Intra-Community Supply of Goods VAT Assessment Challenged at CAAD (Case 275/2015-T)

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Maria Alexandra Mesquita and José Ramos Alexandre, appointed by the Deontological Council of the Centre for Administrative Arbitration to form an Arbitral Tribunal:

I – REPORT

On 28 April 2015, A... - UNIPESSOAL, LDA, Tax Identification Number ..., belonging to peripheral service no. ... (Póvoa de Varzim) with head office and tax domicile at Rua..., no...., Fraction..., ...-..., in ..., city and municipality of Póvoa de Varzim, filed a request for the constitution of an arbitral tribunal, under the combined provisions of Articles 2 and 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters, with the amendment introduced by Article 228 of Law no. 66-B/2012, of 31 December (hereinafter, briefly designated RJAT), seeking the declaration of illegality of the following Additional VAT Assessments, with payment deadline of 31.01.2015:

i. No..., in the amount of €668.70, relating to February 2010;
ii. No..., in the amount of €9,369.30, relating to March 2010;
iii. No..., in the amount of €1,925.36, relating to April 2010;
iv. No.... in the amount of €1,522.78, relating to May 2010;
v. No..., in the amount of €3,609.65, relating to June 2010;
vi. No..., in the amount of €694.85, relating to July 2010;
vii. No..., in the amount of €1,687.23, relating to August 2010;
viii. No...., in the amount of €1,014.30, relating to September 2010;
ix. No..., in the amount of €2,217.15, relating to October 2010;
x. No.... in the amount of €6,963.08, relating to November 2010;
xi. No..., in the amount of €45,338.10, relating to December 2010;
xii. No..., in the amount of €1,967.17, relating to January 2011;
xiii. No..., in the amount of €1,837.82, relating to February 2011;
xiv. No..., in the amount of €6,759.49, relating to March 2011;
xv. No..., in the amount of €1,298.74, relating to April 2011;
xvi. No..., in the amount of €4,853.69, relating to May 2011;
xvii. No..., in the amount of €3,861.85, relating to June 2011;
xviii. No..., in the amount of €5,056.21, relating to July 2011;
xix. No..., in the amount of €1,875.02, relating to August 2011;
xx. No..., in the amount of €1,157.13, relating to September 2011;
xxi. No..., in the amount of €5,320.05, relating to October 2011.

To substantiate its request, the Applicant alleges, in summary, that there has been a violation of the principle of due process of law, in the consideration of information from the Spanish tax authorities, as well as errors of fact and of law in the assessments referred to, resulting in the violation of the provisions of paragraph (a) of Article 14 of the Regime of VAT in Intra-Community Transactions and Articles 97 and following of the CPPT.

On 29-04-2015, the request for the constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.

The Applicant did not proceed with the appointment of an arbitrator, wherefore, under the provisions of paragraph (a) of item 2 of Article 6 and paragraph (a) of item 1 of Article 11 of the RJAT, the President of the Deontological Council of the CAAD appointed the undersigned as arbitrators of the collective arbitral tribunal, who accepted the appointment within the applicable timeframe.

On 19-06-2015, the parties were notified of these appointments, and neither expressed the wish to refuse any of them.

In accordance with the provisions of paragraph (c) of item 1 of Article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 29-07-2015.

On 28-09-2015, the Respondent, duly notified for such purpose, presented its response defending itself solely by impugnation.

On 09-11-2015, the hearing referred to in Article 18 of the RJAT took place, at which the Applicant and the witnesses listed by it failed to appear, wherefore, under the terms of Articles 19/1 of the RJAT and 118/4 of the CPPT, the continuation of the proceedings was determined with a view to issuing an arbitral decision.

Having been granted a timeframe for the submission of written arguments, the parties refrained from submitting them.

A period of 30 days was fixed for the issuance of the final decision, after the deadline for submission of arguments by the Tax Authority.

The Arbitral Tribunal is materially competent and is regularly constituted, under the terms of Articles 2, item 1, paragraph (a), 5 and 6, item 1, of the RJAT.

The parties have legal personality and capacity, are legitimately interested and are legally represented, under the terms of Articles 4 and 10 of the RJAT and Article 1 of Ordinance no. 112-A/2011, of 22 March.

The proceedings do not suffer from nullities.

Thus, there is no obstacle to the examination of the merits of the case.

Having considered all of the above, it is necessary to render

II. DECISION

A. FACTUAL MATTER

A.1. Facts Deemed Proven

1. From preliminary analysis, through the system …, the Tax Authority ascertained that A... - Sole Proprietor Limited Liability Company, Tax Identification Number ... declared intra-community supplies, in the fiscal years 2010, 2011 and 2012, to the following companies based in Spain.

2. There being doubts as to the truthfulness of the operations declared, internal inspection service orders no. 0I2014..., 0I2014... and 0I2014... were issued, covering only Value Added Tax (VAT), for the fiscal years 2010 to 2012.

3. On 16-01-2014, the Tax Authority notified the Applicant, in accordance with the provisions of Article 37 of the RCPIT and Article 59 of the LGT, and in the context of dispatch DI2014..., to submit the following:

i. Supporting documents (CMR) evidencing that the following customers received the goods sold to them, in the years 2010, 2011 and 2012:
a. –B..., SL;
b. –C..., SL;
c. –D..., SL;
d. – E...SL;

ii. Copy of all invoices and attached documents marked in the extracts attached, as well as the respective means of payment.

1. The company A..., Limited Liability Company was classified, for VAT purposes, in the normal monthly periodicity regime, by election, since 08.05.2009, and for Corporate Income Tax purposes since 01-01-2009, in the general taxation regime, for the exercise of the activity of ag. of wholesale trade in textiles, clothing, footwear and leather articles, with Economic Activity Code (CAE) 46160.

2. In order to ascertain the capacity of the companies based in Spain to carry out the operations shown in the …, and under the Frontier Cooperation Agreement for direct exchange of fiscal information concluded on 24/10/2006 between the authorities of the Portuguese Republic and the Kingdom of Spain, the Portuguese Tax Authority requested from its Spanish counterpart the following information on the aforementioned entities:

i. Who are the holders of capital of the said companies and their respective governing bodies.

ii. Whether in the fiscal years 2009 to 2011 the companies fulfilled their tax obligations of declaration and payment and what the volumes of business declared by each one were.

iii. Whether the companies have structure, logistical capacity and human resources to carry out operations reaching very significant values, reaching millions of Euros per year.

iv. Collection of invoices supporting the intra-community transactions carried out and respective transport documents.

v. Collection of evidence of receipts and payments of those transactions.

1. The Spanish authorities provided responses to the requested information, in accordance with what appears in sheets 19 to 24 of the Administrative Record, which are hereby reproduced[1], informing, in particular, the following:

2. From the analysis of the elements collected and the declarations in proceedings made with suppliers, in the context of inspection procedures with other companies based in the territorial area of the Finance Directorate of Porto, accredited by external dispatch for information collection, the Tax Authority ascertained that:

a. With respect to the contact person and order method, almost all of them were made to the same 2 people.

b. Orders were made either by telephone, fax or e-mail, to national numbers.

c. Those 2 people, in the fiscal years 2010 and 2011 derived income paid by entities based in national territory and by the company identified, in transport documents and in a declarations record, as the carrier of goods to Spain.

d. In some situations it was stated that the same people, on a prior date, made the same orders of the same products but the invoice was issued in the name of other Portuguese companies, and when visited by the Tax Authority the same orders were again invoiced in the name of those companies.

e. There were other entities that reported that prior orders were not made, but that the driver himself, who identified himself as an employee of the transport company, who went to their facilities and chose the product, taking the quantity sufficient for the money he was carrying to pay.

f. This situation of payment made in cash by the driver was recurrent with some suppliers.

g. One of the circularized suppliers stated that despite the invoices being issued in favour of the Spanish companies D..., SL and C..., Limited Company, the goods were delivered by its vehicles to an address in Porto.

h. When the transport of goods was not carried out by vehicles of the transport company F..., Limited Company, but by other transport entities, the goods were not delivered in Spain but in Porto.

1. At A..., the Tax Authority verified that:

a. There were payments made with checks from national companies, in the exact amount of the invoices or set of invoices, and bank transfers with origin in accounts held by national companies were also found.

b. In addition to these means of payment, cash deposits of undetermined origin were also found.

c. On invoices nos. …, … and CMR no..., relating to sales from A... to C... SL, on 29-12-2010, the load capacity of the vehicle indicated in the CMR was substantially inferior to the weight of the transported goods.

d. Some of the CMRs do not identify the vehicle that made the transport.

1. Based on the elements collected, the Tax Authority, in the Inspection Report, considered that:

a. The destination companies of the goods did not have physical structure or personnel at their service that would allow them to exercise commercial, industrial or other activity;

b. They were not known at the address of the head office (common to all);

c. They had a common partner/representative;

d. It was common practice for orders, between the companies that declared Intra-Community Transfers of Goods (ICTG) and the Spanish companies, to be made by telephone, fax from national numbers, by the same people, with employment ties to national companies that paid them dependent work income.

e. Transport documents were found without the identification of the vehicle carrying the goods and also divergences between the load capacity of the vehicles, identified as having been used in the transport of goods sold by A..., Limited Company, and the weight of the goods transported, that is, the weight of the goods transported being greater than the load capacity of the vehicle.

f. The payments of invoices had diverse origins, namely:

• Checks from national companies;

• Bank transfers from national companies, and

• Cash payments.

1. Based on the aforementioned considerations, the Tax Authority also concluded, in the Inspection Report, that:

a. These situations were sufficient to call into question the exit of goods from national territory;

b. Given the foregoing and the absence of other elements/facts that conclusively prove that the goods in question left Portugal, it is concluded that they were introduced into domestic consumption in national territory, and are therefore considered internal goods transfers, subject to tax under the terms of Article 1 of the CIVA.

1. The Applicant did not exercise the right of hearing that was duly offered to it.

2. Accordingly, the following corrections were made in VAT:

3. On 28 November 2014, by electronic mail, the Applicant was notified by the Tax Authority and Customs Authority, to make payment of the amounts referred to below, from the additional VAT assessments, with payment deadline of 31-01-2015, identified above.

4. On 22 December 2014, also by electronic mail, the Applicant was notified by the same Entity to make payment of the amounts identified below, in the total amount of €124,229.34, of VAT assessments, whose values originated compensations resulting in the said amounts, with payment deadline of 31-01-2015, as follows:

i. No. 2014..., in the amount of €1,759.94, relating to November 2011;
ii. No. 2014..., in the amount of €2,734.63, relating to December 2011;
iii. No. 2014..., in the amount of €574.77, relating to January 2012;
iv. No. 2014..., in the amount of €204.13, relating to February 2012;
v. No. 2014..., in the amount of €1,003.61, relating to March 2012;
vi. No. 2014..., in the amount of €2,286.16, relating to April 2012;
vii. No. 2014..., in the amount of €460.02, relating to May 2012;
viii. No. 2014..., in the amount of €3,215.89, relating to June 2012;
ix. No. 2014..., in the amount of €572.52, relating to July 2012;
x. No. 2014..., in the amount of €2,060.24, relating to September 2012;
xi. No. 2014..., in the amount of €359.77, relating to October 2012;

1. The Applicant paid, by compensation with VAT refunds relating to the months of September and October 2014, the amount of €78,761.48.

2. The assessments identified above are based on the "Report/Conclusions" of the Tax Inspection, resulting from the external inspection procedure to its accounting records, described above, carried out by the Tax Inspection Services of the Finance Directorate of Porto.

3. From which appear the proposed corrections that received the agreement dispatch of the Division Head dated 10-11-2014, which served as the basis for these assessments.

4. In the arbitral proceedings, the Applicant attached the following documentation:

i. a declaration issued by the accounting office G.., SL, with a list of employees of B...(5), D...(12) and C...(12), with dates of beginning and end of employment relationship declared to the Spanish Social Security;

ii. work insurance policies of D... and C...;

iii. invoices nos. 852, 1689, 2109, 2543 and 3804 issued by the accounting office G..., SL, in the year 2010 to Client D...TEXTIL;

iv. invoices no. 5.060 relating to December 2010, nos. 2.822, 3220 both relating to the year 2011; and nos. 1.151 and 3464 both of the year 2012, issued by the accounting office G..., SL, to Client C...;

v. transport invoices nos. 100065 and 1000133, issued to B..., SL, by the transport company "F... - Transport, Limited Company";

vi. transport invoices, with CMRs, nos. 1100074, 1000394, 100051l to D..., SL, by the same transport company "F...";

vii. transport invoices to C..., SL, with nos. l100075, no. 1210001, no. 1210265, no. 1100006, no. 1100132, all by the same transport company "F...".

viii. Declaration of D..., SL, addressed to the Xunta de Galicia dated 18.11.2009, in which it communicates the beginning of activity;

ix. invoice no. TA…, of 07.Feb. 201 l, issued by the operator ... to D..., relating to the payment of telecommunications, as provided;

x. Insurance Contract, dated 30 April 2010, executed between D... and the insurer "...", to cover the risks of "replacement for new" regarding the activity developed of "warehouse of clothing, knitted fabrics, linen, felt articles and corsetry, tissues in roll", with indication of the location of risk located in "... - TUI - ...- Pontevedra;

xi. Proof of payment by D..., of the amount of €122.46, on 21 March 2011;

xii. Declarations of commitment to payment (Promissory notes) issued by D..., in favour of the Applicant, with dates of 26-6-2010, 5-7-2010, 3-12-2010, 26-3-2011, 18-4-2011 and 25-4-2011;

xiii. Declaration of commitment to payment (Promissory note) issued by C..., SL in favour of the Applicant, all dated 4-4-2011.

1. For each of the transactions to which the corrections referred to above in point 12 relate, relating to the years 2010, 2011 and 2012, which served as the basis for the assessments subject to the present proceedings, the Applicant has evidence of "Declaration of International Shipment of Goods by Road" - CMR - under the Convention on the Contract for the International Carriage of Goods by Road, and the respective Dispatch Declarations were issued.

2. From the said CMR declarations, it appears that the goods to which they relate were all received by the three recipients B..., D... and C..., in Spain.

3. The Applicant, before carrying out the sales to the said Spanish Customers, collected the necessary information in order to confirm that the registration, for VAT purposes, was in effect, requesting its identification number, and also the information that they were taxable persons of this tax covered by a regime of taxation of intra-community acquisitions of goods, for which they used their respective VAT identification numbers to carry out the acquisitions.

4. The Applicant submitted the recapitulative declarations relating to all intra-community transactions it made with Countries of the European Community, including, therefore, the transactions with these three Spanish customers referred to above.

5. In the transactions referred to, the transport of the goods was the responsibility of the purchaser.

A.2. Facts Deemed Unproven

With relevance to the decision, there are no facts that should be considered as unproven.

A.3. Substantiation of the Proven and Unproven Factual Matter

With respect to factual matters, the Tribunal does not need to pronounce on everything alleged by the parties, but rather has the duty to select the facts that matter to the decision and to distinguish proven from unproven matters (see Article 123, item 2, of the CPPT and Article 607, item 3 of the CPC, applicable by virtue of Article 29, item 1, paragraphs (a) and (e), of the RJAT).

In this way, the facts relevant to the judgment of the case are selected and defined according to their legal relevance, which is established in light of the various plausible solutions to the legal question(s) (see former Article 511, item 1, of the CPC, corresponding to the current Article 596, applicable by virtue of Article 29, item 1, paragraph (e), of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of Article 110/7 of the CPPT, the documentary evidence and the administrative record attached to the file, the facts listed above were considered proven, with relevance to the decision.

In particular, the fact deemed proven in point 23, although contested by the Tax Authority in its response, alleging that there is no evidence of such fact, is considered proven based on the declarations of H..., collected by the Tax Authority itself in the inspection procedure, who stated categorically that the transport was at the expense of the customers, without any evidence that any proceedings were initiated for possible false declarations.

B. LAW

The Applicant begins by alleging the violation, in the present case, of the principle of due process of law – which it says is generative of nullity – inasmuch as the information provided by the Spanish Authorities and referred to in the Tax Inspection Report, is omitted from that Report.

However, it is considered that it has no reason to prevail.

Thus, Article 37/1 of the CPPT provides that "If the communication of the decision in tax matters does not contain the legally required substantiation, the indication of the means of reaction against the notified act or other requirements required by tax laws, the interested party may, within 30 days or within the period for complaint, appeal or impugnation or other judicial remedy that from this decision is available, if shorter, request notification of the requirements that have been omitted or the passage of a certificate containing them, free of any payment."

In this way, if the Applicant understood that, for its full defense, it needed notification of the information from the Spanish Authorities, and that such was one of the "requirements required by tax laws", it should have used the power conferred by the aforementioned rule.

Not having done so, it will not be legitimate, it is judged, to prevail itself of its inertia to place in question the validity of the tax act(s) against which it complains.

Stated thus, at issue in the present arbitral proceedings is solely to determine the legality of the corrections made by the Tax Authority, in VAT matters, resulting from the consideration that the goods to which the Intra-Community Transfers of Goods (ICTG) declared by the Applicant relate were indeed introduced into domestic consumption in national territory.

The legal question that arises, then, is essentially concerned with knowing whether, given the factual matter deemed proven, the requirements of Article 14(a) of the Regime of VAT in Intra-Community Transactions (RITI) are or are not met, which provides that:

"The following are exempt from tax:

a) Supplies of goods, made by a taxable person referred to in paragraph (a) of item 1 of Article 2, dispatched or transported by the seller, by the purchaser or on their account, from national territory to another Member State with destination to the purchaser, when the latter is a natural or legal person registered for the purposes of value added tax in another Member State, which has used its respective identification number to effect the acquisition and is covered there by a regime of taxation of intra-community acquisitions of goods;".

As is more or less peacefully recognized, the requirements for the application of the exemption in question are that:

• the supplier is a VAT taxable person in its Member State of residence;

• the purchaser is also a VAT taxable person, resident in another Member State, and uses its respective identification number to validate the acquisition;

• the goods are actually dispatched or transported to another Member State with destination to the purchaser accompanied by the competent transport document, CMR.

Indeed, as written in the Decision of the Supreme Administrative Court of 19-02-2003, delivered in case 01772/02[2], "Under Article 14, paragraph (a) of the RITI - Regime of VAT in Intra-Community Transactions - approved by Article 4 of Decree-Law 290/92, of 28-12, supplies of goods made by a taxable person covered, in the country of origin, by a regime of taxation of intra-community acquisitions of goods, in which the purchaser is a natural or legal person registered for VAT purposes in another Member state, which uses its respective identification number to effect the acquisition and is covered by a regime of taxation of intra-community acquisitions of goods in that other Member state, are exempt from value added tax."

Also in the Decision of the same Court of 09-09-2009, delivered in case 0491/09, it was written that "In accordance with the provisions of Article 14 of the RITI - Decree-Law no. 290/92, of 28.12 -, only supplies of goods made by a taxable person covered, in the country of origin, by a regime of taxation of intra-community acquisitions of goods, in which the purchaser is a natural or legal person registered for VAT purposes in another Member state, which uses its respective identification number to effect the acquisition and is covered by a regime of taxation of intra-community acquisitions of goods in that other Member state are exempt from VAT taxation".

Similarly, in the arbitral Decision delivered in case 323/2014T of the CAAD[3], it was written that:

"for a supply of goods to be qualified as such for VAT purposes, it is necessary that that transaction be:

a. an onerous transfer, in the sense that, as a general rule, only supplies made for valuable consideration are subject to VAT, remaining, in principle, excluded from the scope of this tax supplies made free of charge;

b. of tangible goods, movable or immovable, being excluded from this concept onerous transfers of intangible goods, which will be taxed as supplies of services;

c. in a manner corresponding to the right of ownership, that is, even if the transfer of the legal ownership of the good is not made, it is sufficient that the transfer in question grants to the purchaser the (economic) power of disposal of the goods in question, as if, in fact, they were the owner thereof".

In the present case, there is no doubt that the Applicant was a VAT taxable person in Portugal, nor that the purchasers – B..., D... and C... – were VAT taxable persons in Spain, and used their respective identification numbers to effect the acquisition.

Thus, it is solely concerned with determining the verification of the last of the requirements listed above, so what is to be ascertained is whether the goods in question were, or were not, actually dispatched or transported to another Member State, with destination to the purchaser.

In the examination of this matter, it cannot be overlooked that, as results directly from the Decision of the CJEU delivered in case C-409/04 (Teleos Decision)[4], the supplier in an ICTG is obliged solely to submit "that justify, at first sight, its right to the exemption of an intra-community supply of goods" (emphasis ours).

As results from the administrative record attached to the file, and from the facts deemed proven, in order to verify whether the requirement in question was or was not met, the Tax Authority, on 16-04-2014, notified the Applicant to submit the CMRs relating to the operations in question, and a copy of all invoices and attached documents, as well as the respective means of payment.

Indeed, these will – admittedly – be the documents with which a supplier of an ICTG should be furnished, in order to sustain its position as such.

As written in the above-cited arbitral Decision delivered in case 323-2014T of the CAAD:

"The proof of dispatch of the good is essential to determine the application or otherwise of the exemption in question, and the burden of such proof falls on the supplier of the good. The CJEU has already held that any means of proof is admissible, beyond the presentation of the respective transport document, for this purpose. This understanding was adopted by the Tax Authority and Customs Authority (Tax Authority), which sanctioned [6][5] that, in the absence of a rule which, in VAT legislation, expressly indicates the means considered suitable to prove the verification of the requirements of the exemption provided for in paragraph (a) of Article 14 of the RITI, it should be admitted that proof of the exit of goods from national territory may be made using the general means of proof, namely, through the following alternatives:

a. supporting documents of the transport, which, depending on whether it is road, air or maritime transport, may be, respectively, the dispatch declaration (CMR), the air waybill ("Airwaybill" - AWB) or the bill of lading ("bill of lading" - B/L);"

Now, it is certain that the Applicant has and presented – as results from the Inspection Report – all the aforementioned documentation: CMRs, invoices and evidence of payment, and from the analysis thereof, and of the remaining inspection procedure to the Applicant, the Tax Authority ascertained solely that:

a. Some situations that raised doubts for it, at the level of means of payment, namely cash deposits and payments of national origin;

b. That, on invoices nos. 550, 551 and CMR no. 289316, relating to sales from A... to C... SL, on 29-12-2010, the load capacity of the vehicle indicated in the CMR would be substantially inferior to the weight of the transported goods;

c. That some of the CMRs do not identify the vehicle that made the transport.

With respect to these elements, it is understood, preliminarily, that they would never – in any way – be sufficient to call into question all the transactions declared by the Applicant and dismissed by the Tax Authority. Indeed, it is considered that only those in which, concretely, their respective payments or CMRs demonstrated some concrete irregularity, could, legitimately, be questioned.

For this, however, it would be necessary that the elements in question had sufficient consistency to found a reasonable doubt about the transactions to which they relate.

Now, with respect to the payments that raised doubts for the Tax Authority, it is verified, from the outset, that, neither in the Inspection Report, nor in the administrative record, is it possible, from the outset, to understand which concrete transactions are questioned. On the other hand, the mere fact that cash payments are involved, even if in violation of the provisions of Article 63-C/3 of the General Tax Law (which, moreover, is not demonstrated to have occurred), does not mean either that they did not happen or that it was not the declared purchaser who made them. On the other hand, the fact that these are ICTGs will have no relevance with respect to the credibility of whether or not cash payment occurred, not only because the currency is the same, but above all because geographical proximity is very great. With respect to payments of national origin, their concrete authors are not indicated, nor was any diligence undertaken in order to, with them, obtain any justification or explanation for the occurrence.

As for invoices nos. 550, 551 and CMR no. 289316, relating to sales to C...SL, on 29-12-2010, although it is stated that the load capacity of the vehicle indicated in the CMR would be substantially inferior to the weight of the transported goods, it is not specified what that capacity was, nor is it demonstrated that, even in violation of road regulations, the vehicle in question could have circulated with excess weight or, even, made more than one trip to transport the goods sold.

Finally, and with respect to the omission, in some of the CMRs, of the vehicle that made the transport, it should be stated, from the outset, that, contrary to what the Tax Authority advocates in the arbitral proceedings, such mention is not mandatory, and this does not result, in any way, from Article 6 of the CMR Convention, including from its item 3[6]. Moreover, and even if it were not thus, it is equally not perceived what logical path allows one to affirm that therefrom results that there has been a supply of goods, not to Spain, but, rather, to Portugal. Indeed, in order to make the assessment as it occurred, the Tax Authority would always have to demonstrate that a supply of goods occurred in national territory, and it is not understood in what respect the omission in question allows one to affirm that the supply did not occur to Spain, but occurred to national territory.

With respect to the elements obtained by the Tax Authority from its Spanish counterpart, it has been settled jurisprudence of the CJEU, as reaffirmed in the Decision delivered in case C-430/09 (...)[7], that "if the buyers, as first acquirers, expressed their intention to transport the goods to a Member State other than that of delivery and presented themselves with their VAT identification number assigned by this other Member State, it was lawful for the ETH [seller] to consider that the operations it was carrying out constituted intra-community supplies.", and that "after the supplier has fulfilled its obligations relating to proof of an intra-community supply, the contractual obligation to dispatch or transport the goods outside the Member State of delivery not having been fulfilled by the purchaser, it is the latter who must be considered the VAT debtor in that Member State".

Now, it is precisely this that occurs in the present case.

The Applicant fulfilled its obligations relating to proof of an intra-community supply, displaying the CMRs, invoices and means of payment, in which, as was seen, the Tax Authority failed to detect relevant deficiencies.

If, based on other elements collected from third parties and from foreign counterpart authorities, the Tax Authority ascertained that, after all, the goods were not dispatched to the outside, but, there being a supply, remained in national territory, it should then, as the CJEU states, be the purchaser, and not the seller, considered the VAT debtor.

This would not be otherwise, still in accordance with what has been the jurisprudence emanated from the CJEU, if, there being fraud, it were demonstrated that the Applicant "knew or should have known that the operation it carried out was implicated in fraud committed by the purchaser and had not taken all reasonable measures within its reach to avoid its own participation in this fraud"[8]. Now, also at this level, the Tax Authority demonstrates nothing, nor is the existence of fraud demonstrated – there being, moreover, no notice that any criminal proceedings were instituted in order to its investigation and prosecution – nor is it demonstrated that the Applicant was aware of any fraud that was being perpetrated, or what actions it should have taken to avoid its participation in the same, for which reason this Tribunal has no reason to consider that the Applicant did not comply with the duties of diligence to which it was obliged[9].

Here, as occurred in arbitral case 323/2014T, cited above, it is considered that "It was not demonstrated that in the concrete cases the Applicant knew, or should have knowledge, of such incongruities that, ultimately, would place in question the VAT exemption associated with the ICTGs in question.".

In this way, having the Applicant fulfilled its obligation to prove the occurrence of the intra-community supplies of goods that it dispatched (namely through the presentation of the transport documents, CMRs, invoices and means of payment) and which, in the assessments subject to the present arbitral proceedings, were disregarded by the Tax Authority, and, there being no demonstration of its participation in fraud, nor that it has not taken the reasonably necessary measures to avoid its participation in such, the requirements of fact and, consequently, of law, of the assessments in question fail, which should, consequently, be annulled.

The Applicant cumulatively with the request for annulment of the tax acts subject to the present proceedings, seeks condemning the Tax Authority to payment of compensatory interest.

Given the success of the request for annulment, the amounts paid with respect to the tax acts that are annulled must be refunded to the Applicant, if necessary in execution of judgment. In the case at hand, it is manifest that the illegality of the assessment acts, the amount of which the Applicant paid, is imputable to the Respondent, which, on its own initiative, carried them out without legal support.

Consequently, the Applicant is entitled to compensatory interest, under the terms of Articles 43, item 1, of the General Tax Law and 61 of the CPPT. Compensatory interest is due, from the dates of the payments shown to have been made, and calculated on the basis of the respective value, until its full refund to the Applicant, at the legal rate, under the terms of Articles, Articles 43, items 1 and 4, and 35, item 10, of the General Tax Law, 61 of the CPPT and 559 of the Civil Code and Ordinance no. 291/2003, of 8 April (without prejudice to any subsequent amendments to the legal rate).

Moreover, in accordance with the provisions of paragraph (b) of Article 24 of the RJAT, the arbitral decision on the merits of the claim to which no appeal or impugnation is available binds the tax administration from the end of the period provided for appeal or impugnation, and this must, in the exact terms of the success of the arbitral decision in favor of the taxable person and until the end of the period provided for spontaneous execution of the judgments of the tax courts, "restore the situation that would exist if the tax act subject to the arbitral decision had not been carried out, adopting the acts and operations necessary for this purpose", which is in line with the provisions of Article 100 of the General Tax Law [applicable by virtue of the provisions of paragraph (a) of item 1 of Article 29 of the RJAT] which establishes that "the tax administration is obliged, in case of total or partial success of complaint, judicial impugnation or appeal in favor of the taxable person, to the immediate and full reestablishment of the legality of the act or situation subject to the litigation, including the payment of compensatory interest, if applicable, from the end of the deadline for execution of the decision".

Although Article 2, item 1, paragraphs (a) and (b), of the RJAT uses the expression "declaration of illegality" to define the competence of the arbitral courts that function in the CAAD, making no reference to condemnatory decisions, it should be understood that the powers that in judicial impugnation proceedings are attributed to the tax courts are comprehended in its competences, and this is the interpretation that harmonizes with the sense of the legislative authorization on which the Government based itself to approve the RJAT and in which it proclaims, as a first guideline, that "the tax arbitral process should constitute an alternative procedural means to the judicial impugnation process and to the action for the recognition of a right or legitimate interest in tax matters".

The judicial impugnation process, although it is essentially a process of annulment of tax acts, admits the condemnation of the tax administration to payment of compensatory interest, as can be inferred from Article 43, item 1, of the General Tax Law, which establishes that "compensatory interest is due when it is determined, in a complaint or judicial impugnation, that there has been error attributable to the services resulting in payment of the tax debt in an amount greater than legally due" and from Article 61, item 4 of the CPPT (in the wording given by Law no. 55-A/2010, of 31 December, to which corresponds item 2 in the original wording), which "if the decision recognizing the right to compensatory interest is judicial, the period of payment is counted from the beginning of the period of its spontaneous execution".

Thus, item 5 of Article 24 of the RJAT, in saying that "interest, regardless of its nature, is due, on the terms provided in the general tax law and in the Code of Procedure and Tax Process" should be understood as permitting the recognition of the right to compensatory interest in the arbitral process. In the case at hand, it is manifest that, as a consequence of the declaration of illegality and consequent annulment of the contested assessment acts, there is grounds for refund of the tax, by virtue of the aforementioned Articles 24, item 1, paragraph (b), of the RJAT and 100 of the General Tax Law, for such is essential to "restore the situation that would exist if the tax act subject to the arbitral decision had not been carried out", in the part corresponding to the correction that was considered illegal.

Thus, the Respondent should give execution to the present decision, under the terms of Article 24, item 1, of the RJAT, determining the amount to be refunded to the Applicant and calculating the respective compensatory interest, at the legal supplementary rate of civil debts, under the terms of Articles 35, item 10, and 43, items 1 and 5, of the General Tax Law, 61 of the CPPT, 559 of the Civil Code and Ordinance no. 291/2003, of 8 April (or the instrument or instruments that succeed it).

Compensatory interest is due from the dates of the payments made until the date of processing of the credit note, in which they are included (Article 61, item 5, of the CPPT).

C. DECISION

Accordingly, this Arbitral Tribunal hereby decides to uphold the arbitral request filed and, in consequence,

a) Annul the assessments subject to the present arbitral proceedings, identified above;

b) Condemn the Tax Authority to refund to the Applicant the amounts paid by virtue of the annulled assessments, increased by compensatory interest, on the terms fixed above;

c) Condemn the Respondent in the costs of the proceedings, in the amount of €3,060.00.

D. Value of the Proceedings

The value of the proceedings is fixed at €124,229.34, under the terms of Article 97-A, item 1, (a), of the Code of Procedure and Tax Process, applicable by virtue of paragraphs (a) and (b) of item 1 of Article 29 of the RJAT and of item 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The amount of the arbitration fee is fixed at €3,060.00, under the terms of Table I of the Regulation of Costs of Tax Arbitration Proceedings, to be paid by the Respondent, since the request was fully successful, under the terms of Articles 12, item 2, and 22, item 4, both of the RJAT, and Article 4, item 4, of the said Regulation.

Let notification be made.

Lisbon

12 January 2016

The Presiding Arbitrator

(José Pedro Carvalho - Reporting Arbitrator)

The Vogal Arbitrator

(Maria Alexandra Mesquita)

The Vogal Arbitrator

(José Ramos Alexandre)

[1] Which should accompany all legally mandatory notifications of this decision, with the exception of those relating to the parties, who have personal knowledge thereof, by way of the present proceedings.

[2] Available for consultation at www.dgsi.pt, as is the remaining jurisprudence cited without indication of source.

[3] Available for consultation at www.caad.org.pt.

[4] Available for consultation at: http://curia.europa.eu/juris/showPdf.jsf;jsessionid=9ea7d2dc30ddda785b3ac7c64de18f32a7b5aa6afae1.e34KaxiLc3qMb40Rch0SaxqTbhn0?docid=72135&pageIndex=0&doclang=PT&mode=lst&dir=&occ=first&part=1&cid=120961.

[5] Circular Letter no. 30009/99, of 10 December 1999, from the VAT Services Directorate.

[6] Which provides that: "The parties may mention in the dispatch declaration any other indication that they consider useful." Evidently, if the parties may mention other indications that they consider useful, it is a power, and not an obligation of the parties.

[7] Available at http://curia.europa.eu/juris/document/document.jsf?docid=79388&doclang=PT. See paragraphs 35 and 38.

[8] See conclusion 1st of the Decision of the CJEU delivered in case C-273/11 (Mecsek‑Gabona Kft), available at http://curia.europa.eu/juris/document/document.jsf?text=&docid=129011&pageIndex=0&doclang=PT&mode=req&dir=&occ=first&part=1&cid=556533.

[9] Under the terms of the already referred Decision..., "The question of whether (...) fulfilled its obligations relating to proof and diligence is part of the examination of the referring court made on the basis of the conditions provided for this purpose by national law."