Assessment no. …, relating to period 1006;
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Assessment no. …, relating to period 1005;
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Assessment no. …, relating to period 1004;
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Assessment no. …, relating to period 1003;
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Assessment no. 2014 …, relating to period 1111;
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Assessment no. 2014 …, relating to period 1112;
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Assessment no. 2014 …, relating to period 1201;
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Assessment no. 2014 …, relating to period 1202;
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Assessment no. 2014 …, relating to period 1203;
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Assessment no. 2014 …, relating to period 1204;
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Assessment no. 2014 …, relating to period 1205;
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Assessment no. 2014 …, relating to period 1206;
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Assessment no. 2014 …, relating to period 1207;
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Assessment no. 2014 …, relating to period 1208;
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Assessment no. 2014 …, relating to period 1209;
h) On 16-04-2015, the Claimant filed a gracious review of the assessments;
i) The gracious review was denied by order of 22-01-2016, issued by the Head of the Division of Administrative and Contentious Law of the Finance Office of Porto, manifesting agreement with an opinion whose content is given as reproduced in which it states, among other things, the following:
From the consideration of the petition
The claiming taxpayer was subject to an internal inspection action carried out by the Tax Inspection Services of the Finance Office of Porto, regarding the years 2010, 2011 and 2012.
The referred inspection focused on the analysis and verification of the transmission of goods carried out by the taxable person to a country belonging to the territory of the community (Spain), during the years referred to above.
The Claimant begins by arguing that the decision of the Tax Administration, as well as the VAT assessments here in question that followed, are not based, contrary to, in particular, what is provided in article 77 of the General Tax Law (LGT) and 268 no. 3 of the Constitution of the Portuguese Republic (CRP).
However, we cannot agree with what was alleged. In fact, we can only sustain and defend that the assessments were validly based, inasmuch as from their notification it results that they were the consequence of mere arithmetic corrections resulting from the inspection action that was carried out on the Claimant for the years in question (2010 to 2012).
The Claimant himself recognizes in his petition that the additional VAT assessments for those years were due to the fact that the TIS considered that the supplies of goods made by himself would not benefit from the exemption provided in article 14 of the RVAT Code, given that he failed to prove that the goods physically left national territory to another Member State, which only shows that the same, as addressee of the act, became aware of the cognitive and evaluative route followed by the author of the act.
From reading the TIR it appears that the table configured at page 3 was altered in view of what was presented in the draft report, since the latter was not correct.
However, the additional VAT assessments here in question result from the conclusions reached in the final report, which is drawn up after the exercise of the right to be heard by the taxpayer, pursuant to article 60 of the RCPIT. The right to be heard exists as a means of defence of the taxpayer in view of what is alleged in the draft report by the TIS. In other words, it serves as a means for the taxpayer to counter the grounds thereof.
Now, the claimant exercised his right to be heard, which only means that he properly understood the content of the draft report.
Following this, we cannot equally agree with the Claimant when he alleges that the additional VAT assessments resulted from mere inferences, presumptions and indications. This is because the conclusions reached by the TIS and which in turn support the VAT assessments under discussion are not based on any presumption. Quite the contrary: from the elements collected at the registered office of the claiming company when the inspection action was carried out, as well as from the information requested from the Spanish tax authorities, serious and sure indications resulted that the acquiring companies of the goods supplied by the taxpayer did not have any physical structure, nor personnel at their service capable of allowing them to carry out a normal commercial or industrial activity. Besides this, such companies were not at all known at the location indicated as being their registered office.
As for the contacts made with those (Spanish) companies, the TIS were informed that orders were made by telephone or fax with national numbers, by persons of Portuguese nationality who earned income paid by entities with registered office in national territory and therefore, without any link with the referred Spanish companies. There having therefore been no direct contact between the claimant and the referenced Spanish customers.
Now, in light of the above, we do not see any presumption made by the TIS here. Thus, for these reasons, the supplies of goods made by the claimant were considered by the TIS as internal goods supplies subject to tax (VAT), pursuant to article 1 of the VAT Code, reason why we can only defend that the decision of the Tax Administration is duly based, having started with the description of the factual assumptions to then conclude on the legal ones, as it did.
In fact, for such supplies to benefit from the exemption provided in article 14, no. 1, paragraph a) of the RVAT Code, it would be necessary that all its requirements be cumulatively met. Now, the referred article prescribes the following: "The following are exempt from the tax... Supplies of goods, made by a taxable person of those referred to in paragraph a) of no. 1 of article 2, dispatched or transported by the seller, by the purchaser or on their behalf, from national territory to another Member State destined to the purchaser, when the latter is a natural or legal person registered for value added tax purposes in another Member State, who has used the respective identification number to make the acquisition and is there covered by a taxation regime for intra-community acquisitions of goods." (emphasis ours).
A taxable person is understood pursuant to article 2, no. 1, paragraph a) of the RVAT Code, natural or legal persons considered as such in accordance with article 2, no. 1, paragraph a) of the VAT Code, who carry out supplies of goods or provision of services that confer the right to total or partial deduction of the tax.
Thus, for these supplies to be considered exempt from VAT in the State of origin, it is necessary, pursuant to the above article, the cumulative fulfillment of the following legal requirements:
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that the supply was made with onerous character;
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the seller must be a taxable person pursuant to article 2, no. 1, paragraph a) of the RVAT Code;
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the goods must be dispatched or transported from Portugal (State of origin) by the seller, by the purchaser or on their behalf, destined to another Member State (State of destination);
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the purchaser to be a natural or legal person who used, to make the acquisition, the valid identification number for VAT purposes assigned by the Member State of arrival of the goods and is there covered by a taxation regime for intra-community acquisitions of goods.
It happens that the Claimant failed to prove the physical circuit, that is, the departure of goods from national territory to another Member State, in the case, Spain.
For, despite having presented the due CMRs, this only shows that formally the documentation used was the correct one, but it does not prove that the goods actually had as destination the address contained in the said documents. This is because it is clear from the lack of facilities of the claimant's client companies, as well as their total physical incapacity to exercise normal commercial or industrial activity.
Regarding what is invoked by the Claimant that the seller could never by itself guess the destination that would be given to the goods, when it was the buying companies themselves that assured him that the goods were destined to Spain, we cannot, as far as this aspect is concerned, accept the argument invoked by him. This is because, by force of Binding Information no. 2475 of 29/09/2011, the verification of the conditions for the application of the exemption of article 14, no. 1, paragraph a) of the RVAT Code, mentioned in a given transaction, is the responsibility of the seller taxable person, who must be capable of proving all the elements required in the referenced article 14, namely, the transport of goods to another Member State, on pain of the operation being considered located in national territory and, as such, subject to tax (VAT).
Thus, having the seller taxable person failed to prove the departure of the goods sold to the Member State of destination, the transactions in question were considered by the TIS as internal operations and, as such, subject to tax and not exempt thereof.
Thus, for the reasons pointed out above, having the taxpayer not proved the physical departure of goods from the State of origin (Portugal) to the State of destination (Spain), either in the inspection action or in the gracious review, the petition is to be denied, and therefore the transactions should be subject to VAT assessment by their supplier in the State of origin.
j) All transport of goods sold by the Claimant to the referred Spanish companies was carried out by the company F… declarations of I…, managing partner of the Claimant, which are contained in the administrative file and documents nos. 50 to 231 attached to the request for arbitral decision, whose content is given as reproduced);
k) The Claimant constituted a mortgage intended to obtain suspension of the fiscal execution instituted for collection of the amounts assessed (document no. 22 attached to the request for arbitral decision, whose content is given as reproduced);
l) On 26-01-2016, the Claimant filed the request for constitution of the arbitral tribunal that gave rise to the present proceedings.
2.2. Unproven Facts
It was not proved that the Claimant paid the amounts assessed.
It was not proved that the goods sold by the Claimant to Spanish companies left Portugal in their entirety, nor was it proved that the goods referred to or part thereof did not leave the Country.
In the Tax Inspection Report it is stated that "from the analysis carried out, it was ascertained that when the transport of these goods is not carried out in vehicles of the transport company, F…, Lda, but by other transport entities, the goods are not delivered in Spain but in Porto".
But the only reference found in the Tax Inspection Report to these hypothetical deliveries in Porto is information from "one of the circularized suppliers", who would have stated "that although the invoices were issued in favour of the Spanish companies D…, SL and E…, Lda the goods were delivered by its vehicles at an address in Porto".
However, the invoked circularized supplier is not identified, so it is not possible to assess its credibility nor give relevance to statements not subject to the principle of contradiction, essential to the principle of fair process, imposed by article 20, no. 4, of the CRP.
Also not found in the proceedings are the hypothetical evidentiary elements that led the Tax and Customs Authority to conclude that "from the analysis carried out, it was ascertained that when the transport of these goods is not carried out in vehicles of the transport company, F…, Lda, but by other transport entities, the goods are not delivered in Spain but in Porto".
On the other hand, even if those facts were ascertained in other inspection proceedings, relating to other companies, it cannot be concluded therefrom that the same occurred with the Claimant.
2.3. Basis for Establishment of the Facts
The proven facts are based on the administrative file and documents submitted by the Claimant with the request for arbitral decision and, subsequently, on request of 21-11-2016.
As for the transport of goods to the referred Spanish companies to have been carried out by company F…, in addition to documents nos. 50 to 231 attached to the request for arbitral decision and the statements of the managing partner of the Claimant, it is noted that the Tax and Customs Authority does not contradict the assertion in that sense that the Claimant makes in article 86 of the request for arbitral decision.
3. Law
The Tax and Customs Authority carried out an inspection relating to the years 2010, 2011 and 2012, in which it concluded, in sum, that, although the Claimant, in formal terms, had the documentation relating to the export of goods "correctly drawn up", "physically the goods did not have as destination the address indicated in the same CMR, due to the lack of physical facilities at that location of the acquiring entities, associated with all the physical inability to exercise the activity".
Thus, the Tax and Customs Authority understood that the Claimant could not benefit from the VAT exemption provided for in article 14 of the RVAT Code, whereby it considered that the goods in question remained in national territory and proceeded to additional assessments.
The Claimant imputes to the impugned assessments vices of lack of basis, erroneous qualification of the tax fact and violation of the principle of proportionality regarding the imposition of the burden of proof.
3.1. Vice of Lack of Basis
Under the designation of "lack of basis", the Claimant invokes, in sum,
– the non-comprehension of the table contained in page 3 of the Draft Tax Inspection Report (article 13 of the request for arbitral decision), which reduces to a vice of lack of basis;
– The Claimant cannot discern what tax asset values the assessments here at issue relate to;
– the prejudice that the errors of that table resulted for its right of defence (articles 19 to 22 of the request for arbitral decision), which reduces to a vice relating to the right to prior hearing;
– violation of the principle of material truth by not being concretized facts that justify the additional assessments (articles 27 to 36 of the request for arbitral decision).
3.1.1. Error in the Draft Tax Inspection Report
It is noted that the table at page 3 of the Draft Tax Inspection Report contains values that are completely different from those referred to in the final version of the Tax Inspection Report.
As an explanation for the substitution, it is stated in the final version of the Tax Inspection Report that "this table was altered in view of what was presented in the draft report since the first was wrong".
In any case, having that table been replaced in the final version of the Tax Inspection Report and the Claimant not expressing doubts as to the correspondence of the indicated values to its accounting or the intelligibility of the latter.
The legally required basis pursuant to article 77, no. 1, of the LGT, relates to the "decision of the procedure" and not to preparatory acts, so that the deficiency of basis of a preparatory act is not sufficient to conclude the existence of a vice of lack of basis, if the deficiency is not maintained in the final decision.
3.1.2. Prejudice to the Exercise of Prior Right to be Heard
On the other hand, if it is certain that the indication of wrong values in the Draft Tax Inspection Report could affect the proper exercise of the right to be heard, it is also true that in the case at hand, despite the error of the table that was presented in the Draft Report, the Claimant when exercising that right made no reference to it, despite the values being wrong and more prejudicial than the correct ones, which suggests that the Claimant did not pay attention to the referred table, so it cannot be concluded that the inclusion of that wrong table prejudiced the exercise of the right to be heard.
3.1.3. Non-Concretization of the Facts on Which the Additional Assessments are Based
The Claimant fails in violation of the principle of material truth, by not concretizing facts that justify the additional assessments, the manner in which the Claimant equates the question does not allow it to be considered that this principle is violated. In fact, that principle has to do with the carrying out of such diligences as may appear useful for the discovery of truth and not with the indication of the reasons that justify the facts considered proven.
But the non-concretization of the facts that justify the assessments may constitute a vice of lack of basis, so it is from this perspective that the invocation of this vice should be considered, in accordance, moreover, with the overall designation that the Claimant gives to this set of vices.
The requirement of basis for harmful administrative acts is contained in no. 3 of article 268 of the CRP, where it is established that "administrative acts are subject to notification to interested parties, in the form provided by law, and require express and accessible basis when they affect rights or legally protected interests".
Especially for the basis of tax acts, article 77, nos. 1 and 2, of the LGT establishes that "the decision of the procedure is always based by means of a brief exposition of the factual and legal reasons that motivated it, and the basis may consist of mere declaration of agreement with the grounds of previous opinions, information or proposals, including those that make up the tax inspection report" and that "the basis of tax acts may be carried out in a summary manner, and must always contain the applicable legal provisions, the qualification and quantification of tax facts and the operations for determining taxable income and the tax".
The Supreme Administrative Court has consistently understood that the basis of the administrative or tax act is a relative concept that varies according to the type of act and the circumstances of the particular case, but that the basis is sufficient when it allows a normal addressee to become aware of the cognitive and evaluative route followed by the author of the act to render the decision, that is, when the latter can know the reasons why the author of the act decided as it did and not differently, so as to be able to trigger administrative or contentious mechanisms of challenge. ( [1] )
In the case at hand, underlying the impugned assessments are multiple transactions carried out over three years, and the Tax and Customs Authority used a global basis to conclude that the Claimant did not prove that goods left Portugal: the Tax and Customs Authority formulated this conclusion because, in sum, the Claimant's contacts with the said companies, for purposes of orders and receipts, were made only with persons of Portuguese nationality earned income paid by entities based in national territory and had their tax domicile in national territory.
Thus, the reasons that led the Tax and Customs Authority to conclude that proof was not made that the goods left Portugal are perceptible.
Whether this conclusion is justified or not, whether or not it has correspondence with reality, is a question that has nothing to do with the sufficiency of basis, but rather with the factual support of the assessment acts.
Thus, the vice of lack of basis does not stand.
3.2. Erroneous Qualification of the Tax Fact
The Claimant further alleges, in sum,
– that it did not know nor was in a position to know if there was fraud in the chain of supplies, downstream or upstream, and that it complied with everything that was required of it, being in good faith, and cannot be charged with any responsibility for supervening facts, which took place in the sphere of the purchasers;
– under pain of violation of the principle of proportionality, the TA is not legitimated to overburden the burden of proof that incumbs on taxable persons making intra-community supplies of goods, and it is not reasonable to require that the supplier produce more proof than that reasonably within its reach within the scope of a typical commercial transaction.
– the fact that the Claimant did not negotiate directly with the buyers, but rather with intermediaries, in no way affected the normality of the transactions;
– it is irrelevant for the purposes of the exemption provided for in article 14, no. 1, of the RVAT Code the manner of payment used;
– the Claimant proved that the Spanish companies were registered in the VIES, whereby it concluded that they existed;
– the Claimant completed the recapitulative declarations, and there has never occurred any sign of irregularity;
– the Claimant complied with all its obligations and had no reason to doubt any abnormality;
– proof of dispatch can be made by any means, namely the declaration of dispatch by road transport (CMR), which the Claimant presented;
– the conclusion drawn by the Tax and Customs Authority regarding the lack of load capacity of vehicles it refers to is not justified;
– the elements in question have no minimum consistency to found a reasonable doubt about the transactions to which they relate;
– the transport of the goods was always the responsibility of the purchaser, having the Claimant never contracted with any transport company, nor had any say in the selection of the transporting vehicles, so it cannot be charged with any responsibility for the means of transport of goods used, since, complying with everything that was legally imposed on it, it merely limited itself to producing, invoicing, selling and sending to the destination that was always indicated to it;
– this issue of the carrier results, solely, from "indications found in other companies that declare sales to the Spanish companies" but, as the final report states, only the goods transported by other companies, other than F…, Lda, are those that never left Porto;
– and all goods marketed by the Claimant were transported by F…;
– cannot be imputed to the Claimant.
As can be seen, the vice that the Claimant imputes to the impugned assessments does not relate to the qualification of the tax fact, but rather, essentially, to the verification of the factual assumptions on which the Tax Inspection Report and the subsequent assessments were based.
The Claimant is correct when it states the incongruity and factual error of the grounds invoked by the Tax and Customs Authority to conclude that the goods it sold to the companies C…, SL, D…. SL and E…, SL were delivered in Porto.
In fact, as was said regarding the facts, it cannot be considered proven that any of the goods sold by the Claimant to these companies was delivered in Porto, which the Tax and Customs Authority concluded for what it ascertained in another inspection to an unidentified company. What may be contained in another inspection proceeding may constitute proof in that proceeding, but obviously does not have probative relevance herein, to which the principle of contradiction is an obstacle, whose observance is mandatory by force of the provision in article 16, paragraph a), of the LFAT, which is an embodiment of the constitutional rule of fair process (article 20, no. 4, of the CRP).
On the other hand, the very position of the Tax and Customs Authority is contradictory, for on the basis of that other inspection proceeding it would have concluded "that when the transport of these goods is not carried out in vehicles of the transport company, F…, Lda, but by other transport entities, the goods are not delivered in Spain but in Porto" and, in the case at hand, the transports that are documented in the proceedings were carried out by this transport company.
Therefore, in congruence with the probative assessment made by the Tax and Customs Authority, it should have concluded that the goods sold by the Claimant, transported by F…, are included among those that were not delivered in Porto.
By the foregoing, it must be concluded that the impugned assessments have underlying an error regarding the factual assumptions, for the Tax and Customs Authority proceeded on the assumption that the goods were delivered in Porto and the proof produced, namely the CMRs relating to transport carried out by F…, demonstrate the opposite.
This error justifies the annulment of the impugned assessments (article 135, no. 2, of the Administrative Procedure Code of 1991, in force when the assessments were issued).
4. Compensatory Interest and Indemnification for Undue Guarantee
The Claimant requests compensatory interest, pursuant to article 43, no. 1, of the LGT and 61 of the CPPT.
The right to compensatory interest is recognized by article 43, no. 1, of the LGT and materialized in the manner provided in article 61 of the CPPT, in cases where "payment of the tax debt occurs in an amount higher than that legally due".
In the case at hand, it is not proved that the Claimant paid the amounts assessed, so, in light of what is contained in the file, there is no basis for recognition of the right to compensatory interest, pursuant to the provision in article 43, no. 1, of the LGT.
On the other hand, there is no normative support in the tax laws for the attribution of compensatory interest in cases of indemnification for undue guarantee. As the Supreme Administrative Court has come to understand "the right to indemnification for undue provision of guarantee does not, in any situation, entail the right to compensatory and/or default interest, pursuant to articles 43 and 102 of the LGT, being limited, solely, to the amount corresponding to the charges actually incurred with the provision thereof, and even then with the limit provided for in no. 3 of the aforesaid article 53 of the LGT". ( [2] )
Therefore, the petition for payment of interest must be judged without merit, without prejudice to it being recognized in execution of judgment, if payment is proven.
The Claimant further formulates a petition for indemnification for undue guarantee, by having constituted a mortgage with a view to suspending the fiscal execution instituted for collection of the amounts assessed.
Regarding the petition for condemnation to payment of indemnification for undue provision of guarantee, article 171 of the CPPT establishes that "indemnification in case of guarantee by bank or equivalent unduly provided shall be requested in the proceeding in which the legality of the enforceable debt is contested" and that "indemnification should be requested in the review, challenge or appeal or in case its ground is subsequent within 30 days of its occurrence".
Thus, it is unequivocal that the judicial challenge proceeding encompasses the possibility of condemnation to payment of undue guarantee and is even, in principle, the appropriate procedural means to formulate such petition, which is justified by evident reasons of procedural economy, for the right to indemnification for undue guarantee depends on what is decided about the legality or illegality of the assessment act.
The petition for constitution of the arbitral tribunal and for arbitral decision has as a corollary that it is in the arbitral proceeding that the "legality of the enforceable debt" is to be discussed, so, as results from the express content of that no. 1 of the referred article 171 of the CPPT, the arbitral proceeding is also the appropriate one to consider the petition for indemnification for undue guarantee.
Moreover, the joinder of petitions relating to the same tax act is implicitly assumed in article 3 of the LFAT, when speaking of "joinder of petitions even if relating to different acts", which lets it be understood that the joinder of petitions is also possible relating to the same tax act and petitions for compensatory interest and condemnation for undue guarantee are susceptible to be encompassed by that formula, so an interpretation in this sense has, at least, the minimum of verbal correspondence required by no. 2 of article 9 of the Civil Code.
The regime for the right to indemnification for undue guarantee is contained in article 52 of the LGT, which establishes the following:
Article 53
Guarantee in Case of Undue Provision
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The debtor who, to suspend execution, provides a bank guarantee or equivalent, shall be indemnified in whole or in part for the prejudice resulting from its provision, should he have maintained it for a period exceeding three years in proportion to the judgment in administrative review, challenge or opposition to execution that have as their object the debt guaranteed.
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The period referred to in the preceding number does not apply when it is verified, in gracious review or judicial challenge, that there was error attributable to the services in the assessment of the tax.
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The indemnification referred to in no. 1 has as its maximum limit the amount resulting from the application to the guaranteed value of the compensatory interest rate provided for in this law and may be requested in the proceeding of review or judicial challenge itself, or autonomously.
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The indemnification for undue provision of guarantee shall be paid by credit to the revenue of the tax of the year in which payment was made.
In the case at hand, the errors underlying the impugned assessments are attributable to the Tax and Customs Authority, for they were of its initiative and the Claimant in no way contributed to those errors being made.
Therefore, the Claimant is entitled to indemnification for the guarantee provided.
With no elements allowing the determination of the amount of indemnification, the condemnation must be made with reference to what comes to be assessed in execution of the present decision [articles 609, no. 2, of the Code of Civil Procedure and 565 of the Civil Code, applicable in this sense pursuant to article 2, paragraph d) of the LGT].
5. Decision
For these reasons, the Arbitral Tribunal hereby agrees to:
a) Judge the petition for arbitral decision as well-founded;
b) Annul the following assessments:
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Assessment no. …, relating to period 1110;
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Assessment no. …, relating to period 1109;
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Assessment no. …, relating to period 1108;
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Assessment no. …, relating to period 1107;
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Assessment no. …, relating to period 1106;
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Assessment no. …, relating to period 1105;
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Assessment no. …, relating to period 1104;
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Assessment no. …, relating to period 1103;
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Assessment no. …, relating to period 1102;
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Assessment no. …, relating to period 1101;
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Assessment no. …, relating to period 1012;
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Assessment no. …, relating to period 1011;
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Assessment no. …, relating to period 1010;
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Assessment no. …, relating to period 1009;
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Assessment no. …, relating to period 1008;
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Assessment no. …, relating to period 1007;
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Assessment no. …, relating to period 1006;
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Assessment no. …, relating to period 1005;
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Assessment no. …, relating to period 1004;
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Assessment no. …, relating to period 1003;
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Assessment no. 2014 …, relating to period 1111;
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Assessment no. 2014 …, relating to period 1112;
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Assessment no. 2014 …, relating to period 1201;
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Assessment no. 2014 …, relating to period 1202;
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Assessment no. 2014 …, relating to period 1203;
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Assessment no. 2014 …, relating to period 1204;
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Assessment no. 2014 …, relating to period 1205;
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Assessment no. 2014 …, relating to period 1206;
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Assessment no. 2014 …, relating to period 1207;
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Assessment no. 2014 …, relating to period 1208;
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Assessment no. 2014 …, relating to period 1209;
c) Condemn the Tax and Customs Authority to pay to the Claimant the indemnification for the guarantee provided that comes to be assessed in execution of the present decision.
d) Judge the petition for compensatory interest as without merit, without prejudice to what comes to be recognized in execution of judgment proceedings.
6. Value of the Proceedings
In accordance with the provisions in article 306, no. 2, of the CPC and 97-A, no. 1, paragraph a), of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at € 76.211,2790.
7. Costs
Pursuant to article 22, no. 4, of the LFAT, the amount of costs is fixed at € 2.448,00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, at the expense of the Respondent.
Lisbon, 24-11-2016
The Arbitrators
(Jorge Manuel Lopes de Sousa)
(José Nunes Barata)
(Filipa Barros)
[1] Essentially in this sense, the following decisions of the SAC may be seen, among many: of 4-11-1998, case no. 40618; of 10-3-1999, case no. 32796; of 6-6-1999, case no. 42142; of 9-2-2000, case no. 44018; of 28-3-2000, case no. 29197; of 16-3-2001, of the Plenary, case no. 40618; of 14-11-2001, case no. 39559; of 18-12-2002, case no. 48366.
[2] Decision of 30-3-2011, case no. 013/11, for whose grounding reference is made.
In the same sense, the decisions of the Supreme Administrative Court of 11-10-2006, case no. 0513/06; of 4-6-2008, case no. 023/08; and of 10-11-2010, case no. 0489/10 may be seen.
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