VAT Deduction Denied for Simulated Invoices: Burden of Proof in Tax Arbitration

Arbitral Decision

The arbitrator Francisco Carvalho Furtado (arbitrator in a Sole Arbitral Tribunal), designated by the CAAD Deontological Council, hereby decides as follows:

I. Report

1. The Claimant A…, Lda, legal entity no. …, with registered office at …, … –…, …-… …, notified of the acts of assessment of Value Added Tax (VAT) and Compensatory Interest, relating to the year 2008, in the global amount of € 28,755.52, hereby submits, under subsection a), of paragraph 1 of article 2nd and subsection a) of paragraph 1 of article 10th of Decree-Law no. 10/2011, of 20 January ("Legal Framework for Tax Arbitration", hereinafter "RJAT") a request for arbitral ruling with a view to annulling such acts.

2. The Tax and Customs Authority (AT) is the Respondent.

3. The claim subject to the request for arbitral ruling consists of the annulment of such acts of tax assessment and compensatory interest.

3.1. The Claimant petitions for the declaration of illegality and consequent annulment of the acts of VAT assessment and compensatory interest, carried out by reference to the year 2008.

1. The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and automatically notified to AT.
   4.1. The Claimant did not proceed with the appointment of an arbitrator, wherefore, under the provisions of subsection a) of paragraph 2 of article 6th and subsection b) of paragraph 1 of article 11th of RJAT, the President of the Deontological Council designated the signatory as arbitrator of the sole Arbitral Tribunal, who communicated acceptance of the designation within the deadline.

4.2. The parties were notified of the arbitrator's designation and raised no impediment.

4.2. In conformity with the provisions of subsection c) of paragraph 1 of article 11th of RJAT, the collective Arbitral Tribunal was constituted on 8 July 2015.

4.3. In these terms, the Arbitral Tribunal is regularly constituted to assess and decide on the subject matter of the case.

1. To support the request for arbitral ruling, the Claimant alleges, in summary, the following:

a) The additional assessments that are the subject of the present request for arbitral ruling above resulted from an inspection action carried out by the Tax and Customs Authority, and which covered the taxation periods comprised in the calendar years 2008 and 2009;

b) Nevertheless, said assessments are not based on any fact ascertained or verified in the inspection carried out, but on facts ascertained in another inspection of another taxpayer, of whom the Claimant was a customer;

c) The facts that sustained the assessments in question concern the scope of activity of the Claimant's supplier, regarding which it cannot answer as it did not know them, nor has any obligation to know them;

d) In the inspection of the Claimant, no fact was ascertained that indicates business simulation, on the contrary, it was evidenced that it paid the invoices issued;

e) The facts occurring prior to the delivery of the panels to the Claimant were not known to it, as it was also established that it was the supplier's responsibility and cost to deliver them;

f) In the tax inspection carried out on the supplying company, the Tax and Customs Authority concluded that it did not have warehouses, that it did not purchase the panels from B… and that "C…" also could not have transported the panels as it had ceased its activity in 2000.

g) As for the Claimant, in any of the inspection actions carried out, any conclusion was drawn, merely stating that it was a customer of the first;

h) The Tax and Customs Authority, in fact, could not do so, since it did not investigate the Claimant, merely declaring that being a Customer of D… it was an intervening party in the alleged simulated collusion in the purchase and sale of panels and the issuance of false invoices;

i) The Tax and Customs Authority considers that the Claimant is obliged to demonstrate the truthfulness of its operations:

j) In view of the regularity of the Claimant's tax compliance situation, it benefits from the presumption of truthfulness of its declarations and, therefore, only if the Tax and Customs Authority had found in acts/facts carried out by it that indicated that it simulated the acquisition of panels would the burden of proving such facts fall upon it.

k) The Respondent did not prove the facts it alleges and upon which it bases its claim;

l) Thus, the assessments under review, not only do not have as their basis any indicia of collusion between the Claimant and D…, but the facts ascertained in the inspection carried out on the Claimant reveal that it always acted in accordance with the law, no tax irregularity having been detected;

m) But, even if it were not so, the Claimant proves the non-existence of simulated business, demonstrating that D…, sold, at least from 2002 and until, at least 2010, panels to companies in the refrigeration field, among which it was included;

n) The Claimant possessed said panels in its inventory;

o) Some of the merchandise, which was destroyed by bad weather, is still abandoned in the vicinity of the Claimant's facilities;

p) In its invoices, it does not individually indicate the panels as they are contracting services in which they are included;

q) It concludes by requesting the declaration of illegality and annulment of the acts of VAT assessment and Compensatory Interest.

1. The Tax and Customs Authority (hereinafter identified as Respondent) submitted a reply alleging, in summary, the following:

a) The corrections made within the scope of the inspection procedure under review were based on the facts described in the TIR, which was obtained through accounting analysis of the Claimant;

b) It does not result from the Tax Inspection Report that the corrections made to the Claimant are based solely on facts ascertained in the inspection developed with the taxpayer D…;

c) The Respondent may use the evidence elements collected in the inspection actions carried out on the invoice issuer as provided in articles 13th, subsection b) and 29th, paragraph 1, subsection a), paragraph 3 of RCPITA.

d) From the analysis of the Claimant's accounting records, the inspection services did not find any document (delivery and/or transport note) that could prove the actual transport of materials to its facilities;

e) The invoices showed that the place of "loading" was the facilities of D…, which was not physically possible and, as such, is false;

f) D… only employed an administrative employee, so it did not have adequate human resources;

g) Said employee was holder of the demand deposit account with the NIB…, in E…, but movements were carried out exclusively by F…, who was managing partner of D…;

h) With reference to said bank account, the inspection services found the existence of checks drawn that were withdrawn by G…, managing partner of the Claimant;

i) In view of the indicia collected, it is evident that the invoices do not represent real operations, which is not disputed by the mere fact that they were paid by the Claimant;

j) Financial flows cannot be considered apt to prove the transfer of merchandise, if there are no facts proving that they circulated between seller and buyer, a situation that occurs in this case;

k) By the reality found by the inspection services and described in the Tax Inspection Report, the conclusion is that the invoices issued by D… to its alleged customer the Claimant - above identified, and supposedly relating to the supply of refrigeration panels, correspond to simulated business and, for that reason, the VAT mentioned therein is not deductible in light of the provisions of article 19, paragraph 3 of CIVA.

l) The lack of a transport guide, or even the indication of a transport company that carried it out, is a strong indication that the transport of the panels, as mentioned in the invoices in question, did not exist.

m) The company that was supposed to have transported the merchandise in question already had ceased VAT activity since 2000.

n) There was the apparent payment of certain invoices, however it was found by the DF of … that there was the issuance of checks in the name of D…'s secretary to the managers of companies using the false invoices, including the managing partner of the Claimant;

o) Thus, the facts ascertained and the elements obtained in the course of the inspection procedure, some provided by the Claimant, led the inspection services to conclude that the determination of the taxable matter could not be carried out based on what had been declared, with the presumption of truthfulness of the accounting ceasing as provided in article 75th, paragraph 1, of LGT.

p) Being that, once it has been proved that the legal prerequisites that legitimize the corrections to the declared taxable matter are verified, it became incumbent on the Claimant to prove that places in question the amounts ascertained, namely it is incumbent on it to prove the truthfulness of the values entered in the submitted declarations, in accordance with the rules on burden of proof contained in article 74th of LGT.

q) It concludes by requesting the dismissal of the action.

1. On 25 January 2016 the meeting referred to in article 18th of RJAT was held, and the witnesses listed by the Parties were questioned.

2. On 10 February 2016 the Claimant submitted its arguments.

3. On 26 February 2016 the Respondent submitted its arguments.

II. Preliminary Matters

1. The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented (articles 4th and paragraph 2 of article 10th of RJAT and article 1st of Ordinance no. 112-A/2011, of 22 March).

2. The tribunal is competent and regularly constituted.

3. The case does not suffer from nullities.

4. There are no other circumstances that prevent the tribunal from deciding the merits of the case.

III. Questions to be Decided

1. In the present proceedings the questions to be decided are:

a) To determine whether the Respondent presented sufficiently strong indicia of simulation of the operations evidenced in the invoices identified in the case;

b) To determine the burden of proof;

c) To determine whether the Claimant demonstrated the truthfulness of its operations, and whether the assessment acts in question are lawful, in light of article 19th, paragraph 3, of the VAT Code.

IV. Merits

IV.1. Factual Matters

1. Facts Established:

15.1. With relevance to the assessment and decision of the questions raised, the following facts are taken as established and proven:

a) The Claimant was subject to a tax inspection procedure, carried out in compliance with Service Order nos. OI2012…/OI2013… (Tax Inspection Report);

b) The claimant was notified of the conclusions of the inspection action (Administrative Procedure);

c) In the conclusions of the inspection action, the Tax and Customs Authority stated that:

• Tax Obligations

11.3.2.4.1 - In the field of VAT

Having examined the files of the DGCI computer system, it was verified that the taxpayer complied, within the deadline established in subsection b) of paragraph 1 of article 41st of CIVA, with the declarative obligations arising from the legal requirements set out in subsection c) of paragraph 1) of article 29th of the same code, relating to the tax years under review.

11.3.2.4.2 - In the field of CIT

Through the IRC consultation system database, it is noted that the company submitted, within the legal deadlines provided in paragraphs 1 of article 120th and 2 of article 121st of CIRC, the declarative obligations referred to in subsections b) and c) of paragraph 1 of article 117th - form 22 and annual declaration of accounting and tax information - IES, relating to the economic years under review.

d) With regard to the rationale for the corrections made, the Tax and Customs Authority stated that:

• Improperly Deducted VAT

In the years 2008 and 2009 the taxpayer allegedly acquired from supplier "D…, Lda.", NIF…, which is indicated as issuing false invoices, the merchandise contained in the following invoices:

Exercise of 2008

[TABLE WITH INVOICE NUMBERS, DATES, TAXABLE BASE, VAT, AND TOTAL AMOUNTS]

Exercise of 2009

[TABLE WITH INVOICE NUMBERS, DATES, TAXABLE BASE, VAT, AND TOTAL AMOUNTS]

• copies of invoices issued by D… in Annex 2.

With regard to the said company "D…", the following facts were ascertained in an inspection procedure carried out by the DF of …:

a) "D…" has its registered office in Viseu and its operational facilities consisted only of one office at…, in Viseu.

b) The staff at its service were solely its manager, Mr H… and a secretary, Mrs I….

c) The operational equipment that the company used in its activity consisted of some administrative equipment, of little relevance, and two light passenger vehicles.

d) According to its accounting, all goods sold (stainless steel sheets) to its customers, which include "A…", were acquired from its alleged supplier B…, NIF…, with registered office in Cartaxo.

e) The company B…, as was ascertained by the DF of … and DF of …, did not sell any goods to "D…" nor received any payment from it.

f) In the accounting of "D…" there is no evidence that it resorted to third parties to store or transport the products/merchandise allegedly sold. Nor was any proof exhibited that goods had been transported from the facilities of its alleged supplier B… to its facilities.

g) The invoices issued by "D…" state that the goods were transported from its facilities to the address of its customers.

h) No evidence was obtained that any merchandise had been transported by order of D…; nor was a single transport guide found or provided by D… or by the customers.

i) Furthermore, "D…" stated, through a fax sent to A…, on 2008-01-01, that "all merchandise transportation occurs at our account and responsibility, or by a company contracted by D…, but with costs being borne by us"; it indicated, in the same fax, that transportation was carried out by "C…, Lda., NIF…. However, "C…" had ceased VAT activity since 2000-04-20, in accordance with article 33rd, paragraph 1, subsection b) of CIVA (at the time) and, for CIT purposes, since 2009-12-31. Also, as was proved in the inspection action carried out by the DF…, there is no entry in D…'s accounting for any payment to third parties for transportation services.

It is true that A… proceeded with the payment of invoices issued by D…; however, financial means, by themselves, cannot be considered means of proof underlying the transfer of merchandise, given the absence of facts proving that they circulated between seller and buyer.

It should also be noted that at "A…" there is no document (delivery and/or transport guide) that could prove the actual transport of materials to its facilities. Furthermore, the known invoices issued by "D…", in 2008 and 2009, refer as the place of loading "our facilities". Such fact cannot be true since "D…" did not have facilities where loading could be carried out.

The facts described constitute objective evidence that the invoices issued by "D…" do not correspond to actual transfers of goods/merchandise, as it could not have sold them because it did not acquire them nor had capacity to produce them and, on the other hand, the physical movement of said goods between the supplier's facilities (D…) and its customer (A…) as the invoices themselves state is not proven. In reality, D…'s facilities did not allow for the goods in question to be stored, unloaded or loaded there.

Combining all the facts mentioned and, although there are payments from "A…" to its alleged supplier "D…", it must be concluded that associated with the invoices issued by "D…" there are no true transfers of goods, as it did not have the goods to sell them and, on the other hand, the physical movement of the merchandise was not proven.

It should be emphasized that "D…" had neither warehouses for merchandise storage nor staff to provide the alleged services, nor is there evidence that it resorted to subcontracting for such purpose.

In view of the picture described, it must be concluded that the invoices issued by D… to its alleged customer A…, above identified, and supposedly relating to the supply of refrigeration panels, correspond to simulated business and, for that reason, the VAT mentioned therein is not deductible in light of the provisions of article 19, paragraph 3 of CIVA.

Summary Table of Improperly Deducted VAT

[TABLES SHOWING VAT AMOUNTS BY PERIOD]

e) The Tax Inspection Services did not seek to determine from the Claimant's Customers whether refrigeration panels were applied in the services provided (Testimony of the witness listed by the Respondent);

f) The Claimant was notified of the additional VAT Assessment Act no. …, relating to the 03/08 period, in the amount of €4,492.03 (Initial Request);

g) The Claimant was notified of the Compensatory Interest Assessment Act no. …, relating to the 03/08 period, in the amount of €1,174.57 (Initial Request);

h) The Claimant was notified of the additional VAT Assessment Act no. …, relating to the 06/08 period, in the amount of €4,715.17 (Initial Request);

i) The Claimant was notified of the Compensatory Interest Assessment Act no. …, relating to the 06/08 period, in the amount of €1,183.83 (Initial Request);

j) The Claimant was notified of the additional VAT Assessment Act no. …, relating to the 09/08 period, in the amount of €8,096.80 (Initial Request);

k) The Claimant was notified of the Compensatory Interest Assessment Act no. …, relating to the 09/08 period, in the amount of €1,952.11 (Initial Request);

l) The Claimant was notified of the additional VAT Assessment Act no. …, relating to the 0812 period, in the amount of €5,800.40 (Initial Request);

m) The Claimant was notified of the Compensatory Interest Assessment Act no. …, relating to the 0128 period, in the amount of €1,340.61 (Initial Request);

n) The Claimant is a commercial limited partnership company whose corporate purpose is the trade, installation and technical assistance of industrial compressors (Doc. 1 attached to the initial petition);

o) In the year 2008 the company D…, Lda issued the following invoices to the Claimant (Annex 2 to the Report of Conclusions of the Inspection Action):

[TABLE OF INVOICES WITH AMOUNTS]

d) On 15 April 2015 the Claimant submitted the request for arbitral ruling that gave rise to the present proceedings.

15.2. Rationale for the Factual Matters

The facts established were based on documents submitted with the request for arbitral ruling, and the statements of the Parties contained in their respective procedural documents, with no controversy over them.

1. There are no other facts with relevance to the assessment of the merits of the case that have not been proved.

IV.2. Legal Matters

On the Merits

As noted above, the Respondent bases its claim on article 19th, paragraph 3, of the VAT Code. That is, the Respondent considers that the invoices issued to the Claimant by the company D…, Lda, correspond to simulated business, with the VAT not being deductible in the sphere of the latter.

First and foremost, and without prejudice to the arguments of the Illustrious Jurists designated to represent the Respondent, the truth is that the legality of the assessment acts must be assessed based on the arguments contained in the Tax Inspection Report inasmuch as it is this document that motivates the assessment acts whose declaration of illegality is requested.

In view of the above, it is important, first of all, to delimit the concept of "simulated business". Subsequently, it will be necessary to analyze and distribute the burden of proof in order to ascertain whether the Parties have succeeded in demonstrating the facts they have invoked, in the legally appropriate manner.

Article 19th, paragraph 3, of the Value Added Tax Code provides that "Tax resulting from a simulated operation or in which the price stated in the invoice or equivalent document is simulated may not be deducted." In accordance with the provisions of article 11th, paragraph 2, of the General Tax Law "Whenever the tax norms employ terms specific to other branches of law, such terms must be interpreted in the same sense they have there, unless otherwise directly provided for by law". In view of said legal provision, if another meaning does not emerge from the law, it must be understood that Tax Law, which is fundamentally a superimposed law, uses the concepts developed by other branches of law in the same sense they have there, with the interpreter-applicator not having the general power to alter it. Since tax law does not provide any definition of the concept of "simulation", it must be understood that the tax legislator adopted the term or concept in the same sense it has in the branch of law that developed it – Civil Law.

From the outset, it can be stated that the simulation of a legal transaction, although it does not exhaust the scope of categories of unlawful transactions, nor even the category of transactions concluded in fraud of law, essentially, and insofar as it is concluded with a purpose contrary to law, comes down to the figure of fraud against the law.

The concept of simulation is defined in article 240th, paragraph 1, of the Civil Code, as follows: "if, by agreement between the declarant and the declaratee, and with the intent to deceive third parties, there is a divergence between the legal declaration and the real will of the declarant, the transaction is said to be simulated." In this regard, incidentally, the Illustrious Professor Luís A. Carvalho Fernandes (in General Theory of Civil Law, vol. II, p. 369) states as follows: "Simulation consists of the agreement between declarant and declaratee to conclude a transaction that does not correspond to their real will, with the intent to deceive third parties."

From this it follows that the characteristic elements of simulation are the following: the divergence between will and declaration; the agreement or collusion between the parties; and the intention to deceive third parties. In this sense, see the Decisions of the Court of Appeal of Lisbon, of 13 March 2008, delivered in case 412/2008-8, of the Court of Appeal of Porto, of 4 December 1998, in case no. 9821113 and of the Supreme Court of Justice, of 14 February 2008, under no. 08B180, among others. First, simulation presupposes that the external side of the legal declaration - the declaration - and its internal side - the will - do not coincide. This divergence between will and declaration may be absolute, in which case the declarant, not wanting to conclude any legal transaction, says he wants to do so and concludes some legal transaction, or relative, when the declarant, wanting to conclude a legal transaction, says he wants to and concludes a different legal transaction. The identification of divergence, whether absolute or relative, presupposes the identification of the declarant's real will and its comparison with the legal declaration produced. Thus, in absolute simulation, under the guise of the declaration there is no legal will hidden, but rather the absence of any legal will. In relative simulation, on the contrary, under the guise of the declaration there is hidden a legal declaration divergent from it, the legal transaction that corresponds to the real will of the declarant, designated dissimulated transaction.

Simulation also presupposes that (i) there is no error in the declaration, that is, that the declarant is aware of the divergence between his declaration and his will, (ii) and that there is no mental reservation, that is, that the declaratee is also aware of it. The concept of simulation, however, requires more than the mere awareness or representation of the declarant regarding the divergence between his will and his declaration. In fact, in order to speak of simulation, it is also necessary that there be an agreement or a meeting of wills regarding the simulation itself between the two subjects - declarant and declaratee. Thus, another constitutive element of the concept of simulation is a fraudulent agreement regarding the very divergence between one and the other - an agreement that is designated as a simulated pact. Now, this simulated pact manifests itself paradigmatically in a counter-declaration, through which the parties declare their real will or their will to bind themselves under the terms of the simulated transaction.

Finally, once the divergence between declaration and will has been verified, as well as the agreement regarding it, for simulation to be spoken of, it is still necessary to verify the fraudulent intention of the simulated pact, intended to deceive third parties. When the simulated pact is only intended to deceive, but not to harm third parties, the simulation is said to be innocent. Simulation is said to be fraudulent when the simulated pact is intended not only to deceive but also to harm third parties. Having analyzed all the requirements required by law for a situation to be configured as simulated, it is important to understand whether, in the case sub judice, these are met. Specifically, it is necessary to assess whether the Respondent collected indicia of simulation that are apt to undermine the presumption of truthfulness enjoyed by the Claimant's written records.

On this point, the Respondent invokes in the Tax Inspection Report – as only the facts invoked here motivate the assessment act - various facts of which the following stand out:

a) D… did not have the human and physical resources necessary for the storage and transport of goods it claims to have disposed of, nor did it resort to third parties for that purpose;

b) The alleged supplier of D… (B…) allegedly did not dispose of any goods to D… nor received any payment from it;

c) The invoices issued by D… make reference to the fact that goods were transported from its facilities, which would not be possible given that there is no physical facility that would allow for storage;

d) The Claimant did not exhibit any transport guide that would demonstrate the transport and receipt of merchandise;

e) Payment by the Claimant of the invoices issued by D… is not sufficient to demonstrate the truthfulness of the transactions.

It should be noted that, already within the scope of the arbitral proceedings, the Respondent invoked that the amounts paid by the Claimant were returned to its managing partner through bank account movement opened in the name of an employee of D…. However, the truth is that the tax inspection, in its report of conclusions, made no mention of this fact. Thus, this Tribunal cannot consider it in its assessment, at the risk of admitting subsequent rationale. Indeed, the Tax Inspection did not even "appropriate" the report of conclusions of the inspection of D…, not having incorporated it and attached it to the report of conclusions of the inspection carried out on the Claimant.

Let us then see whether the facts described constitute strong indicia of the existence of simulated operations.

The facts described in subsections a) to c), above result, as the Claimant argues in its initial request, from situations detected in the sphere of the Claimant's supplying company. Now, such facts are not of immediate apprehension by the recipient of an accounting document – the invoice. That is, these are facts verified in the sphere of D…, and with regard to which the Tax and Customs Authority did not even invoke that the Claimant knew them or had an obligation to know them.

With regard to the fact that there is no transport guide, the truth is that, on the date to which the facts relate, such a document was not mandatory and could consist in the invoice itself. Now, the Tax and Customs Authority does not allege that the invoices did not constitute the transport document, merely pointing out the absence of a transport guide which, by itself, is not evidence of any irregularity.

On the other hand, it is demonstrated in the case evidence of the existence of commercial transactions between D… and the Claimant, embodied in the payments made.

Accordingly, the Tax and Customs Authority did not collect, within the scope of the inspection procedure carried out on the Claimant, sufficiently strong indicia in the sense that the economic operations evidenced in the identified invoices are simulated. Indeed, in the procedural documents aimed at supporting the assessment acts in question, the Tax and Customs Authority does not invoke that the facts described were known to the Claimant, that it conformed to them with the intention of harming the State.

What is aimed at by the norm (article 19th, paragraph 3 of the Value Added Tax Code) regarding the impossibility of deducting the Value Added Tax borne is the purchaser – in this case the Claimant. It is he (the taxpayer) that the legislator intends not to distort economic operations, with the sole intention of exercising the right to deduction.

In view of the conclusion reached, it is important to verify its impact on the distribution of the burden of proof.

In tax matters, the rules for distribution of the burden of proof are provided in article 74th of the General Tax Law, which determines that the burden of proof falls on whoever invokes the facts. The specific application of this provision has been pronounced upon extensively by case law, namely of the Supreme Administrative Court. In the Decision delivered in Process no. 0591/15, delivered on 17 February 2016, it was decided that "It is sufficient for AT to prove the facts that led it to not accept the respective tax deduction, facts that must be susceptible of undermining the presumption of truthfulness of the operations contained in the taxpayer's records and their supporting documents, only then does it become incumbent on the taxpayer to bear the burden of proof of the right he claims (the right to exercise the right to deduct VAT) and which is not recognized by AT, that is, the burden of proof that the operations were actually carried out and the prerequisites on which his right to that deduction depends occur."

Now, as noted above, the Respondent, relying on the effort and extent of the arguments in the arbitral proceedings, which find no parallel in the report of conclusions of the inspection action carried out on the Claimant, failed – in the report of conclusions of the inspection action – to undermine the presumption of truthfulness of the operations contained in the taxpayer's records. Indeed, the elements collected relate only to the supplier D…, and the Tax and Customs Authority did not make its own the evidence elements and facts that may have been ascertained in the tax inspection carried out on D…, nor does it even allege that they are or could be known to the Claimant. More, in the testimony given by the witness listed by the Respondent, it was expressly stated that the Inspection Services did not investigate whether the goods acquired had been, by the Claimant, installed in the respective Clients as it assumed that they could not even exist. This fact was essential to the discovery of material truth and possible removal of the presumption that the Claimant benefits from and was ignored and disregarded by the Tax and Customs Authority. In view of the facts, it is concluded that the Tax and Customs Authority failed to undermine the presumption of truthfulness that benefits the Claimant's written records (which the Respondent affirms is properly organized and tax-related obligations complied with), as postulated by article 75th of the General Tax Law.

Thus, it is imperative to conclude that the Tax and Customs Authority did not comply with the burden of proof that falls upon it, making necessary the declaration of illegality and consequent annulment of the assessment acts in question, for violation of article 19th, paragraph 3 of the VAT Code.

Finally, the assessment acts for tax being illegal and annulled, the compensatory interest assessment acts will also necessarily be so, as the prerequisites referred to in article 35th of the General Tax Law are not met, namely the existence of a situation of delay in the assessment of the tax.

In view of the solution reached, it becomes useless, and therefore prohibited, to decide on the question that relates to the verification of the demonstration, by the Claimant, of the truthfulness of the operations carried out.

V. Decision

In these terms, this Arbitral Tribunal rules in favor of the claim filed by the Claimant, annulling the acts of assessment of Value Added Tax and Compensatory Interest contested.

VI. Case Value

In accordance with the provisions of paragraph 2 of article 306th and paragraph 2 of article 297th, both of the Code of Civil Procedure, subsection a) of paragraph 1 of article 97th-A of the Code of Tax Procedure and Process and paragraph 2 of article 3rd of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned the value of € 28,755.52 (twenty-eight thousand, seven hundred fifty-five euros and fifty-two cents).

VII. Costs

In accordance with the provisions of paragraph 4 of article 22nd, paragraph 2 of article 12th, both of RJAT, article 2nd, paragraph 1 of article 3rd and paragraphs 1 to 4 of article 4th of the Regulation of Costs in Tax Arbitration Proceedings, as well as in Table I attached to this regulation, the total value of costs is fixed at € 1,530.00 (one thousand, five hundred thirty euros), to be borne by the Respondent.

Lisbon, 24 June 2016.

The Arbitrator

Francisco de Carvalho Furtado
(Sole Arbitrator)

Document prepared by computer, in accordance with the provisions of paragraph 5 of article 131st of CPC, applicable by reference of subsection e) of paragraph 1 of article 29th of RJAT.

The preparation of this decision is governed by the spelling prior to the Spelling Agreement.