Process: 281/2018-T

Date: January 29, 2019

Tax Type: IVA

Source: Original CAAD Decision

Summary

In Process 281/2018-T, the CAAD Singular Arbitral Tribunal addressed a jurisdictional challenge in a VAT arbitration case involving a Czech company (A...) that contested both the denial of a VAT refund of €140,925.83 and corrections totaling €142,765.83. The Tax Authority (AT) had rejected the refund following an inspection that determined the claimant improperly deducted input VAT on tooling operations. The AT argued that transferring molds/tooling to Portuguese manufacturer B... for free constituted gratuitous transfers of goods taxable under Article 3(3)(f) of the Portuguese VAT Code (CIVA), despite the claimant retaining ownership. The respondent AT raised a dilatory exception arguing the singular tribunal lacked competence ratione valoris because the economic value of the claim (€142,765.83 in corrections) exceeded the jurisdictional threshold requiring a collective arbitral tribunal under the RJAT (Legal Regime for Arbitration in Tax Matters). The claimant contended the tooling remained its property throughout, never permanently allocated to purposes outside the business, thus not meeting the criteria for taxable gratuitous transfers under CIVA Article 3(3)(f) or VAT Directive Article 16. The tribunal faced the preliminary question of whether the case value, determined by the total corrections rather than just the additional assessment of €1,597.50, exceeded its statutory jurisdiction. This procedural issue had significant implications: if upheld, the case would require redistribution to a collective tribunal, annulling all subsequent procedural acts and granting the AT a new deadline to respond. The decision would clarify how CAAD calculates case value when multiple tax consequences (refund denial and additional assessment) stem from the same underlying corrections.

Full Decision

ARBITRAL DECISION

I – REPORT

A...., with registered office in ... ..., in the Czech Republic, with the tax identification number ... submitted 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 for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking the declaration of illegality of the additional VAT assessment No. 2018... issued following the dismissal of a refund request relating to that tax requested in the periodic return for the 2nd quarter of 2017.

The request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT) on 11/06/2018.

The Claimant opted not to appoint an arbitrator, whereby, under the provisions of paragraph a) of section 2 of Article 6 and paragraph a) of section 1 of Article 11 of the RJAT, the President of the CAAD Ethics Committee designated the undersigned as arbitrator of the singular arbitral tribunal, who communicated acceptance of the office within the applicable deadline.

On 24/07/2018, the parties were notified of this designation and did not express any wish to refuse it.

In accordance with the provisions of paragraph c) of section 1 of Article 11 of the RJAT, the Singular Arbitral Tribunal was constituted on 2018/08/13.

Taking into account the provisions of paragraphs c) and e) of Article 16 and section 2 of Article 29, both of the RJAT, the holding of the meeting referred to in Article 18 of the same legal instrument was waived.

As to the subject matter of the case, the Claimant alleges, in summary:

- It presented in its periodic return for the 2nd quarter of 2017 a request for VAT refund in the amount of €140,925.83;

- The AT, as a consequence, launched an inspection action of an internal nature for that period, at the conclusion of which it dismissed the refund request in the amount of €140,925.83, a decision which it notified in March 2018, due to various corrections made.

- The corrections were based on the alleged failure to assess tax on "tooling" operations to manufacturers of automobile components on the part of the Claimant, which the AT understood to be free transfers constituting transfers of goods taxed under VAT, under paragraph f) of section 3 of Article 3 of the VAT Code (CIVA).

- Thus, there was improper deduction of upstream tax and failure to assess tax on said operations.

- The decision to dismiss the refund notified by the Refund Services Directorate is based on the verification of insufficient balance to satisfy the request made, all as a result of the corrections carried out in said inspection action.

- In addition to the dismissal of the refund request, as a result of the same corrections in the amount of €142,765.83, the AT further made a VAT assessment of €1,597.50 which it notified to the Claimant.

- The Claimant "cannot but disagree with the dismissal of the VAT refund request which gave rise to the VAT assessment that is the object of the present request for arbitral ruling, because the same suffers from lack of substantiation".

- "The dismissal of the VAT refund request and the subsequent VAT assessment likewise suffer from error as to the assumptions of fact and law, since it cannot be concluded from the factuality presented [supra] that the Claimant effected any free transfer of tooling, under the terms of paragraph f) of section 3 of Article 3 of the VAT Code, as sustained by the Tax Authority".

- "..., the Claimant cannot accept the conclusion reached by the Tax Authority, inasmuch as there is no onerous transfer of tangible goods in a manner corresponding to the exercise of the right of ownership, under the terms of section 1 of Article 3 of the VAT Code and section 1 of Article 14 of the VAT Directive, nor is there a permanent allocation of goods to purposes unrelated to the company, under the terms of paragraph f) of section 3 of Article 3 of the VAT Code and Article 16 of the VAT Directive".

- "In fact, it has been fully demonstrated that the tooling acquired by the Claimant in the context of operations carried out in Portugal does not, at any moment of its use by B..., cease to be the property of the Claimant".

- "As such the operation in question does not constitute a taxable operation neither under the terms of section 1 of Article 3 of the VAT Code nor under the terms of paragraph f) of section 3 of Article 3 of the VAT Code".

- For this reason, in light of all the factual and legal framework, … the Claimant considers that it is unequivocally demonstrated that there is no tax shortfall related to the use of tooling acquired by it, since:

- The dismissal of the VAT refund request contained in the report and conclusions of the inspection action suffers from lack of foundation;

- There is no free transfer for purposes unrelated to the business effected with a permanent character by the claimant, provided for in paragraph f) of section 3 of Article 3 of the VAT Code.

Thus, it seeks that in the arbitral action the annulment of the "VAT assessment and the Report of conclusions of the tax inspection" be decreed, for lack of foundation and for the verification of error as to the assumptions of fact and law; and, as a consequence, to hand down a decision "annulling the corrections made in the amount of €142,765.83, as well as ordering the granting of the VAT refund request in the amount of €140,925.83".

It further requests "the payment of indemnification interest that may be due under the terms of Article 43 of the General Tax Law and Article 61 of the Code of Tax Procedure and Process".

The Respondent, duly notified for that purpose, attached the administrative file and presented its response in which it alleges the existence of a dilatory exception of incompetence of the singular tribunal ratione valoris, without prejudice to also presenting a defense on the merits.

As to the exception, the Respondent states: "From the opening of the request for arbitral ruling (hereinafter also designated as PPA) it follows that it has as its object the dismissal of the VAT Refund request in the amount of €140,925.83, which determined corrections in the amount of €142,765.83, resulting in the annulment of that tax credit and in the additional VAT assessment in the amount of €1,597.50.

Unless proven otherwise, with the Claimant petitioning for the annulment of corrections in the amount of €142,765.83, this should be the value of the action, insofar as it reflects the economic value of the Claimant's claim.

The Claimant's claim is that, once the said corrections are annulled, the Respondent be ordered to proceed with the refund in the amount of €140,925.83 and that the additional VAT assessment in the amount of €1,597.50 be annulled.

Now, since the value of the action determines, under the terms of the RJAT, that the Collective Arbitral Tribunal and not the Singular Tribunal be competent, the present action should, unless proven otherwise, be redistributed and, as a consequence, everything after the PPA be annulled, namely, granting (new) deadline to the Respondent to answer.

Prudently, the Respondent contests the subject matter of the case, alleging, in essence, the following:

As appears from the Inspection Report, the Claimant A... entered into a contract with B..., according to which it acquires moulds that B... uses in the manufacture of automobile parts on account of A....

These moulds remain in the supplier's (B...) facilities, however they are owned by A....

B... uses these moulds for the manufacture of parts which it sells to A..., or to clients designated by A..., based in Member States of the European Union.

With such procedure, it is verified that the taxable person acquires moulds/tools and subsequently transfers them free of charge, an operation that is subject to tax under the terms of Article 3, section 3 paragraph f) of the CIVA, the respective acquisition value being determined under the terms of Article 16, section 2 paragraph b).

Thus, the taxable person should have, at the moment it transfers free of charge, proceeded to assess the tax in the same amount as the deduction effected, which it did not do".

The Claimant, after being notified by order of 2018/10/02 of the exception raised by the Respondent, in summary alleges that in its understanding the dilatory exception of incompetence of the Singular Arbitral Tribunal ratione valoris does not exist, inasmuch as the challenged act is the VAT assessment No. 2018... whose value is €1,597.50, corresponding to the value of the claim which is the object of the request for arbitral ruling, whereby the rules for fixing the value of the cause are observed.

The AT subsequently insisted, by declaration of incompetence of the singular tribunal based on the sum of all the values requested ultimately by the Claimant, which amounts to €142,925.83, which corresponds to the respective economic benefit, and which would translate, if the claim were granted, in the refund of €140,925.83 and €1,597.50 referring to the challenged assessment.

The parties have judicial personality and capacity, are duly legitimated 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 case is not affected by any nullities.

Thus, there is no obstacle to the appreciation of the case.

II - ADJUDICATION

As to the Competence of the Arbitral Tribunal

Articles 123 and 124 of the Code of Tax Procedure and Process, taken together, subsidiarily applicable to decisions in arbitral proceedings, enumerate the requirements to be taken into account in the drafting of the judgment, without prejudice to also considering Article 608 of the Code of Civil Procedure.

According to the provision in section 1 of this article, procedural questions that are likely to result in the dismissal of the instance should be known according to the order imposed by their logical precedence, but, obviously, the question that should be appreciated first is that of the competence of the tribunal itself, whose knowledge must be taken in advance of any other, by force of Article 13 of the Code of Procedure in Administrative Courts (CPTA) and paragraph a) of section 1 of Article 278 of the CPC.

The Respondent AT resolved to invoke the exception of incompetence of the singular arbitral tribunal ratione valoris, since, according to its understanding, the claim formulated amounts, ultimately, to the value of €142,925.83 corresponding to the corrections effected on the basis of the inspection procedure.

The Claimant contends that the claim refers to the VAT assessment derived from that same procedure, in the amount of €1,597.50. Let us examine this.

According to the Report, the AT made VAT assessments for the reasons previously expressed due to failure to assess tax amounting to €142,765.83 (pages 7 and 11 of the RI), by considering taxable the operations of free transfer of the moulds ordered from B....

The Claimant had formulated a refund request in the periodic return in the amount of €140,925.83, which was ultimately dismissed, and the respective amount "applied" in the compensation of the amount of tax assessed as a result of the inspection action, remaining nonetheless, after that, an amount to be compensated in the value of €1,597.50, which was required in a separate assessment. That is, the refund was insufficient to compensate the value assessed after the inspection action whereby the request was dismissed for lack of sufficient balance.

This is what results from the PI and what should be considered as filling the value of the claim because the Claimant requests: (i) the annulment of the dismissal of the refund; (ii) the refund of that amount; (iii) and the annulment of the additional assessment that was made in light of the insufficiency of value for compensation; (iv) plus the indemnification interest that may be due.

Therefore, what the claimant seeks is the appreciation of a global arbitral claim with a certain value comprising the sum of several partial claims which, by force of Articles 306 and 297 of the Code of Civil Procedure, for purposes of calculating the value of the cause, are cumulated.

That is, the value of the economic benefit which it seeks to obtain with the granting of its arbitral claim is the sum of the two values, which it explicitly enumerates on page 37, when it seeks the annulment of the corrections in the amount of €142,765.83, a value obtained with the "granting of the refund request" and the "annulment of the additional assessment", without prejudice to the ordering of the AT to pay the indemnification interest that may be due.

Regardless of the reasons of fact or law that may assist the Claimant in obtaining the granting of its claims, the fact is that the result of success in the action would amount to €142,765.83, being, therefore, this the amount of the economic utility that should serve as the foundation for the value of the proceedings.

Having reached this point, it becomes imperative to take into account that Article 5 of the RJAT provides that the arbitral claim should be judged by a collective tribunal whenever it exceeds twice the value of the jurisdiction of the Central Administrative Court, which currently stands at €60,000.00.

Based on the value of the cause indicated by the Claimant in the PI, the singular tribunal was constituted, which, taking into account what has been previously stated, constitutes a breach of the rules of competence of the arbitral tribunal as a function of the value of the cause (Article 102 of the CPC and Article 5 section 3, paragraph a) of the RJAT), a situation which determines the relative incompetence of the tribunal, this being "... always to be known ex officio whatever action in which it may be raised" (Article 104, section 2 of the CPC).

Incompetence ratione valoris constitutes a dilatory exception (Article 577 of the CPC), which under the terms of Article 576, section 2, prevents "... the tribunal from knowing the merits of the case and give rise to the dismissal of the instance or the remission of the case to another tribunal."

In this case the rule relating to remission of the case to another tribunal is not applicable, whereby the consequence can only be the extinction of the instance.

Granting the verification of the exception of incompetence of the arbitral tribunal ratione valoris, the Tax Authority must be absolved of the instance, as mentioned, whereby the knowledge of the remaining questions raised in the present proceedings is prejudiced (Article 608, section 2, of the CPC, applicable by force of the provision in Article 29, section 1, paragraph e), of the RJAT).

III. DECISION

In these terms, this Singular Arbitral Tribunal decides:

- To declare the exception of incompetence of the tribunal ratione valoris as verified, absolving the Respondent of the instance.

- To condemn the Claimant in the payment of the costs of the proceedings.

IV. VALUE OF THE PROCEEDINGS

Considering the rule contained in Article 306, section 2, of the CPC and Article 97-A of the CPPT and Article 3, section 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at €142,765.83.

V. COSTS

In the present proceedings we are faced with two values for purposes of calculating the costs to be borne by the Claimant: one the value attributed by it to the cause in the PI and another that which is fixed in the present decision.

We adhere to what was held in Decision No. 151/2013-T, of 15 November, regarding the situation of the existence of different values for purposes of costs: "The fact that the value of the dispute, for purposes of determining the competence of the arbitral tribunals functioning in the CAAD, is what results from the subsidiary application of the CPPT, does not preclude that another value be used for purposes of costs, since this is a matter that has to do exclusively with the revenues of the CAAD, which is a private entity, and, as has been said, the regulation of the costs regime was left by Article 12 of the RJAT, in its exclusive discretion, by establishing that 'arbitration fees are due, whose value, calculation formula, basis of objective incidence and minimum and maximum amounts are defined under the terms of a Regulation of Costs to be approved, for that purpose, by the Administrative Arbitration Center'. And this Regulation does indeed have its own rules to determine the value for purposes of costs which are section 2 and 3 of its Article 3…"

In these terms, in accordance with Article 22, section 4, of the RJAT, the amount of costs is fixed at €306.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, taking into account the rules of the cited Article 3, a value that results from the value of the cause indicated by the Claimant.

Let it be notified.

Lisbon, 29 January 2019

The Singular Arbitrator

José Ramos Alexandre

Frequently Asked Questions

Automatically Created

What happens when the value of a VAT arbitration case exceeds the jurisdiction of a singular arbitral tribunal in Portugal?
When the value of a VAT arbitration case exceeds the jurisdictional threshold of a singular arbitral tribunal in Portugal, the tribunal must declare itself incompetent ratione valoris (due to case value) under the RJAT (Legal Regime for Arbitration in Tax Matters). The case must then be redistributed to a collective arbitral tribunal, which has jurisdiction over higher-value disputes. As a procedural consequence, all acts performed after the initial request for arbitration are annulled, and the Tax Authority receives a new deadline to file its response. The case value is determined by the economic value of the claimant's claim, which typically reflects the total amount of corrections contested rather than merely the additional assessment.
Can a singular arbitral tribunal decide on VAT refund disputes involving tooling operations and gratuitous transfers of goods?
A singular arbitral tribunal can decide on VAT refund disputes involving tooling operations and gratuitous transfers of goods only if the case value falls within its jurisdictional limits under the RJAT. Substantively, such cases involve determining whether transferring tooling to third parties constitutes a taxable gratuitous transfer under Article 3(3)(f) of the Portuguese VAT Code (CIVA), which transposes Article 16 of the VAT Directive. The key legal issue is whether the transfer represents a permanent allocation of goods to purposes unrelated to the business. If the taxpayer retains ownership and the tooling remains integrated in business operations (even if physically located with a supplier), the operation may not qualify as a taxable gratuitous transfer, potentially allowing proper input VAT deduction.
How does the CAAD determine the value of the case when both a VAT refund denial and an additional VAT assessment are contested?
The CAAD determines case value by assessing the economic value of the claimant's total claim, not merely the additional VAT assessment. When both a VAT refund denial and an additional assessment are contested, the relevant value is typically the total amount of corrections made by the Tax Authority that led to both consequences. In this case, although the additional VAT assessment was only €1,597.50, the corrections totaled €142,765.83, which annulled the claimant's tax credit of €140,925.83 and generated the small additional assessment. The €142,765.83 figure represents the true economic value at stake and determines tribunal competence, potentially requiring a collective rather than singular arbitral tribunal if it exceeds the statutory threshold established in the RJAT.