Summary
Full Decision
ARBITRAL DECISION
The arbitrators Dr. José Poças Falcão (arbitrator-president), Dr. Filipa Barros and Prof. Doctor Luís Menezes Leitão, designated by the Ethics Council of the Centre for Administrative Arbitration to form the Arbitral Court, constituted on 22 August 2018, agree as follows:
I – REPORT
A..., LDA. (hereinafter referred to as the Claimant), legal entity no. ..., with registered office at ..., ...-..., ..., ..., came, under articles 2, no. 1, paragraph a) and 10 and following of the Legal Regime for Tax Arbitration, provided for in Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter abbreviated as "LRTA") and articles 1 and 2 of Order no. 112-A/2011, of 22 March, to submit a request for arbitral pronouncement on the legality of the acts of additional Value Added Tax (VAT) assessments relating to the monthly tax periods of the year 2015 – with the exception of July and October – carried out under nos. 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017... .
The TAX AND CUSTOMS AUTHORITY (hereinafter referred to as TA) is the Respondent.
The request for constitution of the arbitral court was accepted by the President of CAAD and automatically notified to the TA on 14-06-2018.
The Claimant did not appoint an arbitrator, therefore, in accordance with the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the LRTA, the President of the Ethics Council of CAAD designated the signatories as arbitrators of the collective arbitral court, who communicated acceptance of the assignment within the applicable period.
On 01-08-2018, the parties were duly notified of this designation and did not manifest any intention to refuse the designation of the arbitrators, in accordance with the combined provisions of article 11, no. 1, paragraphs a) and b), of the LRTA and articles 6 and 7 of the Code of Ethics.
Thus, in accordance with the provision of paragraph c) of no. 1 of article 11 of the LRTA, the Arbitral Court was constituted on 22-08-2018.
Duly notified, the TA presented a response in which it argued for the dismissal of the claim, defending itself through objection.
Since it was considered that the facts relevant to the decision have sufficient documentary support, the hearing referred to in article 18 of the LRTA was dispensed with.
The date of 18 December 2018 was set for the pronouncement of the final decision.
The Claimant submitted written arguments, pronouncing on the evidence in the file, reiterating and developing its legal positions.
The Respondent chose not to exercise this faculty.
Thus, the Claimant requests that the illegality of the additional VAT assessments identified above, relating to the monthly tax periods of 2015, with the exception of July and October 2015, in the total amount of €1,336,531.90, be declared, with their consequent annulment, as well as the condemnation of the Respondent to pay compensation for the expenses that the Claimant has borne and will bear with the bank guarantee provided in the amount of €1,693,781.71, alleging, in summary, the following:
a) As a preliminary note, the Claimant refers that the issue subject to the present request has been submitted several times to arbitration within the framework of CAAD, by the same taxpayer, discussing the same specific case, only varying the periods of taxation;
b) The Claimant notes that the Inspection Report underlying the previous assessments reproduces verbatim the factual framework and the reasoning found for the assessments now being challenged, and this consideration is important since, to date, all Arbitral Awards produced with respect to this same issue have decided, unanimously, for the annulment of the additional assessments and for the consequent grant of the VAT refund requests submitted by the Claimant;
c) For purposes of framing the issue, the Claimant begins by explaining that its business object is the provision of services for the production of plastic products, marketed by other companies in the multinational group to which it belongs – Group C... – an activity which it has exercised in Portugal for approximately two decades;
d) The Claimant is an autonomous company with its own management, being responsible for the conduct and daily management of its activity, and holds decision-making power with respect to its personnel structure, salary policy, production plan and equipment acquisition;
e) The Claimant was the recipient of the additional VAT assessments identified above relating to the periods of 2015 (except July and October), and these resulted from corrections made by the TA within the scope of actions brought by the Inspection Services of the Finance Directorate of ..., during the course of 2017, which determined the denial of the right to VAT deduction, although, in the period in question (2015), the VAT refund requests submitted by the Claimant had always been granted and paid by the TA;
f) Since it began its activity, the Claimant has adopted the same standard procedure with respect to VAT – and which it maintained in the year in question – deducting the tax borne in imports of goods carried out within the execution of the Manufacturing Services Agreement (document 5 attached to the Complaint for Reconsideration, in the PA) concluded with the company B..., S.A. (hereinafter referred to as B...), a group company based in Switzerland, which, at times, gave rise to VAT credit situations and respective refund requests;
g) The Claimant also deducted, as it had always done, the VAT borne with the transport and customs clearance of the imported goods which it uses in the manufacture of final products, in which consists its principal activity. Indeed, such services are invoiced to B... and subject to VAT, in accordance with legal requirements;
h) Notwithstanding adopting the same procedure repeatedly over 20 years of activity in Portugal, following VAT refund requests made by the Claimant, relating to the monthly periods of 2015 (with the exception of July and October 2015), totalling €1,336,531.90, the Claimant saw its right to deduct that tax summarily suppressed, without the presentation of the slightest justification or support in the VAT Code, and contrary to what was always the understanding of the TA itself;
i) The Project of Corrections thus presents three groups of VAT corrections that would have been – in the TA's thesis – deducted improperly: import, transport and customs clearance of goods, in the amounts respectively of €1,262,983.48, €65,312.54 and €8,235.88;
j) The Claimant recalls that the goods in question are essential to the manufacturing of certain C... products, and without them it would not be possible to carry out the manufacturing tasks necessary to comply with the agreement concluded with B...;
k) Therefore, in an incomprehensible manner, the Claimant found itself confronted with the TA's opposition to the procedure it had always followed with respect to the assessment and deduction of VAT, with the TA alleging, in accordance with the conclusions of the correction projects, that by reason of the ownership of the goods, the Claimant would have allocated them to purposes other than those of its activity. Consequently, the denial of the right to deduction was based on arguments of a purely formal and extralegal nature, resting on a question of "goods ownership" while omitting, however, the reason of knowledge that justified the suppression of that right;
l) Contrary to this thesis, see not only article 20 of the VAT Code (VACC), which makes no reference, express or implicit, to ownership as a requirement for the exercise of the right to deduction, but also the understanding of the VAT Services Directorate (VSD) already called upon to pronounce on the same question and in the exact circumstances of the case under analysis (Memorandum no. 2000), the VAT Directive, namely its article 168, and the jurisprudence of the Court of Justice of the European Union (CJEU), reiterated and established on this matter, e.g. judgment of 29 March 2012, delivered in case no. C-414/10;
m) Referring to the specific situation of the import, the Claimant stresses that the VAT Code, as well as the VAT Directive which informs it, do not require for the tax to be related to a deductible activity, that there be any "acquisition" – much less in the case of the import of goods – which is a taxable fact in itself – independent of any transaction underlying, or not, the import operation;
n) If any doubts exist about the compatibility of article 20 of the VACC, in the TA's interpretation, with the VAT Directive, this should be the subject of a preliminary reference to the CJEU, in accordance with article 267 of the Treaty on the Functioning of the European Union (TFEU);
o) The TA's position, with regard to the (non) deductibility of VAT borne by the Claimant, results not only in an unlawful appropriation of amounts which it is not competent to assess or retain on any legal basis, but also transforms the tax into a true cost of the activity carried out by it, causing unjustified harm to the Claimant and putting in question the neutrality of VAT;
p) Such conduct by the TA contradicts the functioning of the tax as intended by the legislator, as results from the Community basis of the tax and all the jurisprudence established by the CJEU, on the matter of the right to deduct VAT, enshrining the rule of deduction of VAT borne upstream, for business purposes, as a fundamental rule of the functioning of the tax (situations in which the same rule can be set aside should be absolutely exceptional), and violates the principle of proportionality (articles 2 and 266, no. 2 of the Constitution of the Republic – CR);
q) Furthermore, the TA did not present in the correction projects or in the final report, in a clear and congruent manner, the reasons and legal grounds supporting the position adopted, in violation of articles 268, no. 3 of the CR and 77, no. 1 of the General Tax Law (GTL), thereby prejudicing the Claimant's right of defence;
r) In fact, the TA failed to fulfil the duty to justify why the VAT deduction was disregarded in the case under analysis, instead it established an unfounded and unlawful presumption – lack of legal ownership of the imported, transported and customs-cleared goods by the Claimant – to justify alleged non-deductibility of the VAT in question, without explaining what are, in concrete, the factual and legal reasons for so deciding, enabling the Claimant to know such reasons and challenge them, according to the most elementary of defence guarantees, legally and constitutionally protected;
s) Moreover, notwithstanding the Claimant was regularly notified to exercise its right to be heard, which it exercised, this did not warrant any response from the TA, consequently, the Claimant was not truly heard namely with respect to the legal basis for the assessments in question, in clear violation of the provision in article 60 of the GTL;
t) In the case at hand, the TA came to invoke the criterion of "ownership" in circumstances identical to those in which it considered such criterion irrelevant (case underlying Memorandum no. 2000 referred to above), treating, in this way, identical situations differently, in clear violation of the principle of equality – article 13 of the CR – to which administrative authorities are expressly bound (articles 266, no. 2 of the CR and 55 of the GTL);
u) Now, according to the Claimant, all the formal and material requirements that legitimize the right to VAT deduction are met, and it is certain that both in the import of goods, as in transport, as in customs clearance services, the tax borne is in fact directly related to the VAT-taxable activity carried out by the Claimant, namely: the manufacture of final products of the C... brand, in which it uses, as mere components, the imported goods in question in the file;
v) The Claimant concluded, requesting the declaration of illegality of the assessment acts, and consequently annulment, since they suffer from formal defects and violation of law.
For its part, the Respondent came in response, by objection to argue, in summary:
a) All the activity of the Claimant, whether the production of C... brand products or the warehousing of the same and the raw materials necessary to the manufacturing process is carried out under an agreement designated "Manufacturing Services Agreement", concluded with B..., a company based in Switzerland;
b) The Claimant also provides warehousing services to D... Portugal - Lda., and D... Spain S.A.;
c) The Claimant deducted an amount of tax due on the import of goods that are not its property and that are not inputs of its activity since it is a mere service provider (of molding and assembly of the raw materials and production components) to B...;
d) Indeed, according to express admission by the Claimant, its principal client is B..., representing the respective invoicing more than 90% of its business volume;
e) Furthermore, all raw materials and components that incorporate the finished product, and the finished product itself, are the property of B..., bearing the risks inherent to such raw materials, components and finished product exclusively for its account;
f) B... is registered in Portugal for VAT purposes, marketing the said products both in the internal market and in the external market, in the capacity of taxable person of Portuguese tax;
g) Thus, as all imported goods are the property of B..., and are never accounted for by their net amount by the Claimant, the remuneration of the said service provisions does not incorporate the value of the imported goods;
h) There cannot be a deduction of tax borne upstream that is not connected with a taxable transaction downstream;
i) The import of the goods to which the tax in question in the present proceedings refers is connected with the sale of the final product carried out by B... both in the internal market and in the intra-Community market, and not with the operations carried out by the Claimant;
j) Although nothing is required in the VAT Directive with respect to the requirement of ownership of goods, the tax that is associated with the acquisition of the said goods, whether in the external market or in the internal market, must be associated with the amount (taxable value) of the said acquisitions, which is not the case;
k) The mechanism of VAT deductions is provided for in articles 19 to 26 of the VACC and is part of the essence of the tax itself, article 19 stating that, for the calculation of the tax due (self-assessment), taxable persons deduct from the tax incident on the taxable transactions they carried out in a given period, the tax that was invoiced to them on the acquisition of goods and services by other taxable persons, mentioned in invoices or equivalent documents issued in the proper form, in the same period, a situation that should be reflected in the periodic statement referred to in paragraph c), of no. 1 of article 29 of the VACC;
l) In the case at hand, the Claimant is subject to the rules governing the right to deduction provided for in the VACC;
m) The arbitral request should therefore be dismissed, for lack of grounds.
II. PRELIMINARY EXAMINATION
The Arbitral Court is materially competent and was regularly constituted.
The parties have legal capacity and standing, are legitimate and are legally represented (articles 4 and 10, no. 2, of the same diploma and article 1 of Order no. 112-A/2011, of 22 March). The proceedings do not suffer from any nullities.
There are no other circumstances that prevent the determination of the merits of the case.
III. DECISION
1. Factual Matters
1.1. Established Facts
The following facts are considered proved:
a) The Claimant is engaged in the provision of services for the production of plastic products, marketed by other companies of the multinational group to which it belongs, exercising its activity in Portugal for two decades;
b) The Claimant develops its economic activity in five central areas: mainly, the provision of services for the production of plastic products, marketed by other companies of the multinational group to which it belongs – Group C...; residually, the provision of warehousing services, the sale of waste, the sale of packaging and the purchase in its own name, but on behalf of other companies in the group, of transportation services of goods;
c) Specifically, the Claimant develops its activity under a Manufacturing Services Agreement ("Tolling Agreement" – as per doc. no. 5 attached to the complaint for reconsideration), concluded with B..., a group company based in Switzerland, in December 1997;
d) It follows from that Manufacturing Services Agreement, that the Claimant undertakes to manufacture the products in conformity and under the instructions and specifications provided by B..., being bound to respect the quality standards of the brand, through the use of know-how, drawings, standards and other requirements issued by B..., (as per article 2 of the "Tolling Agreement");
e) All raw materials and components that incorporate the final product, all work-in-progress products and final products are the property of B... (as per article 4.1 of the "Tolling Agreement");
f) The agreed value for the provision of manufacturing services by the Claimant corresponds to the costs and expenses incurred, plus a fee equivalent to 15% of its value (as per article 6 of the "Tolling Agreement");
g) The process of production of plastic products begins with the acquisition of raw materials and components, by B..., in its own name, being subsequently imported by the Claimant, in Portugal, which incorporates them in the final products it manufactures for B..., so that the latter can, ultimately, proceed to its sale under the C... brand;
h) With respect to this aspect of the production chain, the Claimant presents itself to Portuguese customs in the capacity of "importer of record", acting on behalf of B..., because the latter does not have any structure of human and technical means that would allow it to carry out imports in Portugal;
i) For that purpose, that is, to proceed to the customs clearance of the raw materials and components referred to, the Claimant contracted, in the specific case, in its own name, the company E... Lda. ("E...") as Official Customs Broker, with the costs of provision of this service being re-invoiced to B...;
j) The Claimant provides warehousing services for products in Portuguese territory to D... España S.A. (hereinafter "D... España") and B..., which include the storage of products produced both by the Claimant and by other companies in the C... Group, and by companies that are not part of it;
k) Likewise, it is under a Warehousing Services Agreement (document no. 6 attached to the complaint for reconsideration, Annex II, 1st part), concluded between the Claimant and B..., in 1997, that the Claimant provides warehousing, handling, truck loading and dispatch document issuance services to B..., with respect to raw materials, components and final products that are the property of B...;
l) All goods used and manufactured throughout the production chain, including raw materials, components, final products and other goods necessary for production, are stored in the Claimant's facilities, whether in ..., or in rented warehouse in ..., ... — with B...'s goods being physically separated from the rest;
m) The value of the warehousing service covers all costs and expenses related to the warehousing services provided under the Warehousing Services Agreement, to which is added a profit margin of 10% on the same (See article 6 of the "Warehousing Services Agreement");
n) In strict connection with the warehousing services provided, the Claimant sometimes proceeds to contract transportation services in its own name, but on behalf of other entities of the group, subsequently re-invoicing them to B...;
o) In the specific case, the transportation of goods, from their origin to the place of unloading in ..., is the responsibility of the respective supplier, with the Claimant being able to contract transportation itself in exceptional situations, with the charge being re-invoiced to B...;
p) The Claimant is covered by the monthly periodicity regime and is a full VAT taxable person, in that it carries out exclusively transactions with the right to VAT deduction;
q) The services invoiced to B... under the Manufacturing Services Agreement correspond to more than 90% of the operations carried out by the Claimant;
r) Following VAT refund requests made by the Claimant relating to the periods of July and October 2015, in the amount of €494,214.00 and €405,190.21, respectively, the TA conducted inspection of such tax periods, supported by Service Orders nos. 012015..., of 10 September 2015, and 012015..., of 11 December 2015;
s) Subsequently, the TA opened new Service Orders, going back in time to the period of the statute of limitations for the right to assess, beginning with the year 2012, proceeding through the years 2013, 2014 and the year 2015, in question in these proceedings;
t) The tax inspection for the year 2015 (except July and October), in question here, was based on the same TA Notice, of which the Claimant was notified within the scope of dispatch no. 012015... – and respective responses - i.e. Notice no. ... of 10-11-2015, which instructed the VAT inspection procedures for July and October 2015;
u) The Tax Inspection Report issued by the Finance Directorate of ..., together with the administrative proceedings, which is fully reproduced herein, is based on the reports of the inspection actions taken with respect to the VAT periods of July and October 2015, varying only in the amounts, (See doc. no. 7 – Inspection Report relating to VAT for July 2015 –, doc. no. 8 – Inspection Report relating to VAT for October 2015 – , and doc. no. 11 Inspection Report relating to VAT for the year 2015 excluding July and October periods – attached to the Complaint for Reconsideration);
v) The Project of Corrections prepared by the Tax Inspection Services of the Finance Directorate of ... concludes with respect to the VAT borne by the Claimant on the import of goods, as follows: "In view of the foregoing, we conclude that the imported goods described in tables I to X, with respect to which A... deducted VAT are goods that are not its property and therefore are not used for the realization of the taxable transactions [sic.] related to the operations of transfers of goods and/or provision of services by the Portuguese entity (A...)" (...) "In this way, it was deducted improperly, the VAT recorded in the documents of import of goods property of B..., during the year of 20144, in the amount of €1,262,983.48." (See Annex II, Complaint for Reconsideration, of the Corrections Project together as doc. no. 11);
w) With respect to the transportation services acquired by the Claimant in the same scope of activity, the Project of Corrections concludes as follows: "In view of the foregoing, we conclude that SP improperly deducted VAT relating to the transport of imported goods that are the property of B..., which are described in the previous point. Accordingly, they are not intended for the realization of transfers of goods and provision of services subject to Tax and not exempted, in accordance with paragraph a) no. 1 of article 20 of the VAT Code." (...) "In sum, with respect to the provision of services described above [transportation] VAT was improperly deducted in the total amount of €65,312.54" — (See Corrections Project cited, p. 44);
x) With respect to the customs broker services, the Project of Corrections concludes as follows: "With respect to the provision of services described above [customs broker] VAT was improperly deducted in the total amount of €8,235.88." (See Corrections Project cited, p. 52);
y) Notified of the correction projects relating to the year 2015, the Claimant exercised the respective Right to be Heard, manifesting its disagreement with the TA (See exercise of Right to be Heard attached to the Final Inspection Report together as doc. no. 12 to the Complaint for Reconsideration — Annex II);
z) The Claimant was notified of the final report in the sense of the dismissal of the respective Right to be Heard and consequent maintenance of the indicated corrections, concluding that VAT is not deductible in the amounts of €1,262,983.48 with reference to VAT borne on the import of goods under the Manufacturing Services Agreement, €65,312.54 relating to VAT borne on its transportation and €8,235.88 relating to VAT borne on the provision of customs broker services (See Annex II, Complaint for Reconsideration, Final Inspection Report therein together as doc. no. 12);
aa) The Claimant was subject to additional VAT assessments relating to the monthly periods of January through June, August and September and November and December of the year 2015, identified under the numbers 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017... and 2017..., accompanied by account reconciliation statements indicating the deadline for payment of the VAT assessed by the TA;
bb) The Claimant did not proceed to any payment of the VAT assessed by the TA with respect to the periods in question in the year 2015 (€131,532.32, €101,164.42, €125,622.10, €69,579.38, €243,858.69, €124,566.81, €97,734.22, €170,256.77, €144,001.18 and €128,216.01, totalling), making a total amount of €1,336,531.90;
cc) Upon expiration of the payment period set, 10 tax execution proceedings were instituted against it under nos. ...2017..., ...2017..., ...2017..., ...2017..., ...2017..., ...2017..., ...2017..., ...2017..., ...2017... and ...2017..., intended for the coercive collection of the assessed amounts;
dd) On 20-10-2017, the Claimant provided a bank guarantee that was required of it, in the amount of €1,693,781.71 to suspend the referred tax executions (See doc. no. 14 attached to the Complaint for Reconsideration, whose contents are reproduced);
ee) On 10-11-2017, with reference to the said additional VAT assessments, the Claimant submitted a Complaint for Reconsideration from the proceedings, which was subject to dismissal, (See Draft of Dismissal of Complaint for Reconsideration together as doc. no. 5 attached, exercise of right to be heard together as Annex VI and final dismissal already together as Annex I);
ff) On 12-06-2018, the request for constitution of an Arbitral Court was received.
1.2. Unproven Facts
Among those alleged, relevant to the decision, none was left unproven.
1.3. Reasoning of the Factual Matters
With respect to the factual matters, the Court does not have to pronounce on everything that was alleged by the parties; rather, it has the duty to select the facts that matter for the decision and to distinguish the established facts from the unproven facts (articles 123, no. 2, of the Code of Tax Procedure and Process – CTPP – and 607, no. 3 of the Code of Civil Procedure – CCP –, applicable by virtue of article 29, no. 1, paragraphs a) and e) of the LRTA).
Thus, the facts pertinent to the judgment of the case are chosen and delimited in function of their legal relevance, which is established having regard to the various plausible solutions of the question(s) of law (see former article 511, no. 1, of the CCP, corresponding to current article 596, applicable by virtue of article 29, no. 1, paragraph e), of the LRTA).
Thus, having regard to the positions assumed by the parties, in light of article 10, no. 7 of the CTPP, the documentary evidence and the administrative proceedings joined to the file, the facts listed above were considered proved, with relevance for the decision, taking into account that, as was written in the ruling of the South Tax Court of 26-06-2014, delivered in case 07148/131, "the evidential value of the tax inspection report (...) may have probative force if the assertions contained therein are not challenged".
In particular, the facts established above identified in paragraphs c) to z) took into account the statements of the parties as well as documents submitted by the Claimant, and the Tax Inspection Report. The remaining facts result from the documentation in the PA, it being considered that the facts listed do not have a controversial nature, with the main matter under discussion being limited to a essential legal question: to determine whether or not there is illegality in the tax acts now under review by alleged disregard of the right to VAT deduction borne in 2015 (except July and October) with the operations of import, customs clearance and transportation of goods used by the Claimant for its activity of manufacturing products for marketing under the "C..." brand.
2. Law
The only issue in this case comes down to analyzing whether it is possible to exercise the right to deduction, with respect to goods that are not the property of the taxable person.
This issue will be examined:
In accordance with article 1, no. 1, paragraph b), of the VACC and article 2, no. 1, paragraph d) of the VAT Directive, imports of goods are subject to this tax.
Article 2, no. 1, paragraph a) of the VAT Code states: "Taxable persons are (…) Natural or legal persons who, in an independent manner and on a habitual basis, carry out activities of production, commerce or provision of services, including extractive activities, agricultural activities and those of liberal professions, and, as well, those who, in the same independent manner, practice a single taxable transaction, provided that such transaction is connected with the exercise of the referred activities, wherever it occurs, or when, regardless of such connection, such transaction meets the prerequisites of the real incidence of income tax on natural persons (PIT) or income tax on legal persons (CIT)".
Article 2, no. 1, paragraph b) of the same article also states: "Taxable persons are (…) Natural or legal persons who, according to customs legislation, carry out imports of goods".
Similarly, article 201 of the VAT Directive states: "For imports, VAT is due by the person or persons designated or recognized as debtors by the Member State of import."
It follows, therefore, that, from the face of the law, the subject importing goods is always considered a VAT taxable person, in accordance with article 2, no. 1, paragraph b), of the VACC, even if he already has that status, in accordance with paragraph a) of the same article.
In accordance with article 5, no. 1, of the VACC:
"Import shall be understood as the entry into national territory of:
a) Goods originating from or coming from third countries and which are not in free circulation or which have been placed in free circulation under customs union agreements;
b) Goods coming from third countries and which are in free circulation."
Also referring to article 30 of the VAT Directive:
"'Import of goods' shall mean the introduction into the Community of a good which is not in free circulation within the meaning of article 24 of the Treaty.
Beyond the operation referred to in the first paragraph, the introduction into the Community of a good in free circulation coming from a third country which is part of the customs territory of the Community shall be considered as an import of goods."
In accordance with article 7, no. 1, paragraph c) of the VACC: "Without prejudice to the provisions of the following numbers, tax is due and becomes due (…) For imports, at the moment determined by the provisions applicable to customs duties, whether or not such duties or other Community impositions established under a common policy are due."
And, in accordance with article 71, no. 1 of the VAT Directive:
"When a good is covered, from its introduction into the territory of the Community, by one of the regimes or situations provided for in articles 156, 276 and 277, or by a regime of temporary import with total exemption from import duties or by an external transit regime, the chargeable event and the time when the tax becomes due shall occur only when the good ceases to be covered by those regimes or situations.
However, when imported goods are subject to customs duties, agricultural levies or charges of equivalent effect, established under a common policy, the chargeable event occurs and the tax becomes due at the moment when the chargeable event and the time when such duties become due occur."
In accordance with article 4, no. 12 of the Community Customs Code, "debtor" means "any person responsible for payment of a customs debt."
The same understanding is enshrined in the Customs Code of the Union (article 5, 19)).
In accordance with article 201, no. 3 of the Community Customs Code, "The debtor is the declarant. In case of indirect representation, the person for whose account the customs declaration is made is also considered debtor."
Article 20, no. 1, paragraph a) of the VACC states: "VAT that has been borne on goods or services acquired, imported or used by the taxable person may be deducted only for the realization of the following transactions: a) Transfers of goods and provision of services subject to tax and not exempted".
In accordance with article 19, no. 1, paragraph b) of the VACC, "For the calculation of the tax due, taxable persons deduct, in accordance with the following articles, from the tax incident on the taxable transactions they carried out: (…) b) The tax due by the import of goods"
In the specific case, only the fact that the Claimant is not the owner of the transported goods is at issue.
Now, as stated by XAVIER DE BASTO and ODETE OLIVEIRA, in an opinion attached to the proceedings of arbitral case no. 410/2016-T, and cited in that ruling: "In the situation under analysis, the specificity is only that the delivery of materials by the owner of the work to the processor (contractor) does not occur directly in national territory, rather arriving at the latter after crossing the territorial borders of Portugal and also of the Customs Union. And this presents various consequences, which we must analyze in order to conclude well.
First, that of an import occurring, which the VACC defines as a taxable transaction in face of the application of the principle of destination in international commerce to which the tax is subject, and whose definition is made by national tax legislation in conjunction with the Customs Code (a Community Regulation).
The second consequence is that the entity considered as importer – taxable person in the import – is the one defined by customs legislation by reference made in paragraph b) of no. 1 of article 2 of the VACC, which considers as the importer the person who appears as recipient in the import document, in that article 4, no. 18 of the Community Customs Code (CCC) considers as "declarant" the person who makes the customs declaration in his name or the person for whose account the declaration is made, and article 201, no. 3, 1st paragraph of the CCC says that the debtor is the declarant.
Recall in this regard that although the VAT Directive considers that import VAT can be paid by a taxable person or by a mere debtor (article 21, no. 2 of the Sixth Directive), the Portuguese legislator did not adopt the same solution, rather always considering the importer as a taxable person, sometimes only with the nature of "debtor" of the tax for application of the principle of destination (paragraph b) of no. 1 of article 2 of the VACC), since in the rest, that importer, if taxable person, is already covered by paragraph a) of the same number and article. Note that, moreover, according to constant jurisprudence of the CJEU, "VAT on imports and customs duties present essential comparable features in that they give rise to the chargeable event of import into the EU and the consecutive introduction of goods into the economic circuit of Member States. This parallelism is confirmed by the fact that article 71, paragraph 1, second subparagraph of the VAT Directive authorizes the MS to link the chargeable event and the time when VAT becomes due on imports to the chargeable event and the time when customs duties become due" [This is the doctrine of Judgment C-273/12, of 11 July 2013, no. 41, and reference therein made to Judgments C-343/89, of 6 November 1990, no. 18 and C-230/08, of 29 April 2010, nos. 90 and 91: "in this regard, it should be recalled that VAT on imports and customs duties present essential comparable characteristics, the chargeable event of which is the import into the Union and the subsequent entry of the merchandise into the economic circuit of the Member States. This parallelism is, moreover, confirmed by the fact that article 71, no. 1, second paragraph of the VAT Directive authorizes Member States to link the chargeable event and the time when VAT becomes due on imports to customs duties (see, in particular, judgments of 6 December 1990, Witzemann, C-343/89, Coll., p. I-4477, no. 18, and of 29 April 2010, Dansk Transport og Logistik, C-230/08, Coll., p. I-3799, nos. 90 and 91).
It should therefore be concluded that the MS have no room for maneuver with respect to the requirement of import VAT in accordance with customs legislation, in accordance with article 204 of Regulation no. 2913/92, and it being certain, as recalled in the conclusions of Advocate General Juliane Kokott, in Case C-414/10, that "This is the doctrine of Judgment C-273/12, of 11 July 2013, no. 41, and reference therein made to Judgments C-343/89, of 6 November 1990, no. 18 and C-230/08, of 29 April 2010, nos. 90 and 91: "in this regard, it should be recalled that VAT on imports and customs duties present essential comparable characteristics, the chargeable event of which is the import into the Union and the subsequent entry of the merchandise into the economic circuit of the Member States. This parallelism is, moreover, confirmed by the fact that article 71, no. 1, second paragraph of the VAT Directive authorizes Member States to link the chargeable event and the time when VAT becomes due on imports to customs duties (see, in particular, judgments of 6 December 1990, Witzemann, C-343/89, Coll., p. I-4477, no. 18, and of 29 April 2010, Dansk Transport og Logistik, C-230/08, Coll., p. I-3799, nos. 90 and 91)" and that if "the right to deduction aims to ensure that value added tax remains economically neutral for enterprises, the deduction of VAT borne upstream cannot be denied, unless we are faced with issues of fraud, evasion or abuse, the fight against which is a recognized and encouraged objective by the Sixth Directive, and there should be no margin for abusive or fraudulently being able to take advantage of the right of the Union, and as such, if a Tax Administration verifies that the right to deduction was exercised fraudulently, it can request, with retroactive effects, the restitution of the deducted amounts and it is up to the national judge to refuse the benefit of the right to deduction if it is proven, with objective elements, that this right is invoked fraudulently.
In the situation at hand, this issue does not arise, and it must be acknowledged however, and as results from point 45 of the same Advocate General's Conclusions, in the same case, that "With respect to the collection of value added tax on imports, however, it is not discernible why in this case there would be, in general, a greater risk of fraud that would make it necessary to make the right to deduction dependent, in any case, on prior payment of value added tax on imports" and, further on, "Also the proof of import which, under article 18, no. 1, paragraph b) of the Directive, the taxable person must present in order to be able to deduct the VAT paid upstream and which indicates him as debtor of the value added tax and at least allows the calculation of the amount of VAT due, reduces the possibility of fraud", position recognized in the Judgment in points 30 and 33, with point 34 acknowledging that " Indeed, the import of a good constitutes a physical act that is certified and verifiable by the competent Administration, due to the presence of the referred good in customs" and that " the circumstance that the debtor of VAT on imports is also the holder of the right to deduct that VAT also does not appear to increase the risk of fraud or abuse in relation to VAT.
On the contrary, as the European Commission alleged, the circumstance that one and the same person is, at the same time, debtor of VAT and holder of the right to deduction brings this situation closer to that which presents itself within the framework of the VAT self-assessment regime provided by the Sixth Directive."
The same understanding has been followed by this Court, in the arbitral decisions delivered in cases nos. 548/2017-T and 15-2018-T.
It cannot therefore be understood that the fact that the Claimant is not the owner of the imported goods obstructs the deduction of the tax, since the goods were imported for the purposes of the taxable transactions of the Claimant and without that import the Claimant could not exercise its activity.
It is therefore verified that the requirements for the exercise of the right to deduction are met.
With respect to the provision of the guarantee by the Claimant, article 53 of the General Tax Law states the following:
"1. The debtor who, to suspend execution, offers bank guarantee or equivalent shall be indemnified in full or in part for the damages resulting from its provision, if he has maintained it for a period longer than three years in proportion to the outcome in administrative appeal, challenge or objection to execution that have the debt guaranteed as its subject.
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The period referred to in the previous number does not apply when it is verified, in complaint for reconsideration or judicial challenge, that there was error attributable to the services in the assessment of the tax.
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The indemnity referred to in no. 1 has as its maximum limit the amount resulting from the application to the guaranteed value of the rate of indemnificatory interest provided for in this law and may be requested in the complaint for reconsideration itself or judicial challenge, or autonomously.
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Indemnity for provision of undue guarantee shall be paid by abating it against the revenue of the tax of the year in which payment was made."
Article 171 of the Code of Tax Procedure and Process states:
"1 - Indemnity in case of bank guarantee or equivalent unduly provided shall be requested in the proceedings in which the legality of the debt to be executed is contested.
2 - The indemnity should be requested in the complaint for reconsideration, challenge or appeal or if its basis is subsequent, within 30 days after its occurrence."
It is, therefore, in the proceedings of this arbitral case that the request for indemnity for undue guarantee should be considered."
In the specific case, the Claimant clearly has the right to indemnity for the guarantee provided, since the errors that existed resulted from corrections made by the Respondent, and they are attributable to it.
Since it is not possible to determine the amount of indemnity, the condemnation should be made through what is liquidated in execution of this arbitral decision, in accordance with article 609, no. 2 of the NCPC, applicable by virtue of article 29, no. 1, paragraph e) of the LRTA.
3. Decision
In these terms, the arbitrators in this Arbitral Court agree:
a) To grant the request for arbitral pronouncement;
b) To annul the VAT assessments relating to the monthly tax periods of the year 2015 – with the exception of July and October – carried out under nos. 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., which total €1,336,531.90;
c) To grant the request for condemnation of the Respondent to pay to the Claimant the indemnity that shall be liquidated in execution of this arbitral decision for the guarantee provided to suspend the tax executions instituted for the coercive collection of the assessed amounts.
4. Value of the Case
In accordance with the provisions of articles 306, no. 2, of the CCP and 97-A, no. 1, paragraph a), of the CTPP and 3, no. 2, of the Regulation on Costs in Tax Arbitration Proceedings, the value of the case is fixed at €1,336,531.90.
5. Court Costs
Pursuant to article 22, no. 4, of the LRTA, the amount of costs is fixed at €18,054.00, in accordance with Table I attached to the Regulation on Costs in Tax Arbitration Proceedings, charged to the Tax and Customs Authority.
• Let it be notified.
Lisbon and CAAD, 11 December 2018
The Collective Arbitral Court
José Poças Falcão
Filipa Barros
Luís Menezes Leitão
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