Process: 279/2015-T

Date: November 5, 2015

Tax Type: IVA

Source: Original CAAD Decision

Summary

Process 279/2015-T addresses two key VAT matters: the adjustment of VAT on uncollectible credits due to insolvency and the taxpayer's right to compensation for improper provision of guarantee. The CAAD arbitral tribunal ruled in favor of the Claimant, annulling the contested VAT assessments issued by the Portuguese Tax Authority. The tribunal found that the Tax Authority committed attributable error in its assessments, which were of its sole initiative and responsibility. Regarding compensation for improper guarantee provision, the tribunal applied Article 53 of the General Tax Law (GTL), which establishes the right to indemnification when three conditions are met: (i) provision of bank guarantee to suspend tax enforcement of contested debt, (ii) existence of prejudice from providing the guarantee, and (iii) success in the proceeding where administrative error is verified. The Claimant documented guarantee costs of EUR 476.46 on a guaranteed amount of EUR 39,123.28, though the full commission amount remained undetermined. Following Article 609(2) of the Civil Procedure Code and Article 565 of the Civil Code, the tribunal ordered the compensation amount to be assessed during execution of the decision, respecting the limits in Article 53(3) GTL. The tribunal applied the principle of litigation costs under Article 527 CPC, determining that the Tax Authority, as the losing party, must bear all arbitral proceeding costs of EUR 1,836.00. This decision reinforces taxpayer protections against improper tax assessments and recognizes their right to full compensation for financial prejudice caused by providing guarantees in ultimately successful VAT disputes.

Full Decision

6.34. The regime of the right to indemnification for improper provision of guarantee is found, as the Claimant refers, in article 53 of the General Tax Law (GTL) which consecrates the right of the taxable person to be indemnified, totally or partially, for the prejudice resulting from the provision of bank guarantee or equivalent that it has offered to obtain the suspension of tax enforcement, in the case that it comes to prove improper due to the success of the proceeding or tax process in which the legality of the debt being enforced was disputed, such indemnification being able to be formulated both in that proceeding or tax process, as autonomously.[19]

6.35. Thus, from the provision of article 53 of the GTL above referred to results that the right to indemnification for the improper provision of guarantee, to be attributed without dependence on the period to which refers no. 1 of the said article, depends on the verification of the following factual assumptions: (i) the provision of bank guarantee or equivalent, with a view to the suspension of tax enforcement which has as its object the collection of debt emerging from the contested assessment (even if the tax enforcement is questioned by means of opposition); (ii) the existence of prejudice emerging from the provision of that guarantee and (iii) the success in the amicable reclamation, judicial contestation, or opposition where error attributable to the services is verified.[20]

6.36. On the other hand, article 171 of the Code of Procedure and of Process in Tax Matters (CPPT), also referred to by the Claimant, aimed to regulate the manner of requesting indemnification in the very tax proceeding or process, and not regulate the manner of requesting it through the autonomous procedural means (principal or accessory) appropriate for the purpose.[21][22]

6.37. The prejudice consecrated in article 53, no. 1, of the GTL may encompass not only the cost of the guarantee provided, as any other lucrum cessans or emergent loss, all within the limits provided for in no. 3 of the same precept.[23]

6.38. Thus, in order for compensation for material damage to be granted, "it is necessary proof that the plaintiff has suffered real or concrete prejudice, it not being indemnifiable future damages" (except as to foreseeable ones for which the legislation confers the possibility of compensation provided that they are framed in light of the provision of article 564 of the Civil Code.[24]

6.39. In the present case, as above referred, the contested assessment acts must be declared illegal, there thus being error attributable to the Respondent as the said assessments are of its sole initiative and responsibility.

6.40. The Claimant in petitioning to be compensated for the costs incurred with the provision of guarantee, alleges and documents costs which, at the date of the claim, amounted to EUR 476,46 (as per it was proven in point 5.1.17., above), being unknown, however, the amount of the commission paid/to be paid on the guaranteed amount (EUR 39.123,28, as per it was proven in point 5.1.16., above).

6.41. Thus, as there are no sufficient elements that allow to determine the amount of the indemnification (nor being possible to ascertain whether the same is inferior or superior to the maximum limit provided for in the law), the condemnation will have to be carried out with reference to what is to be assessed in the execution of the present decision, under the terms of the provision of article 609, no. 2, of CPC article 565 of the Civil Code, applicable under the terms of the provision of article 2, letter d) of the GTL.

Of the liability for payment of arbitral costs

6.42. Under the terms of the provision of article 527, no. 1 of the CPC in force (ex vi 29, no. 1, letter e) of RJAT), it must be established that the Party that gave cause to them shall be condemned in costs or, in the absence of judgment on the merits, whoever from the proceedings derived benefit.

6.43. In this context, no. 2 of the said article specifies the expression "gave cause to", according to the principle of litigation costs, understanding that the party that loses the action, in the proportion that it loses, gives cause to the costs of the proceedings.

6.44. In these terms, in view of the above, from the analysis carried out results that the responsibility for arbitral costs should be imputed to the Respondent.

7. DECISION

7.1. In accordance with the provision of article 22, no. 4, of RJAT, "the arbitral decision delivered by the arbitral tribunal includes the fixing of the amount and the apportionment among the parties of the costs directly resulting from the arbitral proceeding".

7.2. In the case under analysis, having taken into account the above, the principle of proportionality imposes that the totality of the responsibility for costs be attributed to the Respondent.

7.3. In these terms, having taken into account the analysis carried out, this Arbitral Tribunal decided:

7.3.1. To judge the request for arbitral decision presented by the Claimant to be grounded, being to annul the VAT assessments object of the request;

7.3.2. To judge the request for recognition of the Claimant's right to indemnification for improper guarantee to be grounded and condemn the Respondent to pay to the Claimant the indemnification that is to be assessed in the execution of the present arbitral decision, having regard to the limits fixed in article 53, no. 3 of the GTL;

7.3.3. To condemn the Respondent to the payment of the costs of the present proceeding.

Value of the case: In accordance with the provision of articles 306, no. 2 of CPC, article 97-A, no. 1 of CPPT and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings the value of the case is fixed at EUR 30.645,67.

Under the terms of the provision of Table I of the Regulation of Costs in Tax Arbitration Proceedings, the value of the costs of the Arbitral Proceeding is fixed at EUR 1.836,00, to be charged to the Respondent, in accordance with article 22, no. 4 of RJAT.

Notify.

Lisbon, 5 November 2015

The Arbitrator

Sílvia Oliveira

[1] The drafting of the present decision is governed by the spelling prior to the Orthographic Agreement of 1990, except transcriptions carried out.

[2] In this context, the Respondent cites Circular Office Letter no. 33129/1993, of 02/04, under the terms of which "for the purposes of no. 5 of art. 71 the following documents issued by the customer and in the possession of the supplier of the good or provider of service are considered suitable, satisfying the conditions set out therein: a) any means of written communication – letter, office letter, telex, fax, telegram – with express reference to the knowledge of the correction of VAT, b) note of return or note of receipt of the check, with mention of the adjustment of VAT, c) photocopy of the credit note, after signature and stamp by the acquirer, constituting a document sent by it after taking knowledge of the adjustment of the tax to be carried out. (…) Without the taxable person having in its possession written confirmation carried out by its customers, that they received communication evidencing the amount of the VAT to be rectified, or that they were reimbursed for the respective tax, the provisions established in no. 5 of art. 71 of the VAT Code are considered not to have been complied with, thus becoming improper the respective adjustment of the tax".

[3] In this sense, the Respondent cites the Judgment delivered by the Court of Justice of the European Union, in the context of Proc. no. C-588/10, of 26 January 2012, which "considers that a national requirement which subjects the reduction of the taxable amount, such as that resulting from an initial invoice, to the possession, by the taxable person, of a proof of receipt of a corrected invoice delivered by the acquirer of the goods and services falls within the concept of condition referred to in article 90, no. 1 of the VAT Directive. And that the principles of neutrality of the tax and of proportionality do not oppose, in principle, such requirement".

[4] In this sense, see Arbitral Decision no. 21/2015-T, of 14 July 2015.

[5] From the appendix relating to the claim and verification of credits thus only the list of recognized and unrecognized creditors, the oppositions and the respective responses consist.

[6] In accordance with the provision of no. 2, of article 128 of CIRE, "the petition is addressed to the insolvency administrator and presented at his professional address or sent to it by registered mail, the administrator, respectively, signing at the time of delivery, or sending to the creditor within three days, proof of receipt". Under the terms of the provision of no. 3 of the same article, "the verification has as its object all credits on the insolvency, whatever their nature and foundation, and even the creditor who has his credit recognized by a final decision is not dispensed from claiming it in the insolvency proceedings, if he wishes to obtain payment".

[7] Establishes article 19, no. 2 of CIRE that "from the list of recognized creditors consists the identification of each creditor, the nature of the credit, the amount of principal and interest at the time of the end of the period for claims, the personal and real guarantees, the privileges, the rate of default interest applicable and the eventual suspensive or resolutive conditions".

[8] In this context, it should be noted that, in accordance with the provision of article 129, no. 3 of CIRE, "the list of unrecognized creditors indicates the reasons justifying the non-recognition".

[9] With the publication of Decree-Law no. 53/2004, of 18 March, the Code of Insolvency and Recovery of Enterprises (CIRE) was approved, in force since 18 September 2004.

[10] In this context, see Judgment of the Administrative Tax Court (TCAS) no. 01290/06, of 19 September 2006 and Judgment of the Administrative Tax Court (TCA) Norte no. 106/04, of 7 October 2014, under the terms of which "(…) no. 8 of article 71 of the VAT Code must be interpreted to the effect that the taxable person will only be able to carry out the deduction relating to uncollectible credits, provided that he demonstrates having carried out the necessary diligences to the satisfaction of the credit without having succeeded, for reasons not attributable to him. (…)" (underlined by us).

[11] In "Adjustments of VAT: Clues for Audit and Accounting", VAT NOTEBOOKS 2014, Almedina, Coimbra, 2014, p. 172.

[12] In accordance with what was referred to in the Judgment of the Administrative Court of Appeals (STA) no. 888/03, of 23 February 2005, "the right to deduction or reimbursement of the tax delivered in excess may only be exercised until the lapse of four years after the birth of the right to deduction or overpayment reimbursement of the tax, respectively. Thus, in these cases, differing the law, expressly, the birth of the right to deduction or reimbursement of the tax, to the declaration of bankruptcy or insolvency (when the same is declared) it cannot but be understood, as it comes judged, that it is with the final judgment of the judgment declaring bankruptcy or insolvency that said period is initiated as only at that time that judgment and the consequent declaration assumes binding force in the respective proceedings and outside it".

[13] As to the amount of the adjustment, this must be the amount of the VAT, included in the invoices or part thereof which became uncollectible under the terms of the provision of no. 7, of article 78 of the VAT Code.

[14] Note that article 78 no. 11 of the VAT Code, in force at the time of the facts, referred to the need to communicate the adjustment to the acquirer of the goods, saying nothing as to the temporal moment (before or after the adjustment carried out by the creditor) on which such communication should be made.

[15] Once again, it is understood that the Respondent, in the absence of legally provided formal requirements, uses the infra-legal path to dispose on the matter, in particular, through Circular Office Letter no. 33129/1993, of 12 April.

[16] And thus the analysis of the remaining arguments invoked, by the Claimant, relating to "Community Law" is rendered moot.

[17] In this context, it is not ignored that the legislative authorization granted to the Government by article 124 of Law no. 3-B/2010, of 28 April (on the basis of which RJAT was approved), under the terms of which it is determined that the tax arbitration proceeding constitutes an alternative procedural means to the judicial contestation process and to the action for the recognition of a right or legitimate interest in tax matters. Thus, it seems reasonable "the understanding according to which are comprehended in its competencies the powers that in judicial contestation proceedings are attributed to the tax courts, being certain that in judicial contestation proceedings, in addition to the annulment of tax acts, claims for indemnification can be considered, whether they are relating to indemnity interest or to improper provision of guarantees" (see Arbitral Decision no. 21/2015-T, of 14 July 2015).

[18] Also the Arbitral Decision no. 24/2015-T, of August 2015 establishes that "it is unequivocal that judicial contestation proceedings comprehend the possibility of condemnation to payment of improper guarantee and is even, in principle, the appropriate procedural means for formulating such request, which is justified by evident reasons of procedural economy, as the right to indemnification for improper guarantee depends on what is decided concerning the legality or illegality of the tax assessment act" (underlined by us). "The request for constitution of the arbitral tribunal and for arbitral decision has as its corollary to pass to be in the arbitral proceeding that the legality of the debt being enforced will be discussed, whereby, as results from the express content of that no. 1 of (…) article 171 of CPPT, it is also the arbitral proceeding that is appropriate to consider the request for indemnification for improper guarantee. Namely, the joinder of claims relating to the same tax act is implicitly presupposed in article 3 of RJAT, when speaking of joinder of claims even if relating to different acts, which allows to perceive that the joinder of claims is also possible in relation to the same tax act and the claims for indemnity interest and of condemnation for improper guarantee are susceptible of being encompassed by that formula, whereby an interpretation in this sense has, at least, the minimum correspondence in language required by no. 2 of article 9 of the Civil Code" (underlined by us).

[19] In this sense, see Judgment of the Administrative Court of Appeals (STA) no. 0216/11, of 22 June 2011.

[20] In this sense, see Judgment referred to in footnote no. 15.

[21] In this sense, see Judgment referred to in footnote no. 16.

[22] In this sense, see Judgment referred to in footnote no. 16, in which is also cited Jorge Lopes de Sousa, in Code of Procedure and of Process in Tax Matters, annotated and commented, volume III, 6th edition, 2011, p. 237, to the effect of clarifying that "as is seen by the heading and by no. 1 of this article 171, the regime provided therein applies to cases of improper guarantee, of improper provision of guarantee and these are the cases provided for in article 53 of the GTL, in which came to be recognized reason to the taxable person totally or partially, in its administrative contestation or judicial or opposition to tax enforcement. In fact, in addition to the manifest correspondence of the said expressions and of those used in that article 53 of the GTL is in those cases in which the taxable person had totally or partially reason and provided guarantee to suspend tax enforcement that one can speak with some propriety, in improper provision of the guarantee, as this provision has only become necessary, totally or partially, because an illegal act was practiced, an improper act, an act that should not have been practiced in the face of the law, being the amount of the indemnification assessed as a function of the success obtained, under the terms of no. 1, of article 53 of the GTL" (underlined by us).

[23] In this matter, see Judgment of the Administrative Court of Appeals (STA) no. 08086/14, of 18 December 2014.

[24] In the same sense, cite the Judgment of the Administrative Court of Appeals (STA), delivered in the context of proceedings no. 41751, of 7 May 1998, under the terms of which "the damages to be compensated will have to be certain and not merely probable, it not being susceptible of indemnification, as patrimonial damages, the potential or hypothetical damages", which, also refers the Judgment of the Administrative Court of Appeals (STA), delivered in the context of proceedings no. 45899A, of 17 March 2010, "are not indemnifiable" (underlined by us).

Frequently Asked Questions

Automatically Created

Can a taxpayer recover VAT on bad debts when the debtor is declared insolvent under Portuguese tax law?
Yes, under Portuguese tax law, a taxpayer can recover VAT on bad debts when the debtor is declared insolvent. The VAT Code allows for adjustment of the taxable amount when credits become definitively uncollectible due to insolvency proceedings. However, specific procedural requirements must be met, including proper documentation and communication to the customer. In Process 279/2015-T, the CAAD tribunal annulled VAT assessments related to bad debts, recognizing the taxpayer's right to adjust VAT when the legal requirements are satisfied, even though strict formal conditions apply under Portuguese law.
What are the legal requirements for adjusting VAT on uncollectible credits due to insolvency in Portugal?
The legal requirements for adjusting VAT on uncollectible credits due to insolvency in Portugal include: (1) formal declaration of the debtor's insolvency by competent court; (2) definitive nature of the credit's uncollectibility; (3) compliance with Article 71(5) of the VAT Code, which requires written confirmation from customers acknowledging receipt of corrective invoices or VAT reimbursement; (4) proper documentation in the supplier's possession, such as letters, faxes, return notes, or signed photocopies of credit notes; and (5) evidence that the customer was notified of the VAT adjustment. According to Circular Letter 33129/1993, without written customer confirmation, the adjustment is considered improper.
Is a taxpayer entitled to compensation for providing an undue guarantee in a VAT dispute before CAAD?
Yes, a taxpayer is entitled to compensation for providing an undue guarantee in a VAT dispute before CAAD. Article 53 of the General Tax Law establishes this right when: (i) a bank guarantee or equivalent was provided to suspend tax enforcement of contested debt; (ii) the taxpayer suffered prejudice from providing the guarantee; and (iii) the taxpayer succeeds in the proceeding demonstrating administrative error. In Process 279/2015-T, the tribunal granted compensation covering guarantee costs and any lucrum cessans or emergent loss within statutory limits. The compensation includes commission fees and expenses, assessed during execution of the arbitral decision per Article 53(3) GTL.
How does the CAAD arbitral tribunal handle challenges to VAT assessments and compensatory interest on bad debts?
The CAAD arbitral tribunal handles challenges to VAT assessments and compensatory interest on bad debts through comprehensive review of the legality of Tax Authority decisions. In Process 279/2015-T, the tribunal annulled contested VAT assessments after finding attributable error by the Tax Authority. The tribunal applies both Portuguese tax law (GTL, VAT Code, CPPT) and EU law principles. When assessments are annulled, the tribunal can order compensation for improper guarantees provided during the dispute. The tribunal follows the principle of litigation costs (Article 527 CPC), ordering the losing party—typically the Tax Authority when taxpayers prevail—to pay all arbitral proceeding costs, ensuring taxpayers are made whole for successful challenges.
What is the procedure for filing an arbitral claim against the Portuguese Tax Authority regarding VAT adjustments on irrecoverable debts?
The procedure for filing an arbitral claim against the Portuguese Tax Authority regarding VAT adjustments on irrecoverable debts involves: (1) submitting a request for arbitral decision to CAAD (Centro de Arbitragem Administrativa) under the RJAT (Tax Arbitration Legal Regime); (2) documenting the contested VAT assessments and grounds for illegality; (3) providing evidence of insolvency, uncollectible credits, and compliance with VAT Code requirements; (4) if a guarantee was provided, documenting costs and prejudice suffered; (5) paying the initial arbitral fee based on the case value (determined per Article 3(2) of the Regulation of Costs); and (6) requesting specific relief, such as annulment of assessments and compensation for improper guarantees under Article 53 GTL. The tribunal then reviews the merits and issues a binding arbitral decision.