Summary
Full Decision
ARBITRAL TAX JURISPRUDENCE
Process No. 248/2018-T
Decision Date: 2020-06-05
VAT
Value of Claim: € 1,804,864.24
Subject: VAT – Rule of non-subjection; Public entities; Associative services. Non-profit organisation – Reform of the arbitral decision (attached to the decision)
* Replaces the arbitral decision of 12 March 2019
ARBITRAL DECISION
1. A… filed an appeal with the Central Administrative Court South against the arbitral decision of 12 March 2019, pursuant to articles 27 and 28 of the RJAT, invoking the omission of ruling on the violation of the single transaction principle which had been alleged, on a subsidiary basis, in the arbitral request and on the allegations regarding good faith, complexity of the situation, plausible interpretation and absence of evasive intent, as well as nullity due to contradiction of the decision grounds and nullity due to non-specification of factual and legal grounds.
The Central Administrative Court South, by judgment of 20 February 2020, found verified the nullity due to omission of ruling on the issue of violation of the single transaction principle and the nullity due to non-specification of factual grounds in the part where reference is not made to unproven facts, finding the appeal unfounded regarding the remaining grounds.
In compliance with the judgment, it is necessary to reform the arbitral decision, remedying the omission of ruling, which is done in the following terms.
Violation of the single transaction principle
2. The Claimant, in articles 311 to 329 of the initial petition alleges, in summary, that the service of transfer and registration of sports agents and sports facilities is provided by two entities (A… and B…) in total cooperation, with A… responsible for the organisation of the processes and obtaining relevant information and B… responsible for the homologation of the decision.
Given that B…'s activity is exempt from tax and A…'s activity is subject to and not exempt from tax and it being impossible to separate the services in question, the VAT regime must be applied to the principal service provided by B…, which carries out the administrative act of homologation, with A…'s work being operational, internal and preparatory for the files and merely accessory.
This understanding has already been followed by the CJEU in a similar situation in Cases C-497/09 and C-499/09, in which it was understood that the sale of popcorn, in the eyes of an average cinema customer, merely completes the cinema session, so no independent catering service is at issue.
Proceeding to analyse the question, it is important to begin by noting that the arbitral decision did not take a position on the subjective scope of VAT incidence in relation to B…, having only carried out, preliminarily, the legal framework that allowed the conclusion that sports federations are, in their genesis, private associations (freely constituted by sports agents, clubs and groupings of clubs) and only by means of the request for attribution of the status of sports public utility do they acquire the competence for the exercise of public powers of regulation and discipline of sports activity.
It is not overlooked, on the other hand, as was set out in the arbitral decision, that the European legislator used a strict concept of public law body for the purposes of VAT subjection, which CJEU jurisprudence has also corroborated, by declaring that "an activity carried out by a private person is not exempt from VAT by the mere fact that this activity consists in the performance of acts that embody prerogatives of public authority (judgment Commission v. Portugal, Case No. C-462/05, of 17 July 2008).
Although starting from the idea that there exists a different VAT regime for B… and A… – which may be justified at the point where B… has essentially regulatory and disciplinary powers that do not fit into a typical economic activity – it does not seem that it should be understood that the transfer and registration of sports agents and sports facilities corresponds to a single transaction that is subject to the same VAT regime.
As has been stated by the CJEU, for VAT purposes, each transaction should, in principle, be considered distinct and independent. The situations in which distinct transactions can be reduced to a single transaction may result from a subordination relationship between the various constitutive elements, which allows considering that some or all of these elements should be deemed to be the principal service and others as mere accessory services that are only intended to complete or enhance enjoyment of the principal service, or from a relationship of interdependence when the various services are so interlinked that objectively they appear to the consumer as a single economic transaction (regarding these aspects, SÉRGIO VASQUES, The Value Added Tax, Coimbra, 2015, pp. 217-218).
The CJEU judgment in the CinemaxX case (judgment of 10 March 2011, Case No. C-497/2009) – cited by the Claimant – is illustrative regarding the requirement of these conditions. In a case concerning the preparation and distribution of popcorn in cinema halls, which were carried out continuously and not in response to customer requests, the Court of Justice understood that this activity is not independent of its sale, and cannot be characterised as a catering service or table service, but as a sale that for the average customer completes the cinema session (recital 72). In this as in other situations analysed in the same judgment, concerning the sale in vehicles or catering establishments of sausages, chips and other foods ready for immediate consumption (Cases No. C-497/09 and C-501/09), the Court understood that the predominant element of the transactions in question, taken as a whole, consists of the delivery of dishes or foods ready for immediate consumption, since their preparation, summary and standardised, is intrinsically linked to them and that the availability of rudimentary facilities allowing a limited number of customers to consume on the premises has a purely accessory and minor character (recital 74).
None of these situations can be transposed to the present case.
As results from the provisions of article 22 of the Basic Law, and is reaffirmed in article 27 of the Legal Framework of Sports Federations, A… constitutes an autonomous body of the federation for professional sport and has legal personality and administrative autonomy. On the other hand, professional leagues exercise, by delegation of the respective federations, the competences relating to competitions of a professional nature, namely concerning the organisation and regulation of professional competitions, exercise of control and supervision functions in relation to their members and definition of the sports, financial and organisational conditions for access to professional competitions. The relationship between the sports federation and the respective professional league is regulated by a contract to be concluded between these entities, in accordance with law (articles 22, no. 2, and 23, no. 1, of the Basic Law).
The contract concluded between B… and A… provides for the attribution to the latter entity, among others, of competences in the scope of the processes of registration and transfer of players of clubs participating in competitions of a professional nature (clause 6). Specific attributions in the scope of entry to sports facilities and the registration of … contracts by sports companies are equally provided for in the Statutes of A… (article 8, no. 1, subparagraphs c) and g)).
The mere circumstance that A… participates in the exercise of the public function of regulation of sport, by delegation of powers, means that it performs its own acts that are not attributable to B… but to that same entity as a differentiated body.
In this entire context, the services resulting from the registration and transfer of players or other sports agents, as well as those arising from inspections for the purpose of licensing sports facilities, corresponding to specific acts of an authoritative nature directly carried out by A…, cannot be deemed to be mere accessory services, lacking in autonomy and that become attributable for purposes of tax treatment to B….
It is true that B… proceeds to the homologation of the processes of transfer and registration of players (clause 6 of the contract), but that is a mere formal act of confirmation that does not disqualify the preparatory and deliberative activity of A… nor elevates the intervention of B… to the main element of the activity.
The arbitral request is thus unfounded as to this ground.
3. The judgment of the Central Administrative Court South also found verified the omission of ruling due to non-specification of factual grounds by reason of the lack of reference in the arbitral decision to unproven facts.
As there are no relevant facts for the decision of the case that are not deemed to be proven, the tribunal remedies this omission by adding to the factual matter the following:
Unproven facts:
"There are no unproven facts relevant to the decision of the case".
4. Based on all the above, the decision stands that the arbitral request is unfounded regarding the VAT assessment acts and that the arbitral request is founded in the part relating to compensatory interest.
Notify.
Lisbon, 5 June 2020
The President of the Arbitral Tribunal
Carlos Fernandes Cadilha
The Arbitral Voter
Rui Duarte Morais
The Arbitral Voter
Sérgio Vasques
ARBITRAL DECISION
The arbitral tribunal hereby agrees
I – Report
A…, a non-profit association, NIF…, with registered office at street…, no.…, …, hereby requests the constitution of an arbitral tribunal, pursuant to articles 2, no. 1, subparagraph a), and 10 of Decree-Law no. 10/2011, of 20 January, to assess the legality of the VAT assessment acts relating to the years 2014, 2015 and 2016, in the amount of € 496,846.42, 531,345.32 and 505,161.60, respectively, as well as compensatory interest assessment, also requesting condemnation for the payment of indemnificatory interest.
It grounds the request in the following terms.
The Claimant is a non-profit association that manages, organises and coordinates professional football in Portugal by delegation of powers from B….
In this capacity, it receives income of an associative nature which include member fees and fees for the registration of players and other sports agents, for the issuance of certificates and identification cards and for stadium inspections, in addition to other income resulting from activities of a commercial nature.
In this sense, the Claimant considers itself to be a mixed VAT subject in that it obtains income that is covered by the negative rule of incidence of article 2, no. 2, of the VAT Code and article 13 of the VAT Directive and are excluded from VAT and others that derive from its commercial activity and are subject to and not exempt from tax.
In the first case, there are activities that derive from the exercise of authority powers such as those involving the performance of authorisation acts for the practice of sport or the licensing of facilities for the practice of sport, which are related to its associative component.
In fact, the Claimant is integrated in B…, which must be characterised as a public association, and exercises, by delegation of competences, functions inherent to the organisation and regulation of professional football, and should be considered, in this scope, as a public law body that intervenes in the exercise of prerogatives of authority.
Additionally, the associative services in question do not correspond to an economic activity nor are they sales or services for the purposes of VAT and do not fall within the scope of the objective incidence of VAT in accordance with article 4 of the VAT Code and article 9 of the VAT Directive.
Following tax inspection actions undertaken by the Tax Authority, it was decided to determine the additional assessment of tax relating to the years 2014, 2015 and 2016 on the ground that the operations accounted for as associative income constitute services subject to and not exempt from VAT.
These assessments are illegal in that they effect an incorrect interpretation of the law, disregarding that A… intervenes as a public body in the exercise of authority powers, and even if it were understood that the associative services in question are subject to VAT, they would be exempt from tax under article 9, nos. 19 and 21, of the VAT Code in that these are services provided in the interest of its members by a non-profit organisation.
The assessment acts are also illegal due to violation of the principles of good faith, justice, proportionality and neutrality of VAT given that the Claimant has always assessed VAT as a mixed subject, effecting a plausible and congruent interpretation of tax law, without any evasive intent, and the Administration only raised the question of incorrect tax assessment, opening an inspection procedure, when the taxpayer requested a tax refund.
These same principles, which have support in articles 55 of the LGT and 13 and 18 of the CRP, justify that compensatory interest should not be due, since these are only exigible when the omission or delay in payment involves an element of censure or culpability in relation to the taxpayer.
On the other hand, if the Administration considers that the Claimant is subject to VAT even in relation to the associative component, there would also be a right to deduct the tax, so the arithmetic correction could only relate to the difference in values that might be at issue.
The Tax Authority, in its response, submits that the Claimant is a private law entity, constituted in the form of an association, whose activity is concretised in the organisation, regulation and supervision of the functioning of professional football competitions, as well as in their commercial exploitation, obtaining income directly derived from associative activity, such as the fixed fees established in the Statutes, and income of a commercial nature resulting from the commercial exploitation of said competitions.
No. 2 of article 2 of the VAT Code only excludes from the status of subject of the tax, the State and other public law entities when they carry out operations in the exercise of their authority powers, even if they receive fees or any other consideration for them, and the CJEU has repeatedly stated that the norms providing for VAT exemption must be subject to literal interpretation, as they constitute exceptions to the general principle of taxation of the generality of consumption of goods and services.
In the concrete case, the Claimant exercises, by delegation of B…, the competences attributed to it relating to competitions of a professional nature. However, this delegation does not fall within the institute of delegation of powers as the Claimant is a private entity endowed with its own and distinct legal personality from B…, and cannot benefit from the regime of negative delimitation of subjective incidence scope provided for in no. 2 of article 2 of the VAT Code.
By thus being, the operations carried out by it constitute services provided for valuable consideration, in accordance with no. 1 of article 4 of the VAT Code, there being a direct nexus between the services provided by the Claimant and its consideration, in that the beneficiaries of the activity are the sports companies and the various sports agents, namely athletes and coaches, media and sports companies, and have as their common objective the maximisation of their profit.
Being such that the Claimant's activity has underlying it economic interest both its own and that of its members and partners.
On the other hand, the Claimant cannot be considered a non-profit organisation given that it does not meet the requirements set out in article 10, subparagraph a) which provides, for purposes of exemption, that only those that "in no case distribute profits and its managing bodies do not have, by themselves or through an intermediary, any direct or indirect interest in the results of the operation" are considered non-profit organisations.
2. Following the process there was a hearing referred to in article 18 of the RJAT also intended for the production of witness evidence indicated by the Claimant.
The parties presented written submissions, by successive periods, in which they analysed the factual matter and reiterated their previous positions.
3. The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the Tax Authority in accordance with regulatory terms.
Pursuant to subparagraph b) of no. 2 of article 6 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the arbitrators were designated by the parties, and they designated the president arbitrator.
The collective arbitral tribunal was thus constituted by the undersigned signatories, who communicated their acceptance of the appointment within the applicable period.
The parties were duly notified of this designation, having not expressed their will to refuse it, in accordance with the combined provisions of article 11, nos. 4 and 5, of the RJAT and articles 6 and 7 of the Deontological Code.
Thus, in compliance with the provision of no. 7 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 9 August 2018.
The arbitral tribunal was regularly constituted and is materially competent, in light of the provisions of articles 2, no. 1, subparagraph a), and 30, no. 1, of Decree-Law no. 10/2011, of 20 January.
The parties have legal capacity and standing, are legitimate and are represented (articles 4 and 10, no. 2, of the same statute and 1 of Ordinance no. 112-A/2011, of 22 March).
The process does not suffer from nullities, the exception of res judicata having been invoked.
It is incumbent to appreciate and decide.
II – Reasoning
Factual Matter
3. The facts relevant to the decision of the case which may be deemed proven are the following.
1. A… is a private law association, without profit-making purpose, governed by the Statutes, regulations and other applicable legislation;
2. By delegation of B… it exercises competences relating to professional competitions, namely of organisation and regulation, control and supervision, definition of sports, financial and organisational conditions for access to competitions and inspection;
3. Members have the statutory obligation to contribute to the costs of operation of A…, paying fees and other charges set out in law;
4. The income of A… includes the product of admission fees and member contributions, the product of fines, indemnifications and percentages on these, costs, fees, deposits and cautions and income accruing to it in games in which sports companies participate;
5. There may exist fees of fixed value, of variable value intended to finance the general budget of A… or the Financial Balance Fund, and supplementary fees, these required as a result of the registration of B teams in the national championship of …;
6. The income of A… further includes fees due for the registration and transfer of players and other sports agents (coaches, trainers, doctors, masseurs) and copying of copies and issuance of licensing cards;
7. A… organises the administrative process of registration and transfer of players and other sports agents and collects the respective fee, with B… being responsible for the homologation of the acts of registration or transfer;
8. Registration is intended to verify whether the athlete has conditions for practising federalised sport with a given club and meets the disciplinary, labour, physical or administrative conditions for practising sport, allowing the federalised athlete to be subject to the sports regulations of A…, especially regarding anti-doping control, sports sanctions and the prohibition of free transfer of players;
9. B… defines the annual value of the registration fee and the proportion of distribution of these revenues between A… and B….
10. Under the contract concluded between B… and A…, which defines the relationship between these entities, it is incumbent on A… to deliver to B… the amounts due by the registration and transfer of players in accordance with the official notice no. 1 of B…;
11. Under the official notice referred to in the preceding no., are A…'s income 50% of the amounts due by the registration and transfer, national and international, of players for professional competitions;
12. A… further receives fees for the licensing of stadiums intended for the practice of sport, verifying compliance with safety, lighting, logistics and television transmission criteria;
13. The surplus of the activity of an associative nature of A… is allocated to the fulfilment of the statutory purposes and attributions;
14. A… further obtains income resulting from the commercial exploitation of professional competitions (1st and 2nd division and cup …) and collects advertising revenues;
15. These revenues are intended to cover the expenses incurred in the organisation of the competitions;
16. The positive balance of the revenue from commercial exploitation, after deductions intended for the budget of A…, for the Financial Balance Fund and for the Infrastructure Fund of the II …, is returned to the associated clubs who decide on the destination to give to these amounts;
17. Regarding the years 2014, 2015 and 2016, the subject assessed accounted as not subject to or exempt from VAT the income relating to associative activity, including those resulting from contributions, fines, registrations and transfers, inspections, certificates and photocopies, according to the table on page 12 of the Tax Inspection Reports relating to the years 2014 and 2015, and page 11 of the Tax Inspection Report relating to the year 2016, which are here reproduced;
18. In relation to the same years, the subject assessed accounted as subject to VAT the income relating to commercial activity, including here the financing obtained through sponsorships;
19. Following inspection actions relating to the years 2014, 2015 and 2016, credited by Service Orders no. OI2017…, OI2017… and OI2017…, arithmetic corrections were made in VAT in the amounts of € 496,846.42, € 531,345.32 and 505,161.60, respectively;
20. The Tax Administration, in the Tax Inspection Reports, considered that income related to associative activity constitutes services provided for valuable consideration that are not covered by the exception to the scope of subjective incidence of tax that is in article 2, no. 2, of the VAT Code;
21. And equally considered that A… is not a non-profit organisation and is not covered by the exemption referred to in article 9, no. 19, of the VAT Code;
22. In the exercise of the right to a hearing on the projects of the tax inspection reports, the Claimant invoked the right to deduct VAT by incorporation in the additional tax assessment;
23. The tax inspection reports make express mention of the right to deduction that was intended to be exercised in case of additional VAT assessment and analyse the question saying that "regarding the right to deduct VAT incurred this may not be exercised, the choice being left to the criterion of the taxpayer".
The Tribunal formed its conviction as to the proven facts on the basis of the documents attached to the petition and in the administrative file attached by the Tax Authority with the response and in the witness evidence produced.
Legal Matter
5. For the purposes of subjection to the value added tax, the Claimant has distinguished between the associative income resulting from the functions it exercises, by delegation of B…, in the organisation and management of professional competitions, and the income derived from its commercial activity, especially that relating to advertising and sponsorships.
The income from the commercial exploitation of professional football competitions has been attributed as income subject to and not exempt from VAT.
Regarding associative income, including that derived from fees paid by associated clubs and by registration or transfer of players or other sports agents, the Claimant considers that it is covered by the exclusion rule set out in article 2, no. 2, of the VAT Code and article 13 of the VAT Directive, in that it relates to activities it develops in the capacity of a public law body and in the exercise of authority powers.
In addition, these are associative services that do not correspond to an economic activity nor can they be characterised as sales or services provided for valuable consideration and that therefore do not fall within the scope of the objective incidence of VAT, in accordance with the provisions of article 4 of the VAT Code and article 9 of the VAT Directive.
And even if it were understood that the associative services in question are subject to VAT, they would be exempt from tax under article 9, nos. 19 and 21, of the VAT Code in that these are services provided in the interest of its members by a non-profit organisation.
On the other hand, if the said income is subject to VAT, by the conditions of subjective and objective incidence being met, then there would be a right to deduct the tax incurred in the acquisition of goods or services intended for the carrying out of taxed operations, so the arithmetic correction to be made for the non-assessment of tax could only correspond to what exceeded the value of the VAT refund that would be due.
The questions thus raised relate to four different legal frameworks: scope of subjective incidence by effect of the negative delimitation made by articles 2, no. 2, of the VAT Code and 13 of the VAT Directive regarding public entities; scope of objective incidence in order to determine whether associative services are integrated into the concept of service provision for VAT purposes; characterisation of the subject as a non-profit organisation and connection of associative services with the collective interest of members for purposes of exemption; right to deduct from the tax incidence on taxed operations the tax incurred in the acquisition of goods or services intended for the carrying out of these operations.
These are, therefore, the questions it is incumbent to elucidate, unless the determination of any one or more of them is prejudiced by the solution found regarding another which must be assessed as a priority.
Subjective incidence: rule of non-subjection of public entities
6. Directive 2016/112/CE, of the Council, in its article 13, provided that "the States, regions and local authorities and other public law bodies shall not be considered taxable persons in respect of activities or transactions which they carry out as public authorities, even if in the course of such activities or transactions they collect duties, taxes, fees or other charges". This norm was transposed into domestic law by article 2, no. 2, of the VAT Code, which provides: "the State and other public law entities are, however, not subjects of the tax when they carry out operations in the exercise of their authority powers, even if they receive fees or any other consideration for them, provided that their non-subjection does not give rise to distortions of competition".
It is important to note at the outset that the concept of public law body, for the purpose of VAT subjective incidence, is not entirely coincident with that adopted in the context of public contracting, for the purpose of defining the subjective scope of application of the pre-contractual procedure. While the VAT Directive generically refers to the State, regions and local authorities and other public law bodies, Directive 2014/24/CE, relating to public contracts, distinguishes between state, regional or local entities and public law bodies, defining the latter as legal persons that, regardless of their public or private nature, meet certain requirements that allow associating these entities with the pursuit of activities that are materially administrative (see articles 2, no. 1, § 4, of the Directive and 2, nos. 1 and 2, of the Code of Public Contracts).
We would say, therefore, that an organic criterion for the delimitation of the Public Administration was used as opposed to a functional criterion, with an expansive vocation, in the scope of application of the public contracting regime (regarding the concept of public law body in the matter of public contracting, PEDRO FERNÁNDEZ SANCHEZ, Administrative Organisation: New Actors, New Models, AFDL, Lisbon, vol. I, 2018, p. 265).
On the other hand, this distinct characterisation of what is understood by public law body is congruent with the objectives of each of the EU directives. While the Directive relating to public contracting sought to ensure the opening of public contracts to EU competition, with guarantees of transparency and non-discrimination, so as to prevent Member States from exempting themselves from the public contracting regime through the use of private entities for the exercise of administrative functions, the VAT Directive starts from the opposite principle that, as a rule, the generality of natural or legal persons developing an activity with economic content are subject to VAT (article 9) such that the exclusion only occurs in relation to entities that form part of the Public Administration strictly speaking and, even so, provided that their non-subjection to tax does not give rise to distortions of competition.
It is therefore not excluded, even in relation to public entities in the proper sense that exercise authority powers, that they are subject to VAT when their activity might still jeopardise the principle of competition.
It is understood, in this entire context, that the EU legislator used a broad concept of public law body for the purposes of submission to the public contracting regime and, simultaneously, a strict concept of public law body for the purposes of VAT subjection.
This was recognised in the CJEU judgment Saudaçor, Case No. C-174/14, where it is expressly provided that the concept of "other public law bodies", within the meaning of article 13, no. 1, of the VAT Directive, should not be interpreted by reference to the definition of the concept of "public law body" set out in article 1, no. 9, of Directive 2004/18/CE, since replaced by Directive 2014/24/CE (see recitals 44 et seq.).
CJEU jurisprudence, in its approach to concrete cases, also seems to corroborate the understanding that points to a strict interpretation of public law body regarding the application of the VAT Directive.
On the one hand, the judgment Commission v. Portugal, Case No. C-462/05, of 17 July 2008, referring to Lusoponte, as a concessionaire of road infrastructures, declared that "an activity carried out by a private person is not exempt from VAT by the mere fact that this activity consists in the performance of acts that embody prerogatives of public authority (recital 38), noting that the exercise of prerogatives of authority when it is entrusted to an independent third party or is exercised by entities not integrated in the organisation of the Public Administration, cannot be considered as covered by the rule of non-subjection (recital 39). Coming to conclude that the rule of non-subjection to VAT covers only public bodies, that is, those that constitute entities organically integrated in the Administration, so that the making available of a road infrastructure to a private subject by means of the payment of a toll constitutes a service provided for valuable consideration in the meaning of article 2, no. 1, of the Sixth Directive (recital 34).
On the other hand, the CJEU has come to emphasise that the rule of article 13, analysed in the light of the objectives of the Directive, highlights the need for cumulative fulfilment of two conditions for the rule of non-subjection to be applied, namely: the exercise of activities by a public body and the exercise of activities carried out in the capacity of public authority (judgment Commission v. Portugal, Case No. C-462/05, recital 35).
To this end, the judgment Comune Carpaneto Piacentino, Case No. 231/87, of 17 October 1989, noted that the only criterion that allows distinguishing between activities carried out by public bodies in the capacity of subjects of public law or subjects of private law is the legal regime applicable under national law (recital 15).
Hence it is understood that public law bodies act in the capacity of public authorities when they exercise competences within the legal regime that is specific to them and, conversely, do not act in this capacity if they intervene as private economic operators (recital 16).
7. From these general considerations it is incumbent to make an approach to the present case.
The sports federations in which professional sports competitions are held integrate a professional league, in the form of a non-profit association, with legal personality and administrative, technical and financial autonomy. Professional leagues exercise, by delegation of the respective federations, the competences relating to professional competitions, namely to organise and regulate professional competitions, exercise, in relation to their members, control and supervision functions and define the sports, financial and organisational conditions for access to professional competitions (article 22, nos. 1 and 2, of the Basic Law on Physical Activity and Sport, approved by Law no. 5/2007, of 16 January).
Professional leagues are necessarily integrated by clubs and sports companies that contest professional competitions, and the relationship between B… and the respective A… is regulated by a contract to be concluded between these entities (articles 22, no. 3, and 23, no. 1, of the Basic Law on Physical Activity and Sport).
The statute which, in the development of the Basic Law, establishes the legal framework of sports federations (Decree-Law no. 248-B/2008, of 31 December), attributes to these entities the status of sports public utility, status which confers on them the competence for the exclusive exercise, by sports branch or group of branches, of regulatory, disciplinary and other powers of a public nature (article 10). The powers of sports federations exercised in the scope of regulation and discipline of the respective sport have a public nature (article 11) and disputes arising from the acts and omissions of the bodies of sports federations, in the scope of the exercise of public powers, are subject to the norms of administrative contentious proceedings (article 12).
The same statute reaffirms the status of professional leagues, namely regarding the exercise, by delegation of B…, of the competences relating to professional competitions (article 27).
8. Although, sometimes, doubt might have been raised regarding the nature of sports federations, it has always been the prevailing understanding that these entities, even if they were regarded as private law legal persons, in that they had the status of sports public utility, benefited from prerogatives of authority in the exercise of a public service mission, such that the unilateral acts they performed in this capacity, whether individual or regulatory, assumed the nature of administrative acts, being contentiously assailable before the administrative courts (Opinion of the Attorney General of the Republic no. 14/1985, Journal of Justice no. 359, p. 189; judgment of the Supreme Administrative Court (Plenary) of 30 April 1997, Administrative Justice Notebooks (CJA) no. 4, p. 3; VITAL MOREIRA, Autonomous Administration and Public Associations, Coimbra, 1997, p. 303).
The question was subsequently resolved by the first Basic Law of the Sports System (Law no. 1/90, of 13 January), which considered sports federations as private law legal persons to which, by means of the status of sports public utility, powers of sports regulation and discipline could be attributed (articles 21 and 22) and whose decisions and final resolutions were assailable under the general rules of law, except in so far as concerns strictly sports matters which had as their basis the violation of norms of a technical nature or of a disciplinary character, which were not assailable nor susceptible to recourse outside internal instances (article 25).
These basic principles were maintained with the Basic Law on Sport (Law no. 30/2004, of 21 July), which introduced an innovation only in the concept of strictly sports matters, identifying as such, by way of example, "questions of fact and law arising from the application of the laws of the game, regulations and rules for the organisation of the respective events", and excluding from its scope of application "decisions and resolutions of a disciplinary nature relating to infringements of sports ethics, in the scope of doping, violence and corruption" (articles 46 and 47).
The Basic Law on Physical Activity and Sport, approved by Law no. 5/2007, of 16 January, currently in force, made a new clarification, now regarding the identification of the competent jurisdiction for the determination of disputes arising from sports legal relations, now providing in article 18 that "disputes arising from the acts and omissions of the bodies of sports federations and professional leagues, in the scope of the exercise of public powers, are subject to the norms of administrative contentious proceedings".
From this provision results the subjection to administrative jurisdiction of the acts carried out by sports federations in the exercise of their powers of regulation and discipline of sports activity and that is, moreover, a logical consequence of the public nature of the powers entrusted to it by the State under the grant of the status of sports public utility (in this sense, see judgment of the Constitutional Court no. 230/2013).
That same conclusion is drawn from the Legal Framework of Sports Federations defined by Decree-Law no. 248-B/2008, of 31 December.
Sports federations are legal persons constituted in the form of a non-profit association which, encompassing clubs or sports companies, associations of territorial scope, professional leagues, practitioners, technicians, referees and umpires and other entities, propose to promote, regulate and direct at the national level the practice of a sports branch or a group of branches (article 2).
Presenting itself as an association freely constituted by private parties, it cannot but be regarded as a private law legal person to which the legal regime of private law associations is subsidiarily applied (article 4).
It is the grant of the status of sports public utility that confers on a sports federation the competence for the exclusive exercise of regulatory and disciplinary powers relating to the respective sports branch, these powers being characterised as being of a public nature (articles 10 and 11).
On the other hand, the Legal Framework of Sports Federations provides, as provided for in the already transcribed article 18 of the Basic Law on Physical Activity and Sport, that disputes arising from the acts and omissions of the bodies of sports federations, in the scope of the exercise of public powers, are subject to the norms of administrative contentious proceedings (article 12).
9. In light of this entire legal framework it is important to recognise that sports federations are, in their genesis, private associations (freely constituted by sports agents, clubs and groupings of clubs) and only by means of the request for attribution of the status of sports public utility do they acquire the competence for the exercise of public powers of regulation and discipline of sports activity. These public powers correspond to powers delegated by the State, that is, powers that originally fell within the attributions of the State in sports matters.
The delegation of public powers in a private entity merely means that this, through a process of transfer of responsibilities, becomes an instance of execution of a public function, and in the exercise of which the binding to administrative law and public oversight procedures is imperative. We are not faced with the execution of a task that has moved to the private sector, but which remains a public task and for which the State remains ultimately responsible.
The grant or delegation of public powers thus corresponds to a form of pursuit of activities of public interest, of which the State is the original holder, and in relation to which it assumes an institutional position of guarantor (on these aspects, PEDRO GONÇALVES, Private Entities with Public Powers, Coimbra, 2005, pp. 391-392).
In relation to professional competitions, the law allows the delegation of competences to professional leagues, which corresponds to a form of sub-delegation of competences. That is, the State delegates public functions to federations but the exercise of some of these functions can be delegated to A….
As results from the provisions of article 22 of the Basic Law, and is reaffirmed in article 27 of the Legal Framework of Sports Federations, A… constitutes an autonomous body of B… for professional sport and has legal personality and administrative autonomy. This means that the acts they perform in the exercise of delegated powers are not attributable to B… but to A… itself as a differentiated body. It must be concluded that professional leagues participate in the exercise of the public function of regulation of sport, exercising, in this scope, public powers of authority (in this sense, PEDRO GONÇALVES, ob. cit., p. 867).
In this context, it cannot fail to be recognised that the intervention of A… in the procedures of registration and transfers of players and inspections of sports facilities, with constitutive effects, even if subject to the homologation of B…, represent the exercise of authority powers. This is because, by effect of the specific legal regime applicable to it, A… intervenes, not as a subject of private law, but in the exercise of sub-delegated powers of regulation of professional competitions that originally belonged to the State.
The point is that A…, as has been hinted, is a private law association, constituted for the defence of the "common interests of its members", to which it is incumbent not only the exercise of regulatory functions but also "to negotiate, manage and supervise, in the interest and for the account of its members, the exploitation of professional competitions" and "to manage the revenues" derived therefrom (articles 1, 7, subparagraph b), and 8, no. 1, subparagraphs q) and r), of the Statutes). For the pursuit of common interests, it is incumbent on A…, in particular, "to establish commercial companies with a view to the commercial exploitation of its activity and related to the same" or "to define the rules and general orientations with a view to the promotion, enhancement and profitability of professional competitions" (article 8, no. 2, subparagraphs e) and f), of the Statutes).
As a mere private entity, A… does not meet the first of the requirements on which the application of the rule of non-subjection to VAT depends, in that it cannot be regarded as a public authority for the purposes provided for in articles 13 of the VAT Directive and 2, no. 2, of the VAT Code, and, as has been set out, according to the very understanding of the Court of Justice, the said rule of exclusion from VAT implies that cumulatively the conditions of exercise of prerogatives of authority are met and that this activity proceeds in the capacity of public authority.
The Claimant is, consequently, covered by the general rule of subjective incidence of the tax even in relation to operations carried out in the exercise of authority powers.
10. It should finally be noted that this solution is not put in question by the cited judgment Saudaçor in which it was discussed whether a company providing planning and management services of the regional health service in an Autonomous Region could be covered by the rule of non-subjection to tax. In that decision the Court of Justice reaffirmed that a person who performs acts in the capacity of public authority, in an independent manner, not being integrated in the organisation of the Public Administration, cannot be qualified as a public law body for the purposes of article 13, no. 1, of the Directive, adding that the qualification of "public law body" cannot result solely from the fact that the activity in question consists in the performance of acts of public authority (recitals 56 and 57). The Court understood, however, in the concrete case, and under reserve of verification by the referring court, that it would not be possible to exclude that this entity was integrated in the Public Administration of the Autonomous Region due to the limitation of its autonomy as a function of the following factors: the Region holds all the capital of the company; the company carries out its mission in accordance with the orientations defined by the Region; and there exists an organic link between the company and the Region due to its creation by a legislative act approved by the regional legislator (recitals 63, 64 and 67).
None of these indicative elements of the possible dissolution of private autonomy apply in the present case.
A… is expressly defined in its Statutes as a private law association, being constituted by the sports companies that contest professional competitions. It is the members who have the duty to contribute to the financing of the expenses of A… through the payment of fees and other charges (articles 27, no. 2, of the Legal Framework of Sports Federations and 1, 11, 14, no. 1, subparagraph f), of the Statutes).
It has its own deliberative, executive and fiscal and disciplinary control bodies. It has its own income which covers not only the contributions of members, the product of fines, indemnifications, costs, fees and income from games played by members, but also the results of commercial exploitation (articles 18 et seq., 63 and 69 of the Statutes).
It organises annually the budget relating to all its services and activities and which is submitted for approval by the General Assembly and the Fiscal Council (article 66 of the Statutes).
As is evident, the State exercises no powers of direction or superintendence over A…, does not finance or participate in its revenues or in its corporate assets, and does not interfere in its constitution or functioning, since A… is freely constituted by its members in accordance with the legal regime applicable to private law associations.
The State exercises only powers of inspection regarding the exercise of public powers by B…, through the conduct of inquiries, inspections and investigations, and may suspend or cancel the status of sports public utility that confers on this entity the competence for the exercise of regulatory or disciplinary powers (articles 20 and 21 of the Basic Law on Physical Activity and Sport). And in this sense, it exercises a mere power of guardianship translated in the verification of compliance with laws and regulations by the proper bodies of B….
And, on the other hand, although A… is legally empowered to exercise, by delegation of B…, the competences relating to professional competitions, this delegation does not even operate through the intervention of the State, being instead conferred by a contract to be concluded between the parties (article 23 of the Basic Law on Physical Activity and Sport).
As must be concluded, A… cannot be considered as a public law body in the sense of an entity that is integrated in the organisation of the Public Administration, even according to the criteria defined in the said judgment Saudaçor.
Objective incidence: associative revenues
11. Article 9 of the VAT Directive defines economic activity as "any activity of production, commercialisation or provision of services, including extractive, agricultural and activities of the liberal professions or equivalent". The objective categories of transfer of goods and provision of services are, in turn, set out in articles 14 and 24 of the Directive, which have a correspondence in articles 3 and 4 of the VAT Code. According to no. 1 of article 4 of the Code, "operations carried out for valuable consideration which do not constitute transfers, intra-community acquisitions or imports of goods are considered as services provided". In keeping with this principle, article 1, under the heading "Objective incidence", subjects to value added tax transfers of goods and provision of services, imports of goods and intra-community operations.
In the present case, it is discussed whether the revenues collected by A… relating to associative activity can be deemed to derive from provision of services for valuable consideration for the purposes of VAT subjection.
The revenues in question, as results from the proven factual matter and from A…'s own statutory regime, derive from fees paid by members, which may be of fixed or variable value or of a supplementary nature, fees due by the registration and transfer of players and other sports agents and the licensing of stadiums intended for the practice of sport or other accessory activities such as copying of documents and issuance of licensing cards.
Fixed or variable fees constitute a statutory obligation of members and are intended to contribute to the payment of the operating expenses of A… (articles 14, no. 1, subparagraph f), and 69, no. 2, of the Statutes), whilst supplementary fees apply to members who benefit from services that are not assured on a continuous and uniform basis and are especially applicable in the case of members who register B teams in the national championship of … (article 69, no. 4, of the Statutes). In turn, fees due for the registration and transfer of players and other sports agents or for the licensing of stadiums intended for the practice of sport correspond to the consideration for the intervention of A… in the corresponding administrative procedure, with the revenues being divided between A… and B….
It appears that these two types of revenues, for the purposes of VAT taxation, need to be analysed differently.
A key point in this characterisation consists in the requirement of a direct nexus between the provision of the service and its consideration in order to be able to consider that there exists a true transaction between the parties which as such is subject to tax. On the other hand, it becomes necessary to identify the specific recipient of the taxable services in order to understand that the provision of services confers a certain advantage on a third party (see SÉRGIO VASQUES, The value added tax, Coimbra, 2015, pp. 136-142).
This aspect was emphasised in the CJEU Judgment Tolsma, Case C-16/93, of 3 March 1994, in which it was concluded that a service is only provided for valuable consideration for the purpose of VAT subjection "if there exists between provider and beneficiary a legal relationship during which reciprocal services are transacted, the remuneration received by the provider constituting the effective consideration for the service provided to the beneficiary".
Starting from this same premise, in the judgment Apple & Pear, Case No. C-102/86, of 8 March 1988, in a case concerning a public law body invested with a mission of development in the sector of fruit production and activities of advertising and promotion of products, the Court of Justice considered that the collection from producers of a contribution of a compulsory nature for the financing of these activities does not constitute services provided for the purposes of the Directive.
To this end, the Court held as follows:
In this regard, it appears from the decision that the functions of the Council relate to the common interests of the producers. In so far as it is a service provider, the advantages deriving from these services benefit the entire sector in question. If individual producers of apples and pears benefit from advantages, they derive them indirectly from those that accrue generally to the entire sector (recital 14).
Furthermore, there is no relationship between the advantages that individual producers derive from the services provided by the Council and the amount of compulsory contributions they are obliged to pay under the 1980 Order. The contributions required as non-contractual but legal obligations are always required of the individual producer by way of a debt owing to the Council, independently of the question of whether a specific service of the Council confers on him an advantage (recital 15).
The Court thus concluded that there is no direct nexus between the service provided and the consideration received in that the functions of the body relate to the common interests of the producers and producers on an individual basis only benefit indirectly from the advantages that accrue generally to the entire sector.
The question of the connection of the contributions with the service provided was also evident in the judgment Kennemer Golf, Case No. C/174/00, of 21 March 2002, relating to an association which had as its corporate purpose the practice and promotion of sport and, in particular, the game of golf and whose members pay an annual fee for use of the sports facilities, with the discussion being whether the annual contributions of members of a sports association can constitute the consideration for services provided by it, even when they do not use or do not regularly use the facilities.
To this end, reaffirming the principle that the taxable amount of a service provision is constituted by everything received in consideration of the service provided and that a service is only taxable if there exists a direct nexus between the service provided and the consideration received (recital 39), the Court established the understanding that the Directive should be interpreted in the sense that the annual contributions of members of a sports association are capable of constituting the consideration for services that it provides, even when members who do not use or do not regularly use the association's facilities are, nevertheless, obliged to pay their contribution. In this sense, emphasis was placed on the idea that the services of the association are constituted by the permanent availability to members of the sports facilities and the advantages inherent to them, and not by the specific services associated with each personal use of the golf course (recitals 40 and 42).
12. Reverting to the concrete case, it seems that there is no doubt that the services resulting from the registration and transfer of players or other sports agents, as well as those arising from inspections for the purpose of licensing sports facilities, corresponding to specific acts of an authoritative nature from which the sports companies directly involved benefit, and for which there is place for the payment of fees which are set annually by B…, corresponds to a provision of services for valuable consideration which presupposes the existence of a direct nexus between the service provided and the consideration received.
It is irrelevant that the pecuniary provision due by any of these authoritative acts can be characterised as a fee, on the assumption that it corresponds to a consideration required for a public service, independent of whether there is at issue a true and proper administrative act or a mere instrumental act or administrative material operation. The characterisation as a fee may be justified by being at issue acts performed in the exercise of authority powers, but, as we have seen, this circumstance is not in itself determining to exclude VAT taxation, since the rule of exclusion imposes not only that operations be carried out in the exercise of authority powers but also that the service provider be integrated in the Public Administration.
Moreover, both article 13 of the VAT Directive and article 2, no. 2, of the VAT Code downplay, for the purposes of the exclusion of VAT incidence, the legal qualification of the pecuniary services due for the provision of services, placing the focus, not on the qualitative of the pecuniary provision (which may even be a fee), but on the public nature of the service provider and the exercise of prerogatives of authority.
13. The question relating to contributions raises another type of difficulties.
Fees are intended, in general, to contribute to the payment of the operating expenses of A…. The amount of a fixed fee may vary depending on whether it concerns members of … or …, and different brackets may be established for clubs and sports companies participating in …. Variable fees are specifically intended to finance the general budget of A… or a Financial Balance Fund established to cover losses from the activity of organisation and functioning of professional football competitions. In turn, the amount of the variable fee is set in concreto taking into account the size of the member, its volume of business, the sports results it has achieved and other suitable criteria to demonstrate its ability to contribute to the functioning of A…. Even supplementary fees are intended to participate in the operating expenses of A…, aiming to cover the increase in organisational activity when sports companies participating in … wish to register B teams in the championship of … (article 69 of the Statutes of A…).
It is further provided that, under the statutory provisions, associative revenues exceeding the total amount of operating expenses are allocated to the realisation of statutory purposes and attributions, whilst the positive balance of commercial exploitation revenue is attributed to the sports companies (articles 8, nos. 4 and 6, and 13, no. 1, subparagraph d), of the Statutes).
It is clear that contributions, regardless of their nature, are allocated to the pursuit of the statutory attributions of A…, especially as regards the organisation and management of professional football competitions. And it is important to note that the associated sports associations support contributions of different amounts, even when these are fixed fees, in which case a distinction is made between the participants in … and … and different brackets are established between the participants in …. And variable fees are equally defined as a function of various factors that might reveal a greater or lesser ability to contribute to the functioning of A….
The Statutes also give prominence, as their own purpose, to the promotion of the "defence of the common interests of its members" (article 7, subparagraph b), of the Statutes), with A… having for this purpose the attributions specially defined in no. 2 of this provision.
In light of all that has been previously set out, the hypothesis of the case is closer to the solution in the judgment Kennemer Golf than to that which results from the judgment Apple & Pear.
In fact, what is at issue, through the payment of fees, is the financing of expenses for the organisation and regulation of football competitions of which the members benefit as participants in these competitions. It is true that it is not possible to establish a direct relationship between the fees paid by any member and a particular football game in which the club participated or an act of management or disciplinary control that A… carried out. And it cannot fail to be recognised that the general activity of A… involves a variety of associative services that do not necessarily reflect, on an individual basis, on each of the members.
It cannot, however, be said that the members only benefit indirectly from the advantages arising from the specific services provided by A…. And it is rather possible to establish a direct nexus between annual contributions and the participation of members in professional football competitions and all the regulatory activity that this participation implies and which it is incumbent on A… to carry out. And it is not insignificant, in this sense, that the fees are of different amounts, calculated in accordance with the contributory capacity of each member, which well shows that the payment is essentially related, not to the specific services periodically directed to each of the members, but to the general activity of organisation and regulation of professional competitions.
There is therefore no reason not to tax these contributions.
Exemption of article 9, nos. 19 and 21, of the VAT Code
14. Article 132 of the VAT Directive, relating to exemptions for the benefit of certain activities of general economic interest, provides in subparagraph l) of its no. 1, that Member States exempt "the provision of services and the delivery of goods closely linked to them, provided to their respective members in the collective interest by non-profit organisations pursuing objectives of a political, trade union, religious, patriotic, philosophical, philanthropic or civic nature, by means of a fee fixed in the statutes, provided that such exemption is not likely to cause distortions of competition".
For its part, the subsequent article 133 provides that Member States, as regards "bodies that are not public law bodies", may make the granting of the exemption conditional on the observance of various conditions, and, among them, that which is in subparagraph a) which thus provides: "The bodies in question must not have the objective of obtaining systematic profit, and any profit must in no case be distributed, but instead allocated to the maintenance or improvement of the services provided".
This exemption is realised in domestic law in article 9, no. 19, of the VAT Code, where it is provided that the following are exempt from tax: "the provision of services and the transfer of goods related thereto carried out in the collective interest of its members by non-profit organisations, provided that these organisations pursue objectives of a political, trade union, religious, humanitarian, philanthropic, recreational, sports, cultural, civic or representation of economic interests nature and the only consideration is a fee fixed in accordance with the statutes". The concept of "non-profit organisation", for the purposes of exemption, is fixed in article 10 of the VAT Code, being determined that only those which simultaneously meet the conditions stated therein are considered as such, the first of which is in subparagraph a) in the following terms: "in no case distribute profits and its managing bodies do not have, by themselves or through an intermediary, any direct or indirect interest in the results of the operation".
On the other hand, this question was also examined by the said judgment Kennemer Golf, which came to consider that "the qualification of an organism as 'non-profit-making' should be made with regard to that organism and not the services provided in accordance with article 13, A, no. 1, subparagraph m), of the Sixth Directive", from which it follows that "to determine whether such an organism meets the conditions imposed by this provision, regard should be had to the entirety of its activities, including those which it offers in addition to the services referred to therein" (recital 21). Thus concluding that the Directive should be interpreted "in the sense that the qualification of an organism as 'non-profit-making' should be made with regard to the entirety of its activities" (recital 22). The judgment does not exclude, on the other hand, that organism can be qualified as 'non-profit-making' even if it systematically seeks to generate surpluses which it then allocates to the execution of its services" (recital 35).
In the present case, it is established that A… obtains revenues resulting from contributions and fees due for associative services, the surplus of which is allocated to the fulfilment of statutory purposes and attributions, but also obtains income resulting from the commercial exploitation of professional competitions, such as that derived from sponsorships and advertising, and the positive balance of this activity is returned to the associated clubs who decide on the destination to give to these amounts.
Given that A… obtains, in these terms, revenues that result from the commercial exploitation of professional competitions and which, generating surpluses, are attributed to the members, it cannot be qualified as a "non-profit organisation" for the purposes of the exemption provided for in article 9, no. 19, of the VAT Code and according to the understanding of CJEU jurisprudence.
15. The exemption provided for in no. 21 of article 9 of the VAT Code also does not apply to the case.
In correspondence with article 132, no. 1, subparagraph f), of the VAT Directive, article 9 of the VAT Code provides, in its no. 21, that the following are exempt from tax: "services provided to its members by autonomous groups of persons who exercise an exempt activity, provided that such services are directly necessary to the exercise of the activity and the groups limit themselves to requiring from their members the exact reimbursement of the part that incumbent on them in the common expenses, provided, however, that this exemption is not likely to cause distortions of competition".
The application of this exemption depends, among other things, on the members that constitute the autonomous grouping carrying out an activity that is itself exempt from tax, from which it follows that the application of the exemption would depend, not on the regime of the services carried out by A…, but on the regime of the services that are carried out autonomously by the sports companies as its members.
The additional tax assessment which is the subject of the present arbitral process relates, however, to the provision of services carried out by A…, so only the exemption that might cover this activity should be considered, and there is not at issue any other activity that might be imputed to the associated clubs.
Right to deduct the tax
16. The Claimant further contends that, admitting that the services provided by A… are subject to and not exempt from tax, the additional VAT assessment should incorporate the deduction of tax, in order that the arithmetic correction corresponded to the difference between the tax to be paid and the tax to be deducted, having indicated in article 371 of the arbitral request the amounts of tax to be deducted for reference to the years 2014, 2015 and 2016.
It also alleges that it invoked the right to deduct in the exercise of a hearing on the projects of the Tax Inspection Reports, to which the Tax Authority made no reference in the final decision, so there was a violation of the provision of article 60, no. 7, of the General Tax Law, which requires that new elements raised by the taxpayer be addressed in the reasoning.
The said article 60 of the GTA, under the heading "Principle of participation", provides, in no. 1, subparagraphs a) and e), the right to a hearing for taxpayers before assessment and the conclusion of the tax inspection report, and in no. 7 it provides that "New elements raised in the hearing of taxpayers are necessarily taken into account in the reasoning of the decision".
However, it is not possible to assert, in this case, that the Administration ignored the allegation of the subject, since in part A of point VIII of the reports – in which the arguments of the taxpayer invoked in the exercise of the right to a hearing are summarised – express mention is made of the right to deduct that would be intended to be exercised in the event of additional assessment of tax (pp. 24-25). And in the assessment of the considerations adduced at the hearing, in part B of that point VIII, the following is said to this end: "Regarding the right to deduct VAT incurred this may not be exercised, the option being left to the criterion of the taxpayer" (p. 33).
The Administration thus formulated a response regarding the question raised by the subject, making it seem that the right to deduct depends on the initiative of the individual through the appropriate tax procedure, which allows inferring that it is not at the moment of assessment of the tax that the deduction of tax paid for the acquisition of goods or services from other subjects can be carried out.
And this point of view makes sense.
The right to deduct the tax, regulated in articles 167 to 192 of the VAT Directive and, in domestic law, in articles 19 to 25 of the VAT Code, consists essentially of the right of a subject to deduct from the tax inciding on a certain taxable operation the tax it has incurred in the acquisition of goods or services intended for the carrying out of that operation.
In the case of payment of tax assessed by the subject, as provided for in article 27 of the VAT Code, the right to deduct is exercised in the periodic statement referred to in article 41.
As the subsequent article 28 determines, when the tax assessment is carried out by the initiative of the services, the subject is notified to effect the respective payment in the legally authorised collection locations, within the period referred to in the notification (no. 1). The rule does not make reference to the terms in which the right to deduct can be exercised when there is an official assessment of tax, but given that the right to deduct constitutes a fundamental principle of the common VAT system which, in principle, cannot be limited, it must be understood that the subject will always have the right to deduct the tax that has burdened upstream operations.
In the present case, we are faced with acts of official VAT assessment to which the provision of article 28 becomes applicable and which result from the Tax Administration having considered that the associative revenues of the Claimant constitute services subject to and not exempt from VAT. In this circumstance, the exercise of the right to deduct can only be effected in a moment subsequent to the tax assessment itself. And in any case, it does not follow from the law that, in case of assessment of tax by the initiative of the services, there should also be official deduction of the tax inciding on the taxable operations carried out before other subjects.
The defects invoked do not, consequently, correspond to any illegality that can be attributed to the acts which are the subject of the process and have no reflection on the decision of the case.
Violation of the principles of good faith, justice and proportionality and neutrality of VAT
17. The Claimant further considers that the acts impugned violate the principles of good faith, justice and proportionality and neutrality of VAT alleging as sole argument that it has always assessed VAT as a mixed subject, interpreting in a plausible and congruent manner the tax law, without any evasive intent, and that the Administration only raised the question of incorrect tax assessment, opening an inspection procedure, when the taxpayer requested a tax refund.
Some of the general principles of administrative activity set out in the Administrative Procedure Code are invoked here, by which the Public Administration, in the pursuit of the public interest, can only affect the subjective rights or legally protected interests of private parties to the extent necessary and in terms proportional to the objectives to be achieved (article 7), must reject manifestly unreasonable solutions or incompatible with the idea of Law, namely in matters of interpretation of legal norms and valuations proper to the exercise of administrative function (article 8), and relate to private parties according to the rules of good faith (article 10).
In the case, the inspection procedures were undertaken following requests for VAT refund in that it was found that the Claimant had not assessed VAT on some of the active operations carried out.
The inspection procedure may be aimed at the confirmation of elements declared by subjects or the investigation of tax facts not declared, and may result in a procedure of verification and checking of compliance with tax obligations (articles 2 and 12 of the Supplementary Regime of the Tax and Customs Inspection Procedure).
On the other hand, the impulse of the procedure may be of official initiative, in accordance with criteria of opportunity that it is incumbent on the Tax Administration to define.
It is therefore not seen in what terms the opening of an inspection procedure following a request for a tax refund and to verify the legality of the taxpayer's tax situation can breach the aforementioned principles of administrative activity.
It is also difficult to understand how the act of additional tax assessment intended to ensure the payment of tax not assessed can affect the principle of neutrality, when this principle, in VAT matters, constitutes the translation of the principle of equality of treatment and is intended to ensure that taxable goods bear the same tax burden independent of the length of the production and distribution circuit.
The request is also unfounded as to this point.
Compensatory Interest
18. The Claimant also impugns the assessment of compensatory interest in relation to any of the IRC assessment acts.
Pursuant to article 35, no. 1, of the General Tax Law, "compensatory interest is due when, due to a fact attributable to the subject, the assessment of part or all of the tax due or the payment of tax to be paid in advance, or withheld or to be withheld in the context of tax substitution, is delayed".
As has been the common understanding, compensatory interest due under the said provision constitutes a reparation of a civil nature intended to indemnify the Tax Administration for the loss of availability of a sum that was not assessed in a timely manner. Being an indemnification of a civil nature, it is only exigible if a causal nexus is verified between the action of the subject and the delay in assessment and this action can be censurable on the grounds of intent or negligence.
Now, in the case, the inspection actions relating to the years 2014, 2015 and 2016 were determined by the request for refund made in the periodic statement relating to January 2017, when in those tax periods the subject always self-assessed VAT without including revenues from its associative component, being found that the additional assessment was only initiated by the taxpayer's own initiative.
It is further provided that the
Frequently Asked Questions
Automatically Created