Process: 285/2015-T

Date: July 8, 2016

Tax Type: IVA

Source: Original CAAD Decision

Summary

Process 285/2015-T concerns a VAT dispute involving €19,690.27 assessed by the Portuguese Tax Authority (AT) on alleged intra-community supplies made by a Portuguese company to Spanish customers during 2010-2012. The Claimant argued these transactions qualified for VAT exemption under Article 14 of the RITI (Portuguese intra-community VAT regime), presenting CMR transport documents as proof that goods physically left Portugal for Spain. The Claimant emphasized that the Spanish purchasers (B... S.A. and C... SL) were validly registered in Spain's VIES system, that pre-transaction due diligence was conducted, and that good faith should be recognized per CJEU jurisprudence. The Tax Authority challenged the exemption based on evidence from Spanish authorities showing the purchasers lacked physical infrastructure, had identical addresses, were unknown at their registered offices, failed to respond to official notifications, had common management, and exhibited characteristics of 'paper companies' with no employees. The AT also identified inconsistencies in the CMR documents and noted one company had ceased activity during the transaction period. The central legal issue involves the burden and standard of proof required under Portuguese law for intra-community supply exemptions: whether formal compliance (VIES registration, CMR documents) suffices, or whether substantive proof of actual physical transfer and purchaser legitimacy is required. The case highlights tensions between taxpayer good faith principles, proportionality in proof requirements, and the Tax Authority's duty to prevent VAT fraud through substance-over-form analysis. The decision addresses whether detecting purchaser irregularities unknown to a diligent Portuguese supplier should negate exemption rights.

Full Decision

ARBITRAL DECISION

The arbitrator Francisco Carvalho Furtado (arbitrator in a Sole Arbitral Tribunal), appointed by the Ethics Council of CAAD, to constitute the arbitral tribunal constituted on 21 July 2015 decides as follows:

A) Report

  1. On 5 May 2015, A... – …, S.A., legal person no. …, with registered office at Rua …, hereinafter identified as the Claimant, filed a request for arbitral decision, in accordance with the provisions of Articles 2, no. 1, paragraph a) and 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter designated as RJAT), in conjunction with paragraph a) of Article 99 and paragraph d) of no. 1 of Article 102 of the Code of Tax Procedure and Process (CPPT), applicable pursuant to Article 10, no. 1, paragraph a) of Decree-Law no. 10/2011, of 20 January.

  2. In the aforementioned request for arbitral decision, the Claimant seeks that the Arbitral Tribunal declare:

a) the illegality of the acts of assessment of Value Added Tax and Compensatory Interest assessed by the Tax and Customs Authority with reference to tax periods of the years 2010, 2011 and 2012 in the total amount of € 19,690.27 (nineteen thousand, six hundred and ninety euros and twenty-seven cents).

  1. The request for constitution of the arbitral tribunal was accepted on 7 May 2015 by the Honorable President of CAAD and was notified to the Tax and Customs Authority (hereinafter identified as the Respondent) on the same date.

  2. The Claimant did not proceed with the appointment of an arbitrator, therefore, pursuant to Article 6, no. 1 of the RJAT, the undersigned was appointed by the President of the Ethics Council of CAAD to constitute this Sole Arbitral Tribunal, the appointment having been accepted as legally provided. The Tribunal was constituted, in accordance with Article 11 of the RJAT, on 21 July 2015.

  3. On 1 October 2015, the Respondent filed its Reply.

  4. The Parties waived the holding of the meeting provided for in Article 18 of the RJAT.

  5. On 15 April 2016, the Claimant filed its submissions.

  6. On 19 April 2016, the Respondent filed its submissions.

The Claimant supports its request, in summary, as follows:

a) The Claimant, in the scope of its economic activity, transferred goods to Customers with registered office in Spain;

b) The customer companies B..., S.A., and C... SL, had their registered office in Pontevedra;

c) The Spanish Tax Authorities declared that the aforementioned companies were registered in Spain, both for VAT purposes and for the taxation regime of intra-Community acquisitions of goods;

d) The aforementioned companies complied, in accordance with certification by the Spanish Tax Authorities, with their reporting obligations, including within the scope of the VIES system;

e) The Claimant confirmed, prior to the transfer of the goods, that the aforementioned companies had their registered office in Spain and were registered there;

f) The transport of the transferred goods was carried out by the purchaser;

g) Payment for the transferred goods was made by the date of dispatch;

h) Article 14 of RITI does not establish limits or conditions on proof of the physical circuit of goods or identification of their recipients and place of delivery;

i) The transport of the transferred goods was ensured by the company D…, Lda., with all dispatch declarations having as destination the purchaser's registered office;

j) The Claimant always requested from the company responsible for transport the delivery of a copy of the CMRs after receipt of the transferred goods;

k) These documents – CMRs – constitute objective proof of the transfer of goods and their destination;

l) The Tax and Customs Authority disregarded the proof made by the Claimant, placing emphasis on aspects that the Claimant had no possibility of knowing;

m) Any irregularities committed in relations with other operators cannot be valued in the analysis of the present case;

n) Even if there were deviations in the physical circuit of the goods, the Claimant complied with all due diligence obligations imposed to ensure verification of the prerequisites for tax exemption;

o) The assessment acts are illegal by violation of the principle of proportionality given that an unreasonable burden of proof is imposed;

p) The Claimant fulfilled the obligations incumbent upon it regarding proof;

q) The Claimant always acted in good faith;

r) It follows from the case law of the CJEU that the good faith of the operator and the fact of being diligent in ensuring compliance with the prerequisites for tax exemption should be valued in recognition of the right to exemption, under penalty of violation of the principles of proportionality and legal certainty;

s) The Claimant concludes that the acts of assessment of Value Added Tax are defective due to violation of law and therefore should be annulled.

In its Reply, the Respondent invoked, in summary, the following:

a) As explained in the tax inspection report and, for what is now relevant, in a preliminary analysis of the VIES system it was found that the Claimant carried out intra-Community transfers of goods (TICB) to companies registered in Spain, B..., SL (B...), with VAT ID ES-... and C... SL (C...), with VAT ID ES-...;

b) As explained in the tax inspection report, from information collected by the Spanish authorities, it is found that in the years 2010 to 2011, these companies have several points in common (identical address and shareholders), pointing in particular to the lack of physical structure (their facilities were not even identified) and human resources, as well as to the failure to fulfill their respective reporting obligations (namely invoicing);

c) In fact, the competent Spanish tax authorities verified that:

a. the address of both companies is the same;

b. the companies did not respond to notifications made by the Spanish Tax Administration, with the notification made to company B... having been returned;

c. the companies were unknown to their neighbors;

d. despite being unknown at the address of their registered office and indications of inactivity, tax obligations were partially complied with at company C...;

e. when tax obligations are fulfilled they present negative or balanced values, in order to result in payment of tax of a reduced amount, or not result in any tax payment;

f. compliance with the formality of declaring to the VIES system the operations carried out (without prejudice to non-compliance with other obligations, as referred to, in particular the non-issuance of invoices);

g. the managers of the companies (shareholder/attorney-in-fact) are common between them;

h. there is no information in the database of that Tax Administration that the companies had employees to whom they paid earnings.

d) Several inconsistencies were detected by the Tax Inspection Services in the CMRs presented;

e) These inconsistencies and factual framework imply that the prerequisites for application of the exemption provided for in Article 14 of RITI are not met;

f) There is no evidence of the departure of goods from national territory, with destination to another Member State;

g) The Claimant did not demonstrate that the intermediary who negotiated the acquisition of the transferred goods had powers of representation of the purchasing companies;

h) One of the Customers had already ceased its activity at the moment in which some of the intra-Community transfers of goods were carried out;

i) The principle of substance over form applies, therefore formal reality cannot override the facts demonstrated by the Tax and Customs Authority;

j) The Spanish companies, customers of the claimant, are physically non-existent and therefore could not carry out the commercial operations attributed to them;

k) The Claimant does not provide proof of the facts it alleges;

l) The Claimant does not contest the facts alleged by the Tax and Customs Authority;

m) The Claimant did not comply with the due diligence obligations of which it was capable and to which it was bound;

n) The Claimant does not present proof of the departure of goods from the territory of Portugal, therefore the operation must be qualified as internal and taxed accordingly;

o) The burden of proof rests on the Claimant;

p) All facts and indications of which the Respondent provided proof point to the fact that the formalization contained in the documents presented by the Claimant does not correspond to the reality of the facts;

q) Finally, it concludes in favor of the legality of the assessment acts and the non-occurrence of the prerequisites for recognition of the right of the Claimant to be reimbursed for the tax paid and to be compensated through the payment of indemnifying interest.

B) Case Management

The Tribunal is competent and is properly constituted, in accordance with Articles 2, no. 1, paragraph a), 5 and 6, all of the RJAT. The parties have legal personality and capacity, are legitimate and are represented, in accordance with Articles 4 and 10 of the RJAT and Article 1 of Ministerial Order no. 112-A/2011 of 22 March.

There are no nullities and preliminary issues affecting the entire case, therefore the merits of the claim must now be addressed.

C) Subject Matter of the Arbitral Decision

The following issues are placed before the Tribunal, in accordance with the above description:

a) Who bears the burden of proof of the prerequisites for the exemption provided for in Article 14 of RITI?

b) Do the goods transfer operations identified in the file meet the requirements of the exemption provided for in Article 14 of RITI?

D) Factual Matters

D.1 – Proven Facts

The following facts relevant to the decision are considered proven, based on the documentary evidence attached to the file:

a) The Claimant, in the years 2010 to 2012, transferred goods to two companies registered in Spain, B..., SL (B...), with VAT ID ES-... and C... SL (C...), with VAT ID ES-...;

b) Based on Service Orders nos. OI2014…, OI2014… and OI 2014…, the Claimant was subject to a tax inspection procedure (cf. Tax Inspection Report contained in the Administrative File);

c) From the Inspection Action Conclusions Report the following results:

"Conclusion

Given that:

1 – The companies receiving the goods had no physical structure nor personnel to enable them to carry out a commercial, industrial or other activity;

2 – They were not known at the address of their registered office (common to all);

3 – They had common shareholders/attorneys-in-fact between them;

4 – It was common practice for orders between companies that declared Intra-Community Transfers of Goods (TIB) and the Spanish companies to be made by telephone, fax using national numbers, by the same persons, with employment relationships with national companies that paid them dependent labor income. These situations combined with other matters referred to in point 111.2 are in themselves sufficient to cast doubt on the departure of goods from national territory;

5 – Divergences were found between the load capacity of the vehicles identified as having been used in the transport of goods sold by A..., Lda, and the weight of the goods transported, that is, the weight of the goods transported exceeded the load capacity of the vehicle.

6 – The doubt raised by the processing of the order, that is, A..., Lda only received orders from a single person of Portuguese nationality and was never contacted in any way by any other person with connections to those Spanish companies.

  • A..., Lda issued invoices for sales to a company that was no longer in operation.

Given the foregoing and the absence of other elements/facts that prove unequivocally that the goods in question left Portugal, it is concluded that they were introduced for consumption in national territory and are therefore considered internal goods transfers, subject to tax in accordance with Article 1° of CIVA.

The invoices for sales to those Spanish companies, which are listed in the table attached to this document, total:

[Table with VAT periods showing sales amounts and totals by year 2010-2012, with grand total of € 83,214.36]

By oversight in the Draft Report amounts invoiced by A..., SA were attributed to a different company. In the previous table the error has already been corrected.

Given the foregoing, the following corrections are proposed, in respect of VAT:

[Table showing monthly sales, VAT rates, and calculated VAT amounts for 2010-2012, with totals by year and grand total of € 17,933.45]

d) The Claimant was notified of the assessment act no. … (cf. Document 1 attached to the Initial Request);

e) The Claimant was notified of the assessment act no. … (cf. Document 2 attached to the Initial Request);

f) The Claimant was notified of the assessment act no. … (cf. Document 3 attached to the Initial Request);

g) The Claimant was notified of the assessment act no. … (cf. Document 4 attached to the Initial Request);

h) The Claimant was notified of the assessment act no. … (cf. Document 5 attached to the Initial Request);

i) The Claimant was notified of the assessment act no. … (cf. Document 6 attached to the Initial Request);

j) The Claimant was notified of the assessment act no. … (cf. Document 7 attached to the Initial Request);

k) The Claimant was notified of the assessment act no. … (cf. Document 8 attached to the Initial Request);

l) The Claimant was notified of the assessment act no. … (cf. Document 9 attached to the Initial Request);

m) The Claimant was notified of the assessment act no. … (cf. Document 10 attached to the Initial Request);

n) The Claimant was notified of the assessment act no. … (cf. Document 11 attached to the Initial Request);

o) The Claimant was notified of the assessment act no. … (cf. Document 12 attached to the Initial Request);

p) The Claimant was notified of the assessment act no. … (cf. Document 13 attached to the Initial Request);

q) The Claimant was notified of the assessment act no. … (cf. Document 14 attached to the Initial Request);

r) The Claimant was notified of the assessment act no. … (cf. Document 15 attached to the Initial Request);

s) The Claimant was notified of the assessment act no. … (cf. Document 16 attached to the Initial Request);

t) To formalize the goods transfers the Claimant issued the following invoices and CMRs:

  1. Invoice no. …, issued to B..., S.A., to which corresponds CMR no. … – Cf. Documents 17 and 17-A, attached to the Initial Request;

  2. Invoices nos. … and …, issued to B..., S.A., to which corresponds CMR no. … – Cf. Documents 18, 18-A and 18-B, attached to the Initial Request;

  3. Invoice no. …, issued to B..., S.A., to which corresponds CMR no. … – Cf. Documents 19 and 19-A, attached to the Initial Request;

  4. Invoice no. …, issued to B..., S.A., to which corresponds CMR no. … – Cf. Documents 20 and 20-A, attached to the Initial Request;

  5. Invoice no. …, issued to B..., S.A., to which corresponds CMR no. … – Cf. Documents 21 and 21-A, attached to the Initial Request;

  6. Invoice no. …, issued to B..., S.A., to which corresponds CMR no. … – Cf. Documents 22 and 22-A, attached to the Initial Request;

  7. Invoice no. …, issued to B..., S.A., to which corresponds CMR no. … – Cf. Documents 23 and 23-A, attached to the Initial Request;

  8. Invoice no. …, issued to B..., S.A., to which corresponds CMR no. … – Cf. Documents 24 and 24-A, attached to the Initial Request;

  9. Invoice no. …, issued to B..., S.A., to which corresponds CMR no. … – Cf. Documents 25 and 25-A, attached to the Initial Request;

  10. Invoice no. …, issued to B..., S.A., to which corresponds CMR no. … – Cf. Documents 26 and 26-A, attached to the Initial Request;

  11. Invoice no. …, issued to B..., S.A., to which corresponds CMR no. … – Cf. Documents 27 and 27-A, attached to the Initial Request;

  12. Invoice no. …, issued to B..., S.A., to which corresponds CMR no. … – Cf. Documents 28 and 28-A, attached to the Initial Request;

  13. Invoice no. …, issued to B..., S.A., to which corresponds CMR no. … – Cf. Documents 29 and 29-A, attached to the Initial Request;

  14. Invoice no. …, issued to B..., S.A., to which corresponds CMR no. … – Cf. Documents 30 and 30-A, attached to the Initial Request;

  15. Invoice no. …, issued to B..., S.A., to which corresponds CMR no. … – Cf. Documents 31 and 31-A, attached to the Initial Request;

  16. Invoice no. …, issued to B..., S.A., to which corresponds CMR no. … – Cf. Documents 32 and 32-A, attached to the Initial Request;

  17. Invoice no. …, issued to B..., S.A., to which corresponds CMR no. … – Cf. Documents 33 and 33-A, attached to the Initial Request;

  18. Invoice no. …, issued to C..., S.L., to which corresponds CMR no. … – Cf. Documents 34 and 34-A, attached to the Initial Request;

u) The company B..., SL ceased its activity with effect from 30 November 2011;

As to the proven facts, the Tribunal's conviction was based on the documentary evidence cited and attached to the file and in the attached administrative file.

No other facts capable of affecting the merit decision in light of the possible legal solutions were proven and therefore should be noted as unproven.

E) Law

As follows from the procedural documents, the tax assessment acts whose annulment is sought were issued on the basis of the non-occurrence of the prerequisites referred to in Article 14 of RITI.

In accordance with the aforementioned legal provision:

"The following are exempt from tax:

a) Transfers of goods, carried out by a taxable person referred to in paragraph a) of no. 1 of Article 2, dispatched or transported by the seller, by the purchaser or on their behalf, from national territory to another Member State, with destination to the purchaser, when the latter is a natural or legal person registered for value added tax purposes in another Member State, who has used the respective identification number to make the acquisition and is covered there by a taxation regime for intra-Community acquisitions of goods;"

In light of the foregoing, the tax exemption depends on the occurrence of the following prerequisites:

a) The goods being sold by a taxable person referred to in paragraph a) of no. 1 of Article 2;

b) The goods being dispatched or transported by the seller, by the purchaser or by a third party on their behalf;

c) The goods being physically transported from the Member State of the seller's residence to another Member State;

d) The Purchaser being registered for VAT purposes in the other Member State;

e) The Purchaser having used its VAT registration number; and,

f) The Purchaser being covered there by a taxation regime for intra-Community acquisitions of goods.

Of all the requirements listed, the Respondent challenges the physical circuit of the goods, that is, that there is no evidence that the goods actually left Portugal (Member State of the seller's residence) and were delivered in Spain (Member State of the purchaser's residence), and also the fact that one of the purchasers ceased its activity.

For the correct decision of the case, it is important, in the first place, to allocate the burden of proof. In tax matters, the rules for allocation of the burden of proof are found in Article 74 of the General Tax Law, which determines that it falls on whoever invokes the facts. On the question of allocation of the burden of proof with reference to the exemption contained in Article 14 of RITI, the Supreme Administrative Court has already ruled, namely in the Decision cited by the Respondent, handed down on 29 April 2004, in Appeal no. 1680/03, in the following terms:

"Given this, let us now move on to the examination of the remaining subject matter of the appeal. This concerns the question of determining who bears the burden of proof of the tax fact upon which the assessment of the tax in question is based. In the appealed decision it was ruled that, since the situation in question in practice is equivalent to granting a tax benefit to the selling taxable person, the Tax Administration merely bore the burden of proving the regular tax fact, that is, the transfer of goods made in national territory on an onerous basis and, as such subject to VAT, by virtue of the provisions of Articles 1, paragraph a) and no. 2, paragraph a) and 2, paragraph a) of CIVA, it being the responsibility of the taxable person to prove the complex fact of the intra-Community transaction that prevents the payment of the tax owed by it, as results from Article 342, no. 2 of CC, as proof of impeditive facts of the right invoked belongs to the party against whom the invocation is made. However, the appellant contends that since the disputed party declared, for tax purposes, intra-Community transfers of goods, as follows from no. 2 of the evidentiary matter and no errors, omissions or inaccuracies were found in its accounting capable of discrediting it and preventing the confirmation of the facts and values declared by it, as results from the settled factual matter, its declarations enjoy the presumption of truthfulness enshrined in Articles 76, no. 2 and 78 of CPT, which is why it was the Tax Administration that should have demonstrated that these were not VAT-exempt intra-Community transfers, pursuant to Article 14 of RITI, as that was the presupposition of fact of its action, that is, because it was its responsibility to demonstrate the existence of the tax fact upon which the assessment was based. Let us see if the appellant is right. Article 78 of CPT, applicable here, provides that "when the accounting or bookkeeping of the taxable person is organized in accordance with commercial or tax law, the truthfulness of the data and findings arising therefrom is presumed, unless there are errors, inaccuracies or other well-founded indications that it does not reflect the actual taxable matter of the taxpayer." Enjoying thus the taxable person of a legal presumption in its favor, it is relieved of proof of the presumed fact, therefore, the disputed party having its bookkeeping organized in accordance with the law, need not prove the truthfulness of the data contained therein (cf. Articles 349 and 350 of CC). Unless, as we have seen, there are errors, inaccuracies or well-founded indications that it does not reflect its actual taxable matter, in which case that presumption ceases. For this reason, the said presumption ceases in the case where the bookkeeping or accounting of the taxable person is formally organized in accordance with the law, although containing errors or inaccuracies or "well-founded indications" that, despite its correct organization, it does not reflect the actual taxable matter. Thus, if the accounting properly organized from the perspective of accounting technique, omits operations carried out or includes operations not carried out, that is, if the accounting includes documents issued in legal form but which do not correspond to reality because the operations which they purport to reflect did not take place, that presumption ceases. "The relevance of presumptions is thus limited to cases in which the party that can benefit from it is burdened with the burden of proof of the fact to which the presumption leads, allowing it, to meet such burden, instead of proving the fact that interests it, to prove the fact underlying the presumption. For this reason, the existence of a presumption has no relevance in cases where the party that can benefit from it is not burdened with the burden of proof of the fact of interest. This is what occurs with the existence of the tax facts underlying assessment acts. In fact, as Vieira de Andrade states, with regard to the allocation of the burden of proof in administrative proceedings, "it must be the responsibility of the Administration to bear the burden of proving the occurrence of the legal prerequisites for its action, especially if aggressive (positive and unfavorable); conversely, it will be the responsibility of the administered party to present sufficient proof of the illegality of the act when those prerequisites are met." Given this criterion for allocation of the burden of proof, in the case at hand, it will be the Tax Administration that bears the burden of proving the existence of the facts upon which it based the additional assessment challenged" (Decision of this Section of the STA of 25/11/98, in appeal no. 22.761). In the case at issue and contrary to what the appellant claims, in the appealed decision the nature of the operation carried out by the appellant is not called into question, but rather proof that it occurred as an intra-Community transfer, that is, the transportation and dispatch of goods to Spanish territory and their entry and delivery there, as provided for in Article 14 of RITI. It is evident that if such transfer to another Member State did not occur, one cannot speak here of an intra-Community transfer and if such transfer did not occur, there will be no exemption referred to in the said Article 14. Therefore, what is at issue here is the need to prove whether such transfer occurred and who bears that burden. Now, from the evidentiary matter, which this Supreme Administrative Court cannot alter, as it intervenes as an appellate court, knowing only of matters of law (cf. Article 21, no. 4 of ETAF, in its previous wording), it results only that, notwithstanding the invoices issued complying with the requirements provided for in Articles 23, 28 and 29 of RITI, the fact is that from the examination carried out by the Tax Administration of the appellant's bookkeeping it appeared that, contrary to the usual procedure, it did not indicate in those invoices the vehicle that transported the goods, its registration number, the places of unloading, making references therein to dispatch notes and requisitions that were not found in the company, while at the same time verifying that those invoices were paid by C... who, from 1993 onwards, became responsible for all imports made by the appellant through its company based in Porto and who presents himself as a shareholder of the Spanish firm "B...", who together with his son transported those goods and in one of the transportations used a van that had written on it the name of that firm, and it being certain that the acquiring firm declared not having made the acquisitions in question. Being thus, verifying these inaccuracies or omissions in the appellant's declaration, ascertained by examination of its bookkeeping, the assessment must be regarded as well-founded by the Administration, as it was only incumbent upon it to prove the occurrence of the respective indications or prerequisites of taxation, that is, the legal prerequisites for its action (principle of administrative legality). And, on the contrary, it was incumbent upon the appellant to prove the existence of the tax facts it alleged as the basis of its right, that is, the existence of the alleged intra-Community transfer, specifically, that the goods were transported and dispatched to the Spanish firm "B..." and that they entered there and were delivered. What, in terms of the evidentiary matter, it failed to do. Wherefore, the conclusions of the appeal are without merit.

That is, the command resulting from Article 74 of the General Tax Law must be read together with the presumption of truthfulness that follows from Article 75 of the same General Tax Law. Therefore it is incumbent upon the Respondent to challenge the said presumption and, in cases where it does so, it is important that the Claimant demonstrate the facts justifying its right.

On the other hand, it is also important to establish that, in the absence of special rules on the form of proof production, such proof can be produced by any means legally admitted – cf. Decision of the Central Administrative Court (South), of 7 June 2011, handed down in Appeal no. 4434/10.

Let us analyze, then, the facts and indications invoked by the Respondent in order to assess whether they are capable of challenging the presumption of truthfulness enjoyed by the Claimant.

First, the Respondent invokes that the Claimant's Customers do not possess physical structure nor personnel at their service. Similarly, the companies are not known at the address of their registered office. This fact is indicative of an irregular situation. However, it cannot be regarded as conclusive. In fact, the Respondent does not demonstrate, nor even alleges, that the Claimant had, or should have had, knowledge of this fact. On the other hand, the truth is that the Claimant's Customers were properly registered for VAT purposes in Spain and there subject to a taxation regime for intra-Community acquisitions of goods, which cannot be disregarded. Now, as the Court of Justice of the European Union has held, "an obligation on the part of the Tax Administration to conduct investigations to establish the intention of the taxable person would be contrary to the objectives of the common VAT system of ensuring legal certainty and facilitating acts inherent in the application of the tax through the consideration, save in exceptional cases, of the objective nature of the operation in question.

A fortiori, it would be contrary to those objectives an obligation on the part of the Tax Administration, to establish whether a given operation constitutes a supply made by a taxable person acting in that capacity and an economic activity, to take into account the intention of a different operator than the taxable person who intervenes in the same chain of supplies and/or the possible fraudulent nature, of which that taxable person had no and could have no knowledge, of another operation in that chain, prior or subsequent to the operation carried out by the said taxable person" (Decision of the Court of Justice, of 12 January 2006, in the aforementioned case C-354/03). In light of what has been stated, with the requirements to which Article 14 of RITI refers being met in terms of registrations – the only ones of which the Claimant could have knowledge – it is concluded that these affirmations are not sufficient to challenge the presumption of truthfulness enjoyed by the Claimant.

Similarly, the fact that there are common shareholders in the different purchasing companies is not indicative of any irregular situation.

The Respondent also claims that merchandise orders were made by a Portuguese person with an employment relationship with companies with registered office in Portugal and through national telephone and fax numbers. With respect to this assertion, it is not clear how this can challenge the departure of goods from national territory. Moreover, it does not appear to be indicative of an irregular situation that economic operators use persons of that nationality (for reasons of language fluency, knowledge of the market, among others) to contact business partners in other countries.

Thirdly, the Respondent detected inconsistencies between the loads transported and the load capacity of the transport vehicles. In this regard, the Respondent identifies a situation that may imply irregularities, but does not assert and prove that the transport of said quantities was impossible in the vehicles in question. That is, given that the CMRs and respective invoices are consistent in terms of quantities transferred (there being no inconsistency in these documents), the Tribunal cannot but agree with the Claimant when it states that such facts may be relevant to determining responsibility for violation of traffic laws, but do not indicate that the goods were not transferred as documented in the issued documents – invoices and CMRs.

Finally, the Respondent states that the Claimant issued invoices to an entity that had ceased its registrations. This fact assumes decisive importance, all the more so because it concerns one of the concrete prerequisites of VAT exemption provided for in Article 14 of RITI – the purchaser having used its VAT registration number; and the purchaser being covered by a taxation regime for intra-Community acquisitions of goods. Should this prerequisite not occur, the right to exemption cannot be recognized.

In light of what has been stated above, it is important to analyze the proof presented. Now, as we have seen, given the rules governing proof production, the CMRs presented, although not presenting deficiencies or inconsistencies in completion, cannot but be considered suitable for the proof which the Claimant proposes to make.

Now, in the first place, it is indisputable that the invoices (and CMRs) issued after the date of cessation of activity of Customer B… present irreparable irregularities, given that it is evident that the company no longer exercises, even formally, any activity. On the other hand, having the said company ceased its activity, canceling its registrations it is evident that the prerequisites upon which the Law (notably Article 14 of RITI) makes the tax exemption dependent are not met.

In light of the foregoing, the transfers documented by the invoices and corresponding CMRs of documents 29 to 33-A should be qualified as internal operations and subject to VAT. Therefore, this request for arbitral decision is without merit in this part, with the following assessment acts being maintained, for a total amount of € 6,184.73:

a) 2014 … (cf. Document 11 attached to the Initial Request);

b) 2014 … (cf. Document 12 attached to the Initial Request);

c) 2014 … (cf. Document 13 attached to the Initial Request);

d) 2014 … (cf. Document 14 attached to the Initial Request);

e) 2014 … (cf. Document 15 attached to the Initial Request);

With respect to the remainder, not containing the invoices and CMRs attached 17 to 27-A and 34 and 34-A any inconsistency, the Tribunal considers that they are apt and suitable for demonstrating the circuit of goods. Thus, these operations should be characterized as intra-Community transfers of goods which, the legal prerequisite challenged by the Respondent being demonstrated, are exempt from tax. Accordingly, the assessment acts relating to the periods of May, June and December 2010, February and May 2011 and October 2012, are illegal by violation of Article 14, paragraph a) of RITI.

Since these assessment acts are illegal, so will also be the respective acts of assessment of compensatory interest, due to the non-occurrence of one of their prerequisites – delay in assessment of tax – therefore their annulment is required by violation of the provision of Article 35 of the General Tax Law.

Therefore, the following assessment acts must be annulled, for a total amount of € 13,505.54:

a) … (cf. Document 1 attached to the Initial Request);

b) … (cf. Document 2 attached to the Initial Request);

c) … (cf. Document 3 attached to the Initial Request);

d) … (cf. Document 4 attached to the Initial Request);

e) … (cf. Document 5 attached to the Initial Request);

f) … (cf. Document 6 attached to the Initial Request);

g) … (cf. Document 7 attached to the Initial Request);

h) … (cf. Document 8 attached to the Initial Request);

i) … (cf. Document 9 attached to the Initial Request);

j) … (cf. Document 10 attached to the Initial Request); and

k) … (cf. Document 16 attached to the Initial Request).

Decision

In light of the foregoing, this Arbitral Tribunal decides to rule partially in favor of the claim and consequently:

a) Declare the illegality of the VAT and compensatory interest assessment acts nos. …; …; …; …; …; …; …; …; …; …; and …, annulling them;

b) Rule against the claim with respect to assessment acts nos. 2014 …; 2014 …; 2014 …; 2014 …; 2014 …, maintaining them;

c) Condemn the Claimant and the Respondent to pay costs, in proportion to the degree of success which is fixed at 65% for the Respondent and 35% for the Claimant.

The value of the action is fixed at € 19,690.27 (nineteen thousand, six hundred and ninety euros and twenty-seven cents), in accordance with Article 97-A, no. 1, paragraph a) of the CPPT, applicable pursuant to Article 29, no. 1, paragraph a) of the RJAT.

The Arbitration Fee is fixed at € 1,224.00, in accordance with Table I of the Regulations on Costs of Tax Arbitration Proceedings, to be paid by the Claimant (35%) and by the Respondent (65%), in proportion to the degree of success, in accordance with Articles 12, no. 2, 22, no. 4 of the RJAT and 4 of the said Regulations.

Let notification be made.

Lisbon, 8 July 2016.

The Arbitrator,

Francisco de Carvalho Furtado
(Sole Arbitrator)

Text prepared by computer, in accordance with the provision in no. 5 of Article 131 of the CPC, applicable by reference of paragraph e) of no. 1 of Article 29 of the RJAT.

The writing of this decision is governed by the spelling prior to the Orthographic Agreement.

Frequently Asked Questions

Automatically Created

What proof is required to qualify for VAT exemption on intra-community supply of goods in Portugal?
Under Portuguese VAT law (Article 14 RITI), to qualify for exemption on intra-community supplies, the supplier must prove: (1) goods were physically transported from Portugal to another EU Member State, (2) the purchaser is validly registered for VAT and intra-community acquisitions in the destination Member State, (3) the purchaser's VAT identification number is valid (verifiable through VIES), and (4) transport documentation (such as CMR documents) evidencing the goods' departure and destination. While Article 14 RITI does not prescribe exhaustive proof methods, the Tax Authority applies a substance-over-form principle, requiring not just formal documentation but credible evidence that goods actually left Portuguese territory. CJEU case law recognizes that good faith suppliers who exercise reasonable due diligence should not lose exemption rights due to purchaser fraud they could not detect, though this protection is not absolute.
How did the CAAD rule on the VAT assessments for intra-community transactions in Process 285/2015-T?
The text excerpt does not contain the CAAD's final ruling in Process 285/2015-T. However, the case centered on whether the Claimant provided sufficient proof of intra-community transfers to Spanish companies B... S.A. and C... SL. The Tax Authority's assessment was based on findings that these Spanish purchasers lacked physical substance (no real facilities, unknown at registered addresses, common management, no employees), had inconsistencies in transport documents (CMRs), and one had ceased activity during transaction periods. The Claimant defended by arguing compliance with due diligence obligations, good faith reliance on VIES registration, and presentation of CMR transport documents. The Tribunal would need to balance the formal proof presented against evidence suggesting the purchasers were non-operational entities, applying principles from CJEU jurisprudence regarding proportionality and protection of diligent taxpayers against fraud they could not reasonably detect.
What role does the VIES system play in validating intra-community VAT transactions between Portugal and Spain?
The VIES (VAT Information Exchange System) plays a critical validation role in intra-community transactions between Portugal and Spain. Suppliers can verify in real-time whether a purchaser's VAT number is validly registered in another Member State for intra-community acquisitions. In Process 285/2015-T, the Claimant relied on VIES confirmation that the Spanish companies B... and C... were registered, using this as proof of compliance with exemption prerequisites. However, the case demonstrates VIES limitations: registration in VIES does not guarantee a company has genuine operational substance or is conducting legitimate business. Spanish authorities confirmed the companies were VIES-registered and submitted VIES declarations, yet simultaneously found they lacked physical facilities, employees, and proper invoicing practices. This highlights that VIES registration is a necessary but insufficient condition for exemption—Portuguese suppliers must also gather additional evidence of purchaser legitimacy and actual goods transfer to satisfy both formal and substantive proof requirements.
Can the Portuguese Tax Authority (AT) impose VAT on intra-community supplies when the buyer is registered for VAT in another EU Member State?
Yes, the Portuguese Tax Authority can impose VAT on purported intra-community supplies even when the buyer is registered for VAT in another EU Member State, if the substantive conditions for exemption are not met. In Process 285/2015-T, despite the Spanish companies' valid VAT registration and VIES listing, the AT assessed VAT based on evidence that: (1) the purchasers lacked genuine operational capacity (no physical premises, employees, or substance), (2) CMR transport documents contained inconsistencies, (3) one company had ceased activity during transaction periods, and (4) the overall evidence suggested goods may not have actually left Portugal for Spain. The AT applies a substance-over-form analysis, meaning formal VIES registration alone does not guarantee exemption if the underlying transaction characteristics indicate possible fraud, diversions, or fictitious operations. However, CJEU case law provides that where a Portuguese supplier acts in good faith and exercises reasonable due diligence, denial of exemption must respect proportionality principles and cannot impose impossible proof burdens for irregularities the supplier could not reasonably detect.
What are the legal requirements under Portuguese VAT law for proving the transfer of goods to another EU Member State?
Portuguese VAT law requires suppliers claiming intra-community supply exemption to prove: (1) Physical transfer—goods must actually leave Portuguese territory and arrive in another EU Member State, typically evidenced by transport documents like CMRs (Convention Relative au Contrat de Transport International de Marchandise par Route), signed delivery confirmations, or equivalent proof of dispatch and receipt; (2) Destination verification—documentation identifying the destination address in the other Member State; (3) Purchaser identification—valid VAT number of the purchaser registered for intra-community acquisitions in the destination state, verifiable through VIES; (4) Timing—transport occurs within appropriate timeframes relative to invoicing and ownership transfer. Article 14 of RITI does not prescribe exclusive proof methods, allowing flexibility. However, tax authorities apply substance-over-form review, meaning formal documents must be credible and consistent. Suppliers should conduct reasonable due diligence on purchaser legitimacy (checking VIES, verifying business existence, obtaining commercial documentation). CJEU jurisprudence protects diligent suppliers from losing exemption rights due to purchaser fraud they could not reasonably discover, though this protection requires demonstrating good faith and appropriate verification efforts.