VAT Deduction on Lawyer Invoices: CAAD Referral to CJEU on Invoice Formalities (Case 3/2014-T)

ARBITRATION AWARD

I. REPORT

A…, S.A., with the unique registration and legal entity identification number … and registered address at Avenue …, no. …, …, …-… Lisbon, within the territorial jurisdiction of the Tax Office of Lisbon…, hereinafter the "Claimant", requested the establishment of an Arbitral Tribunal, under the provisions of Articles 2(1)(a) and 10 of the Legal Framework for Tax Arbitration ("RJAT"), approved by Decree-Law No. 10/2011, of 20 January.

The request for arbitral ruling was submitted following the dismissal order of the Grace Appeal filed against the additional VAT assessments and corresponding compensatory interest, in the total amount of €9,931.02 (€8,689.49 in VAT and €1,241.53 in interest), detailed in the table below, and concerns the illegality and consequent annulment of these tax acts:

The Claimant further petitions for reimbursement of the amount paid in relation to these assessment acts, plus compensatory interest, under Article 43(1) of the General Tax Law ("LGT").

In accordance with Article 6(1) of the RJAT, the Deontological Council of the Arbitration Centre appointed Alexandra Coelho Martins as sole arbitrator, and the Arbitral Tribunal was constituted on 4 March 2014.

The Claimant bases its claims on the following grounds, in summary:

(a) The invoices issued by its lawyers, the right to deduct which was denied for formal reasons, contain all indispensable elements, including the usual designation of the services rendered with specification of the elements necessary to determine the applicable rate, having therefore not incurred any breach of Article 36(5)(b) of the VAT Code;

(b) The use of the description contained in these invoices "legal services rendered" is sufficient and conforms with the understanding of the case law of the Central Administrative Court – South ("TCA Sul"), the Supreme Administrative Court ("STA") and the content of the mandatory particulars provided in Article 226(6) of Directive 2006/112/EC of the Council, of 28 November 2006[1] ("VAT Directive"), and therefore nothing more can be required of it, in accordance with said community directive;

(c) If, ad cautelem, it were admitted that doubts persisted, it would always be possible to clarify them using documents annexed to the invoices that the Claimant presented during the tax procedure;

(d) Finally, considering that only the standard rate of VAT applies to the legal services in question, there is no reason for more detailed specification of the services rendered.

It concludes that the request is well-founded and the additional VAT and compensatory interest assessments are illegal, requesting reimbursement of the amount unduly paid, plus the respective compensatory interest.

Six documents were attached to the petition, and no witnesses were called.

The Tax and Customs Authority presented a response in which it argues that:

(i) The four invoices for which VAT deduction was not accepted do not meet the requirements mentioned in Article 36(5)(b) of the VAT Code, since:

§ the mere reference to "legal services" is insufficient to specify and quantify the operations performed and amounts to "saying nothing";

§ two invoices refer to partially overlapping time periods; and

§ a third invoice does not indicate the date when the service provision commenced;

(ii) The case law of the STA[2] considers that we are dealing with formalities "ad substantiam" and the TCA Sul[3] concludes that the mere reference to "service provision" does not satisfy the requirements of Article 36[4] of the VAT Code, and therefore such invoices cannot give rise to deduction rights, as they have not been issued in legal form;

(iii) The fact that the Claimant supplemented the contents of the invoices in the course of the inspection procedure cannot be considered, as the essential requirements must be contained in the invoices themselves and not in annexes thereto and cannot be replaced by another means of proof;

(iv) The control to be exercised by the Tax and Customs Authority is not limited solely to the applicable rate but also to the assessment of the specific goods and services. For this reason, the description of services should indicate how many contracts were drawn up, how many meetings were held, contacts made, in short exact references to the service actually provided without compromising the confidentiality duties to which lawyers are bound;

(v) The data from the lawyers' fee account provided for in Article 5 of the Regulation of Lawyers' Fee Awards (Regulation No. 40/2005, of 29 April 2005, of the Bar Association, published in the Official Gazette, II Series, No. 98, of 20 May 2005) must be included in the invoice, and it is essential that one document accompanies the other, or alternatively, that the invoice itself contain, from the outset, all the data contained in the fee account, with the exception of professional secrecy;

(vi) The interpretation defended by the Claimant violates the principles of Universality and Equality, contained in Articles 12 and 13, combined with Articles 103 and 104, all of the Constitution of the Portuguese Republic ("CRP"), as it would prevent the State from exercising its functions of tax control and collection, putting the functioning of the tax system and satisfaction of the State's financial needs at risk;

(vii) The Claimant has no entitlement to compensatory interest as there is no error on the part of the services.

It concludes that the action should be judged dismissed.

The administrative file was attached to these proceedings, and notice thereof was given to the Claimant.

On 13 October 2014, given the absence of exceptions raised and given the fact that the Arbitral Tribunal had the probative elements for the legal decision, the meeting referred to in Article 18 of the RJAT was dispensed with, and due to the course of the proceedings and the interposition of various judicial holiday periods, with the consequent suspension of procedural deadlines, the deadline for issuing the decision was extended by two months, being fixed at 4 November 2014, under Article 21(2) of the RJAT.

The Tax and Customs Authority raised the nullity of the extension order, understanding that the suspension of procedural deadlines was not applicable, requesting the extinction of the Arbitral Tribunal, which was dismissed by reasoned order of 17 October 2014.

On 3 November 2014, the proceedings were suspended pending the preliminary ruling decision from the Court of Justice of the European Union ("CJEU"), whose judgment (case C-516/14), dated 15 September 2016, was notified to this tribunal on 3 October 2016.

With a view to complying with point 34 of the CJEU's judgment, the examination was reopened for the Claimant to attach to the file the documents annexed to the invoices that had been provided to the Tax and Customs Authority in the course of the tax procedure.

On 11 November 2016, the Respondent was given time to comment on the documents meanwhile attached by the Claimant and the deadline for decision was, for a second time, extended, in accordance with Article 21(2) of the RJAT.

On 18 November 2016, the Respondent commented on the documents annexed to the invoices, noting that:

• The date of the end of the service provision is not included in the invoices, so it is presumed that the end of the services relates to the date of issue of the invoice;

• With respect to a portion of the expenses re-invoiced, supporting documents were not exhibited, so these do not total the amounts of expenses;

• Two invoices (nos. …/2008, of 26.08.2008, and …, of 17.12.2008) relate to a period of 87 days that overlaps;

• Invoice no. …, of 29.04.2009[5] does not contain in the description any mention of the date on which the service provision commenced;

• Invoice no. …, of 02.07.2010, is dated 02.06.2010, that is, one month before the issuance of the invoice, refers to documents whose numbering and date do not allow their relation to the invoice in question and are not accompanied by any supporting document of the expense incurred.

II. PRELIMINARY MATTER

The Tribunal was properly constituted and is competent ratione materiae, in accordance with Article 2 of the RJAT.

The parties have legal personality and capacity, appear to be legitimate and are properly represented (see Articles 4 and 10(2) of the RJAT and Article 1 of Administrative Order No. 112-A/2011, of 22 March).

The cumulation of claims is admitted, as the merit of these depends essentially on the assessment of the same factual circumstances and the interpretation and application of the same principles or legal rules, in this case the regime of the right to VAT deduction and its formal requirements (see Article 3(1) of the RJAT).

III. QUESTIONS FOR DECISION AND PRELIMINARY REFERENCE TO THE COURT OF JUSTICE OF THE EUROPEAN UNION ("CJEU")

The dispute in this action concerns the required content of the invoice description, in the face of formal requirements listed in the VAT Code (see Article 36(5)(b)), and the consequent satisfaction of the conditions for the right to deduction, provided for in Article 19(2)(a) and (6) of the same Code.

According to Article 36(5)(b) of the VAT Code, it is indispensable that invoices contain the "usual designation of goods supplied or services rendered, with specification of the elements necessary to determine the applicable rate". Article 19(2)(a) and (6) of the VAT Code determines that only the tax mentioned in "invoices issued in legal form" gives rise to the right to deduction, considering as such those containing the elements provided for in that Article 36.

Both rules derive from the community regime of VAT and originate in Directive 2006/112/EC[6] referred to above, which is why it is necessary, first and foremost, to assess whether the invoices issued by the Claimant's lawyers with the description "legal services rendered" comply with the formal requirements demanded by VAT legislation, in an interpretation consistent with the community directive on this tax, which governs, with imperative character, the content of invoices, fixing it in Article 226.[7]

In effect, Article 226 of the VAT Directive sets out "the only particulars which must compulsorily appear, for VAT purposes, on invoices issued" and includes among these "the extent and nature of services supplied" (see para. 6). Paragraph 7 of this article likewise requires that the invoice make reference to the date when the service was carried out or completed, "to the extent that that date is determined and is different from the date of issue of the invoice".

In the present case, it is necessary to assess whether the following descriptions in the invoices issued by the Claimant's lawyers comply with minimum requirements relating to the nature and extent of services rendered: "Legal services rendered between 1 December 2007 to the present date"; "Fees for legal services rendered between June and to the present date"; "Fees for legal services rendered to the present date"; and "Fees for legal services rendered between 1 November 2009 and the present date".

If it is concluded that such descriptions are insufficient, the question that arises is whether this necessarily limits the Claimant's right to deduct VAT incurred, having regard to Article 178(a) of the VAT Directive.

As this tribunal harboured doubts regarding the degree of requirement and detail of the particulars that must appear in invoices relating to the provision of legal services and their respective consequences regarding the right to deduct the tax incurred, in light of community law, it decided to suspend the proceedings and make a preliminary reference to the CJEU, in accordance with Article 267 of the Treaty on the Functioning of the European Union.

For this purpose, this tribunal sought the pronouncement of that European Court on the following question:

"Does the correct interpretation of Article 226(6) of the VAT Directive allow the Tax and Customs Authority to consider insufficient the description of an invoice containing the mention 'legal services rendered from a given date to the present' or only 'legal services rendered to the present', bearing in mind that this Authority may, under the principle of cooperation, obtain the complementary information elements that it considers necessary to confirm the existence and detailed characteristics of the operations?"

Following this reference, the CJEU delivered the Judgment of 15.09.2016, case no. C-516/14, concluding that:

"Article 226 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that invoices which only contain the mention 'legal services rendered from a given date to the present', such as those at issue in the main proceedings, do not, in principle, respect the requirements laid down in paragraph 6 of that article and that invoices which only contain the mention 'legal services rendered to the present' do not, in principle, respect the requirements laid down in that paragraph 6 nor the requirements laid down in paragraph 7 of that article, which, however, remains for the referring court to verify.

Article 178(a) of Directive 2006/112 must be interpreted as meaning that it precludes national tax authorities from refusing the right to deduct value added tax on the sole ground that the taxable person possesses an invoice which does not comply with the requirements laid down in Article 226, paragraphs 6 and 7, of that directive, when those authorities have at their disposal all the information needed to verify whether the substantive requirements relating to the exercise of that right are satisfied."

IV. REASONING

1. FINDINGS OF FACT

a) Facts Established

The following facts are material to the decision:

A. A…, S.A., the Claimant herein, is a VAT taxable person registered since 13 November 2006, falling under the normal regime with monthly periodicity, and carries on the business activity of "Hotels with Restaurant" corresponding to CAE … – see Tax Inspection Report ("RIT"), contained in the administrative file ("PA").

B. Between the years 2008 and 2010, the Claimant acquired legal services from a law firm and, in that context, received four invoices, relative to which it exercised the right to deduct the VAT mentioned therein – see RIT contained in the PA.

C. The four invoices in question contain the following descriptions and elements:

(i) Invoice no. …/2008, of 26.08.2008

(ii) Invoice no. …, of 17.12.2008

"Fees for legal services rendered 12,000.00
between June and to the present date.
Supplies relating to office materials. 86.67
TOTAL…… 12,086.67
20% VAT 2,417.33
TOTAL …. 14,504.00"

(iii) Invoice no. …, of 29.04.2009

"Fees for legal services rendered 5,512.50
to the present date.
____________________
TOTAL…… 5,512.50
20% VAT 1,102.50
TOTAL INVOICE: 6,615.00

Expenses incurred, on behalf and for the account of the client,
as per supporting documents enclosed. VAT Not Subject para.c) no.6, art.16 10,133.09

Provision received for expenses to be incurred, on behalf and
for the account of the client 10,133.09-

                                          TOTAL PAYABLE            6,615.00"

(iv) Invoice no. …, of 02.06.2010

"Fees for legal services rendered between 1 November 2009
and the present date. 3,795.00
____________________
TOTAL…… 3,795.00
20% VAT 759.00
TOTAL INVOICE: 4,554.00

Expenses incurred, on behalf and for the account of the client,
as per supporting documents enclosed. VAT Not Subject para.c) no.6, art.16 300.00

Provision received for expenses to be incurred, on behalf and
for the account of the client 300.00-

                                          TOTAL PAYABLE            4,554.00"

– see copies of the invoices contained in the annexes to the RIT and the PA.

D. Following a reimbursement request by the Claimant, with reference to the period of December 2011, internal inspection procedures of partial scope were opened, covering the years 2008 to 2011, and VAT corrections were proposed in the amount of €8,689.49, on the ground of undue deduction of this tax, relating to the years 2008, 2009 and 2010, due to insufficiency of the description of the four invoices identified above, issued by the Claimant's lawyers – see RIT contained in the PA.

E. The Claimant was notified to exercise the right of prior hearing, in the context of which it presented the following documents containing more detailed discrimination of the services rendered referring to the four invoices whose VAT deduction was questioned:

(a) Annex 1 – 10 pages – relating to invoice no. …/2008, of 26.08.2008;

(b) Annex 2 – 4 pages – concerning invoice no. …, of 17.12.2008;

(c) Annex 3 – 14 pages – concerning invoice no. …, of 29.04.2009; and

(d) Annex 4 – 6 pages – relating to invoice no. …, of 02.06.2010 (see RIT contained in the PA).

F. Annex 1, relating to invoice no. …/2008, of 26.08.2008, contains the following description:

"Services rendered between 1 December 2007 and 20 May 2008

Work Carried Out

• Monitoring of the execution of A…'s obligations under the promise of sale contract ("CPCV"), concerning the properties situated at Avenue …, nos. … and …(in particular, as regards the deadlines for executing the public deed of sale);

• Meeting of the Municipal Council of … ("CM…"), on 14 February, with B…, C… and Architect D…, on the status of the prior information request ("PIP") for the construction of the Hotel on the properties situated at Avenue …, nos. … and …;

• Drafting of the draft of the 2nd Amendment to the CPCV concerning the properties situated at Avenue …, nos. … and …, for extension of deadlines;

• Drafting of a letter to be sent by A… to E… communicating the option to execute the public deed of sale concerning the properties situated at Avenue …, nos. … and …;

• Analysis of the contract for provision of architectural services entered into between A… and Architect D… with a view to defining the terms for its termination;

• Study and analysis of possible ways to overcome discrepancies in areas (between land registry and tax authority registry) concerning property no. … situated at Avenue …;

• Analysis of the descriptive report concerning the application for subdivision licensing of the properties situated at Avenue …, nos. … and …, submitted by E… to CM…;

• Calculation of the property value to be attributed to the properties situated at Avenue …, nos. … and…, for purposes of defining their acquisition value;

• Drafting of the contract for provision of architectural services between A… and F… (Architect G…);

• Meeting with Architect G…, on 16 April, concerning the contract for provision of architectural services;

• Drafting and presentation of the application for provisional registration of acquisition concerning the properties situated at Avenue …, nos. … and…;

• Preparation of means of payment for execution of the public deed of sale (in particular, bills of exchange and promissory notes);

• Translation into Portuguese and certification of the Minutes of the General Meeting and the Commercial Certificate of H…, S.L.;

• Meeting at CM…, on 13 May, with B… and Architect G…, regarding the project for the construction of the Hotel on the properties situated at Avenue …, nos. … and ..;

• Preparation and monitoring of execution of the public deed of sale of the properties situated at Avenue …, nos. …and …:

• Visits to the Land Registry Office of Lisbon, to the Tax Office of Lisbon and to the Notarial Office;

• Drafting of various emails and holding of various telephone conferences on the matters referred to above. "

– see Documentation attached by the Claimant.

G. Additionally, Annex 1 to invoice no. …/2008 contains the following expense documents:

H. Annex 2, relating to invoice no. …, of 17.12.2008, contains the following description:

"Summary of services rendered between 1 June and 30 November 2008

A…, S.A.

Real Estate

• Study and analysis of the various possibilities available to A… for the granting of a power of attorney in favour of B…– in Portugal or abroad, in particular at the Portuguese Consulate in Barcelona;

• Drafting of a draft minute of the Board of Directors meeting of A… to resolve on the delegation of powers to B…, to represent and bind A… in all acts of its ordinary management;

• Drafting of a draft power of attorney to delegate powers to B…, to represent and bind A… in all acts of its ordinary management;

• Drafting and submission, with the Tax Office of Lisbon, of the application for registration of new owner, as to the properties situated at Av. … nos. … and…, following execution of the public deed of sale of the same;

• Coordination of the matter relating to the accident that occurred at the property situated at Av. … no…, following the fall of a stone from the facade onto a parked motor vehicle on the public way (meetings with the owner of the damaged vehicle and with Bank I…, with a view to issuing a cheque for compensation for damages caused);

• Coordination of the matter relating to the affixing of a fence at the property situated at Av. … no. … (various telephone conferences with Mr. J…);

• Various visits and meetings with the Municipal Council of …, the Tax Office of Lisbon and the Land Registry Office of Lisbon, with a view to preparing the procedure for annexation of the properties situated at Av. … nos. … and …;

• Drafting and submission, with the Tax Office of Lisbon, of Form 1 for property tax relating to the annexation of the properties situated at Av. … nos. … and…;

• Drafting and submission, with the Land Registry Office of Lisbon, of the application for registration of annexation of the properties situated at Av. … nos. … and…;

• Coordination with Architect G… on the question of total areas of the properties situated at Av. … nos. … and…, resulting from the annexation procedure (for registration and municipal licensing purposes);

• Drafting and submission of the application for registration of change of Applicant concerning the application for subdivision (case no. …/URB/…), with the Municipal Council of…;

• Drafting and submission of the application for withdrawal of the application for subdivision (case no. …/URB/…), with the Municipal Council of…;

• Drafting and submission of the application for withdrawal of the application for prior information – PIP (case no. …/EDI/…), with the Municipal Council of … .

• Analysis of the contract entered into between A… and "K…, Lda." as to the possibilities and consequences of its termination;

• Drafting of various emails and holding of various telephone conferences with L… and B… on the matters referred to above.

Corporate

• Drafting of a minute of the general assembly to approve the accounts for the fiscal year ended on 31 December 2007;

• Drafting of supporting emails to the process of approval of accounts;

• Drafting of a minute of the general assembly to approve the increase in share capital by new cash contributions and subsequent statutory amendment, drafting of updated bylaws and respective representation letter. Telephone conferences and sending of supporting emails to the process of the capital increase;

• Drafting of information on the increase in share capital through contributions in kind and their respective implications;

• Drafting of a minute of the general assembly to approve the increase in share capital through contributions in kind and new cash contributions and subsequent statutory amendment, drafting of updated bylaws and respective representation letter. Drafting of the statement of the governing body on the execution of cash contributions. Telephone conferences and sending of supporting emails to the process of the capital increase;

• Drafting of a minute of the general assembly relating to the realization of part of the share capital in the amount of Euros 1,000,000.00. Drafting of the statement of the governing body on the execution of cash contributions.

TOTAL € 12,000.00

– see Documentation attached by the Claimant.

I. Annex 3, relating to invoice no. …, of 29.04.2009, contains the following description:

"Summary of services rendered between 1 December 2008 and 15 April 2009

A…, S.A.

Real Estate

• Analysis of assessment notices sent by the Tax Office (Treasury), concerning the building at Avenue … nos. …-…, as a result of the annexation procedure carried out;

• Drafting of email to A… on the content of the assessment notices concerning the building at Avenue … nos. …-…;

• Analysis of the letter sent by the Lawyer of "K…, Lda.", requesting payment of compensation for A…'s termination of the contract for provision of services concerning the hotel project in Lisbon;

• Re-analysis of the contract entered into between A… and "K…, Lda." as regards the consequences of its termination;

• Drafting of email to A…, reporting on the content of the letter received by the Lawyer of "K…, Lda.";

• Telephone conferences with B… and with L… to define the strategy to adopt in response to the letter sent by the Lawyer of "K…, Lda.";

• Analysis of the municipal documentation concerning the Prior Information Request, prepared and submitted by "K…, Lda.", with the Municipal Council of…, for the renovation of the building at Avenue … nos. …-…;

• Drafting of the reply letter to the Lawyer of "K…, Lda.";

• Drafting of various emails and holding of various telephone conferences with L… and B… on the matters referred to above.

Corporate

• Drafting of the minute of the general assembly to appoint the corporate bodies for the three-year period 2009-2011 and respective mandate letter;

• Drafting of declarations of appointment and acceptance of representation for tax purposes for purposes of obtaining a Portuguese tax identification number for Mr. M…;

• Visit to the Tax Office for purposes of obtaining a Portuguese tax identification number for Mr. M…; and

• Telephone conferences and sending of emails to Client;

• Coordination with "N…, SROC, S.A." for purposes of issuing letters of acceptance of the positions of Statutory Auditor Effective and Alternate;

• Drafting of the necessary forms for purposes of registering the appointment of corporate bodies;

• Registration of the appointment of corporate bodies with the Commercial Registry Office.

TOTAL € 5,512.50"

– see Documentation attached by the Claimant.

J. Annex 3 to invoice no. … contains an internal document issued by the law firm with a description of the amounts received from the Claimant as provision for expenses, totaling €10,133.09, and a description of expenses incurred, also totaling €10,133.09, as follows:

K. Also with respect to Annex 3 to invoice no. …, the same contains the following expense documents:

L. Annex 4, concerning invoice no. …, contains the following description

"Summary of services rendered between 1 November 2009 and 15 April 2010

A…, S.A.

Real Estate

• Various telephone contacts with the Municipal Council of…, with Architect P… and with Architect G… concerning the inspection to be carried out, by the Municipal Council of…, of the property at Av. … (within the scope of the Prior Information Request – PIP);

• Drafting of emails to L… regarding the matter of the gentleman ("…") who occupies the property situated at Av. …. .

• Analysis of the means of response (administrative and judicial) available to A… following the unfavorable opinion of the Municipal Council of … to the Prior Information Request. Drafting and email to the Architect Municipal Council of … G… on the matter;

• Analysis of the unfavorable opinion of the Municipal Council of … to the Prior Information Request for the Hotel … . Drafting of email to B…, L… and Architect G… on the matter.

Corporate

1. Full realization of share capital

• Analysis of documentation concerning the full realization of the increase in share capital of A… decided on 30 July 2008;

• Drafting and various revisions of the minute of the general assembly concerning the full realization of the share capital of A… and of the respective attendance list, mandate letter and updated version of the bylaws;

• Transcription of the above-mentioned minute and sending of the same for collection of the signature of administrator Q…;

• Preparation of the application for registration of the full realization of the share capital above and subsequent visits to the Commercial Registry Office for presentation and rectification of the same;

• Drafting of the titles representing the share capital of A… concerning the above-mentioned increase in share capital;

• Diverse support, including various telephone conferences and meetings with the Registrar of the Commercial Registry Office, analysis and verification of the updated commercial registry certificate of the company; and

• Various telephone conferences, emails and letters concerning the above-mentioned matters.

1. New increase in share capital

• Analysis of documentation concerning the new increase in share capital of A…;

• Drafting and various revisions of the minute of the general assembly concerning the new increase in share capital of A… and of the respective attendance list, mandate letter of attendance, mandate letter and updated version of the bylaws;

• Transcription of the above-mentioned minute and sending of the same to the Client for collection of the signature of administrator Q…;

• Preparation of the application for registration of the above-mentioned increase in share capital and subsequent visit to the Commercial Registry Office for presentation of the same;

• Drafting of the titles representing the share capital of A… concerning the above-mentioned increase in share capital;

• Diverse support, including analysis and verification of the updated commercial registry certificate of the company; and

• Various telephone conferences, emails and letters concerning the above-mentioned matters.

TOTAL € 3,795.00"

– see Documentation attached by the Claimant.

M. Annex 4, relating to invoice no. …, contains an internal document issued by the law firm with reference to the receipt by the Claimant of an amount of €300.00, as provision for expenses, with document date of 29.04.2009, and to the realization of an expense of the same amount [€300.00], with document date of 27.04.2010, on behalf of the Claimant, at the Commercial Registry Office of Lisbon. This internal document is accompanied by supporting document of payment of a fee in the amount of €300.00 on behalf of the Claimant, issued by the Commercial Registry Office of Lisbon, on 09.03.2010 – see Documentation attached by the Claimant.

N. Subsequently, the Claimant was notified of the Final Inspection Report ("RIT") which maintained the proposed corrections, based on the grounds transcribed below (see RIT contained in the PA):

"Analysis:

The set of corrections proposed, in the draft of corrections, was based on undue deduction under paragraph (a) of paragraph 2 and paragraph 6 of Article 19 of the VAT Code, due to the fact that it was made based on documents issued without legal form under paragraph 5 of Article 36 (of the same legal instrument) specifically due to lack of the requirements mentioned in paragraph (b) of the aforementioned paragraph 5. Given the fact that, in the context of the right to be heard, there was no alteration of the documents that served as the basis for the deduction of tax, we continue to propose maintenance of the corrections initially proposed, in the amount of €8,689.49 (corresponding to €6,827.99 for 2008 (*), €1,102.50 for 2009 (**) and €759.00 for 2010).

(*) Belonging €4,410.66 to period 0810 (by mistake was mentioned … in the draft of corrections) and €2,417.33 in 0812.

(**) The amount relates to period 0905 - by mistake was mentioned 0904 in the draft of corrections. Note: The mistakes were due to the fact that the date of the invoice was considered as a reference rather than the period in which the effective deduction occurred.

In this sense, it is our understanding that invoices that do not meet all legal requirements referred to in paragraph (b) of paragraph 5 of Article 36 of the VAT Code, specifically by not discriminating the services that were in fact provided, the unit quantities and their totals, cannot be considered issued "in legal form" and, consequently, do not permit deduction of the respective VAT in accordance with what is established in paragraph 2 of Article 19 of the Code referred to above, regardless of proof of the actual reality of the underlying operations.

This lack of legal form is not cured by the attachment of annexes, attesting the omitted elements, since these supplements do not constitute "equivalent documents" to invoices. As is known, the "equivalent documents" to which the law refers must, themselves and on their own, contain all the requirements listed in paragraph 5 of Article 36 of the VAT Code, which does not occur with the attachment of any annex.

It should also be noted that the possession of invoices with VAT charged does not, by itself, give rise to the right to deduct the tax contained therein, as for that purpose all the rules that enable the exercise of that right must be observed, in accordance with the concept established in paragraph 2 of Article 19 and supplemented in paragraph 5 of Article 36, both of the VAT Code.

In order to better clarify the issues of the right to deduction, requirements of invoices and documents equivalent to invoices (matters referred to in the paragraphs above), the Office of the Deputy Director-General of SIVA published, on 91.12.06, Circular Order No. 181044, where it clarifies in particular the content of paragraph 5 of Article 35 of the VAT Code (then in force and now 36)."

O. The Claimant was notified of the additional VAT assessments and corresponding compensatory interest assessments identified above (see table in Section I. REPORT), in the total amount of €9,931.02, of which €8,689.49 relate to VAT and €1,241.53 refer to compensatory interest – as per copies attached to the arbitration request as Document 2.

P. On 31 May 2013, not accepting the tax assessment acts for VAT and compensatory interest, the Claimant filed a Grace Appeal – see Document 4, attached with the arbitration request.

Q. The Claimant proceeded to pay the additional assessments in question by transfer dated 07.06.2013 – see Document 3, attached with the arbitration request.

R. The Grace Appeal was dismissed, by order dated 25 September 2013, which was notified to the Claimant on 2 October 2013 – see Documents 5 and 6, attached with the arbitration request.

S. The Tax Authority considers the following grounds for dismissal of the Grace Appeal:

"The failure to specify the services rendered in the invoices or in equivalent documents makes it impossible (in accordance with the legislation in force at the time of the facts) to assess whether the VAT contained in the respective documents is deductible under Article 19 and 20 of the VAT Code.

The invoices in question and the documents annexed that the appellant presented are not issued in legal form, that is, none of the documents mentions which service was provided with specification of the elements necessary to determine the rate to apply; invoices or equivalent documents must specify and quantify the operations performed and cannot accept the mere indication of "legal services rendered", not indicating nor specifying which or what "legal services" were performed.

The appellant mentions in its submission paragraph 6) of Article 226 of Directive No. 2006/112/EC, which tells us that the only particulars that must compulsorily appear, for VAT purposes, on invoices issued in application of the provisions of Articles 220 and 221 of the said Directive are, among others, the quantity and nature of goods delivered or the extent and nature of services provided.

The said invoices only indicate that the services rendered are legal, a description which does not effectively comply with said legal rule, a vague and imprecise indication which neither discriminates the services that in fact were rendered, nor the unit quantities or totals thereof.

(…)

It is not enough to indicate in the invoice that it refers to the provision of legal services, it being necessary to specify which service was in fact provided, although by the mere indication of its usual designation, without need for further specifications.

It is therefore certain that the mere reference in the invoices in question to "provision of legal services" does not, manifestly, satisfy the legal requirement; as these are not invoices issued in compliance with the dictates of Article 36 paragraph 5 of the VAT Code, they cannot give rise to deduction, as established in Article 19 paragraph 2 of the VAT Code. (…)" - see Documents 5 and 6, attached with the arbitration request.

T. On 30 December 2013, the Claimant filed an application for establishment of a Sole Arbitral Tribunal with the CAAD – see electronic application in the CAAD system.

b) Facts Not Established

No other facts with relevance to the decision of the case were established.

c) Reasoning of the Findings of Fact

The decision on the factual matter was made based on the examination and critical analysis of the documents and information attached to the proceeding as described above regarding each item of evidence.

1. THE LAW

2.1. Formal Requirements of the Right to Deduction - Framework

The exercise, by VAT taxable persons, of the (right to) credit of this tax, usually referred to as the (right to) "deduction", depends fundamentally on the verification of substantive requirements, whether of a subjective nature (relating to the subjects involved) or objective (relating to the nature and regime of the operations carried out)[8], and formal requirements.

It is with respect to the latter that the Claimant was denied the right to deduct VAT incurred in four invoices whose description is limited to the indication of legal services rendered from a given date to the present, or merely "legal services rendered to the present". For this, the Tax and Customs Authority invoked the vagueness and insufficiency of the designation used in the invoices, as well as inconsistencies (partial temporal overlap) in the indication of the period to which the service provisions relate or the omission of the date when the same commenced.

It is clear that the matter under consideration is, first, the non-compliance with formal requirements that invoices must meet, in accordance with the provisions of the VAT Code and community legislation [VAT Directive], and, second, the consequences of this non-compliance which, in the view of the Tax and Customs Authority, produces the impossibility of exercising the right to deduct VAT.

The community discipline, specifically that which establishes the common system of this tax in the European Union contained in the VAT Directive, constitutes a parameter of validity and interpretative criterion for national rules and has superior value to domestic ordinary law, having regard to the provision of Article 8(4) of the CRP. For this reason, community law is indispensable in the present analysis.

The relevance given to the formal aspect of invoices in VAT derives from the fact that they represent credit instruments on the basis of which taxpayers exercise a right, also of credit, which is owed by the State. These documents are, within the scope of VAT, a check on the Treasury, as they give "the recipient who is a taxable person the right to deduct the VAT" contained therein[9].

Indeed, in this sphere, as a consequence of the very mechanism of the tax credit - indirect subtraction method - there is the attribution of a "quasi-sacramental character to the invoice" which functions as a credit instrument over the State.

The harmonization of the essential elements that must appear in invoices or equivalent documents was initially incipient and largely left to the discretion of the Member States. This state of affairs was changed with the approval of Directive 2001/115/EC of the Council, of 20 December 2001[10], which densified and harmonized at community level the main aspects relating to the form and content that invoices must have in European space. At the same time, it modernized the concept of invoice, among others, through the express introduction of the methods of electronic invoicing and self-billing.

As a natural corollary, the margin for manoeuvre of the States was reduced, and invoicing was clearly assumed to be a matter of community relevance.

In this context, and until the entry into force of Directive 2001/115/EC, the Court of Justice, while emphasizing the essential character of the exercise of the right to deduction, admitted a diversity of restrictions implemented by Member States, in particular as regards the mandatory particulars required in invoices, as well as the indispensability of possession of the original invoice.

This was the case with the decision delivered in the Lea Jeunehomme Judgment[11] in which it was concluded that the Member States could subordinate the exercise of the right to deduction to the possession of an invoice containing additional particulars indispensable to ensure the collection of the tax and its supervision by the Tax Administration. It also followed from the Genius Holding Judgment[12] that the invoice should allow identification of the taxable person, through their name and address, as well as that of the operation in question, so as to facilitate the control of the veracity of the taxable operation.

However, even under this case law, the restrictions imposed by national legislations were only admissible when such formalities, by their number or technicality, did not render the exercise of the right to deduction impracticable or excessively difficult[13]. In this sphere, appeals were made to the principles of proportionality[14] and good faith[15] as limits to the formal restrictions introduced by Member States to the right to deduction, without losing sight of the fact that this is a right that should be exercised in accordance with the objectives pursued by the common VAT system: neutrality, collection of tax and its supervision by the Tax Administration.

The Court of Justice likewise validated flexible and anti-formalistic positions adopted by some Member States. It admitted, for example, that "invoice" be understood not only as the original, but as any other document capable of replacing it, provided it complied with the criteria established by the Member States themselves, or, indeed, any other means of proof demonstrative of the actual existence of the transaction object of the deduction request[16].

In this sphere, the VAT Code provides for deduction of tax if the acquiring taxable person (the Claimant) holds in its possession, in its name, invoices issued in legal form. This is what Article 19(2)(a) of the aforementioned Code provides, in the version at the time of the facts:

"2. Only the tax mentioned in the following documents gives rise to the right to deduction, in the name and in the possession of the taxable person:

a) In invoices and equivalent documents issued in legal form;"

Paragraph 6 of this provision adds that:

"For purposes of exercising the right to deduction, invoices or equivalent documents that contain the elements provided for in Article 35 [now 36] are considered issued in legal form".

A regime which derives from Article 178 of the VAT Directive, according to which "[t]o be able to exercise the right to deduction, the taxable person must satisfy the following conditions:

a) With respect to the deduction referred to in paragraph (a) of Article 168, in relation to deliveries of goods and provisions of services, to possess an invoice issued in compliance with Articles 220 to 236, 238, 239 and 240".

Regarding the elements whose mention is indispensable in invoices, the VAT Code in Article 36(5) stipulates that:

"5. Invoices or equivalent documents must be dated, sequentially numbered and contain the following elements:

a) The names, business names or corporate designations and the registered office or domicile of the supplier of goods or service provider and the recipient or purchaser, as well as the corresponding tax identification numbers of taxable persons;

b) The quantity and usual designation of goods supplied or services rendered, with specification of the elements necessary to determine the applicable rate; packaging not actually transacted must be the subject of separate indication and with express mention that its return has been agreed;

c) The price, net of tax, and other elements included in the taxable value;

d) The applicable rates and the amount of tax due;

e) The reason justifying the non-application of tax, if applicable;

f) The date on which goods were made available to the purchaser, on which services were performed or on which payments prior to the performance of operations were made, if that date does not coincide with the date of issue of the invoice.

In the event that the operation or operations to which the invoice relates comprise goods or services subject to different tax rates, the elements mentioned in paragraphs (b), (c) and (d) must be indicated separately, according to the applicable rate."

This provision has a counterpart in Article 226 of the VAT Directive which, following amendments introduced by Directive 2001/115/EC, incorporated by Directive 2006/112/EC, provides:

"Without prejudice to the specific provisions laid down in this directive, the only particulars which must compulsorily appear, for VAT purposes, on invoices issued in application of Articles 220 and 221 are the following:

1. The date of issue of the invoice;

2. A sequential number, based on one or more series, which identifies the invoice uniquely;

3. The VAT identification number referred to in Article 214, under which the taxable person effected the supply of goods or the provision of services;

4. The VAT identification number of the recipient or recipient referred to in Article 214, under which a delivery of goods or a provision of services for which it is liable for tax or a delivery of goods referred to in Article 138 was effected;

5. The full name and address of the taxable person and the recipient or recipient;

6. The quantity and nature of goods delivered or the extent and nature of services provided;

7. The date on which the supply of goods or the provision of services was effected or completed or the date on which payment on account, referred to in paragraphs 4 and 5 of Article 220, was made, to the extent that that date is determined and is different from the date of issue of the invoice;

8. The taxable amount for each rate or exemption, the unit price net of VAT, as well as discounts and other bonuses, if not included in the unit price;

9. The VAT rate applicable;

10. The amount of VAT to be paid, except where a special arrangement applies for which this directive excludes such mention;

11. In case of exemption, or where the recipient is liable for tax, reference to the applicable provision of this directive, or the corresponding national provision, or any other indication showing that the supply of goods or the provision of services benefits from exemption or is subject to reverse charge;

(…)"

Having regard to the formal requirements applicable to the issuance of invoices in the manner set out above, the question arises of how the omission or insufficiency of any of these requirements can limit the right to deduction.

According to Sérgio Vasques, "[t]he complexity of the invoice regime and the margin of freedom still left to the member states in this matter has led to a multiplication of disputes before the CJEU relating to formal requirements for the exercise of the right to deduct VAT. In its decisions, the court, while reiterating the function of the invoice as support for the right to deduction, in correspondence with Article 178 of the Directive, has allowed substance to prevail over this formal requirement whenever this proves necessary to guarantee the neutrality of VAT and does not pose excessive risk"[17].

Miguel Durham Agrellos & Paulo Pichel, basing themselves on community case law, consider that formal defects are only capable of preventing the right to deduction if they "reasonably put in question the ability to correctly collect the tax and supervise by the tax authorities, so that it is not in a position to know the underlying material reality, in light of the elements presented by the taxable person"[18].

The aforementioned authors review a set of judgments which, in their majority (but not exclusively), concern the deduction of VAT in cases of reverse charge, where there is manifestly a diminished possibility of fraud or evasion, given the subjective coincidence of the subject (which is the same) that charges and simultaneously deducts the tax.

In the Kopalnia Judgment (or Polsky Trawertyn), of 01.03.2012, case C-280/10, the CJEU concludes that, without prejudice to the important documentary function of the invoice, in that it may contain controllable data, there are circumstances in which the data can be validly proven through other means than an invoice and in which the requirement to possess an invoice in all respects in accordance with the provisions of the VAT Directive would have the consequence of undermining the right to deduction of the taxable person (see paragraph 48).

To the same effect, already previously in the Judgments Uszodaépito kft, of 30.09.2010, case C-392/09, and Nidera, of 21.10.2010, case C-385/09, and subsequently in the Judgments VSTR, of 27.09.2012, case C-587/10; Petroma, of 08.05.2013, case C-271/12; Evita-K EOOD, of 18.07.2013, case C-78/12; SC Fatorie, of 06.02.2014, case C-424/12 and Idexx Laboratories, of 11.12.2014, case C-590/13, the CJEU advocated that with the substantive requirements met and demonstrated, non-observance of formalities could not, in principle, lead to suppression of the right to deduct VAT, emphasizing that "the right to deduction guarantees the neutrality in the application of VAT, and therefore may not be refused merely because the taxable persons neglected certain formal requirements, when the substantive requirements have been met" (paragraph 38 of the Judgment Uszodaépito kft, case C-392/09).

Moreover, in this regard, attention should be drawn to the Judgment EMS Bulgaria, of 12.07.2012, case C-284/11, which raises the question of the effects associated with non-compliance with formalities in the disciplinary field and not in the (quite distinct) plane of the imperative or extinctive effects of the exercise of the (substantive) right to deduction.

Also Cidália Lança mentions that "in accordance with the case law of that Court [CJEU], the principle of neutrality requires that VAT deduction be granted if the substantive requirements have been met, even if the taxable persons have neglected certain formal requirements"[19].

2.2. The CJEU's Interpretation in the Situation Sub Iudice (case C-516/14)

Faced with the doubts raised before the CJEU regarding the degree of requirement and detail of the particulars that must appear in invoices relating to the provision of legal services and the effects that their omission or deficiency produce, the European court clarifies in the Judgment delivered on 15.09.2016, following the preliminary reference raised in the present proceedings (case C-516/14), that:

"24 The question submitted by the referring court contains two parts, which it is necessary to examine separately. By the first part of its question, the referring court asks, in substance, whether Article 226 of Directive 2006/112 should be interpreted as meaning that invoices which only contain the mention 'legal services rendered from a given date to the present' or 'legal services rendered to the present', such as those at issue in the main proceedings, respect the requirements laid down in paragraphs 6 and 7 of that article. By the second part of its question, the referring court wishes to know whether Article 178(a) of Directive 2006/112 should be interpreted as meaning that it precludes national tax authorities from refusing the right to deduct VAT on the sole ground that the taxable person possesses an invoice which does not comply with the requirements laid down in Article 226, paragraphs 6 and 7, of that directive, when those authorities have at their disposal all the information needed to verify whether the substantive requirements relating to the exercise of that right are satisfied.

Regarding the first part of the question, relating to compliance with Article 226, paragraphs 6 and 7, of Directive 2006/112.

25 By way of preliminary remark, it should be recalled that Article 226 of Directive 2006/112 specifies that, without prejudice to the specific provisions laid down in this directive, only the particulars mentioned in that article must compulsorily appear, for VAT purposes, on invoices issued in application of Article 220 of that directive. It follows from this that it is not legitimate for Member States to associate the exercise of the right to deduct VAT with the fulfilment of requirements relating to the content of invoices which are not expressly provided for in the provisions of Directive 2006/112 (see in this respect the judgment of 15 July 2010, Pannon Gép Centrum, C‑368/09, EU:C:2010:441, paragraphs 40 and 41).

26 First, Article 226, paragraph 6, of Directive 2006/112 requires that the invoice contain the mention of the extent and nature of services provided. The wording of this provision thus indicates that it is mandatory to specify the extent and nature of services provided, without, however, requiring that it is necessary to describe the specific services provided exhaustively.

27 As the Advocate General observed in paragraphs 30, 32 and 46 of her opinion, the purpose of the particulars that must compulsorily appear on the invoice is to enable the Tax Administrations to carry out checks on the payment of the tax due and, if applicable, the existence of the right to deduct VAT. It is, therefore, in light of this purpose that it is necessary to analyse whether invoices such as those at issue in the main proceedings comply with the requirements of Article 226, paragraph 6, of Directive 2006/112.

28 In the main proceedings, although the invoices in question describe the services provided as 'legal services', it remains true, as highlighted by the Portuguese Government in its observations, that this concept covers a vast range of service provisions and in particular service provisions which do not necessarily assume a business scope. It follows from this that the mention 'legal services rendered from a given date to the present' or 'legal services rendered to the present' does not appear to indicate, in a sufficiently detailed manner, the nature of the services in question. Moreover, this mention is so generic that it does not allow to highlight the extent of the services provided, for the reasons referred to by the Advocate General in paragraphs 60 to 63 of her opinion. Consequently, the said mention does not comply, in principle, with the requirements laid down by Article 226, paragraph 6, of Directive 2006/112, which remains for the referring court to verify.

29 Secondly, Article 226, paragraph 7, of Directive 2006/112 requires that the invoice contain the date on which the provision of services was effected or completed.

30 This requirement must also be interpreted in light of the purpose pursued by the imposition of mandatory particulars on the invoice, as provided for in Article 226 of Directive 2006/112, which is, as recalled in paragraph 27 of this judgment, to enable the Tax Administrations to carry out checks on the payment of the tax due and, if applicable, the existence of the right to deduct VAT. For this purpose, the date of the provision of services concerned by the said invoice allows checking when the taxable event occurred and, therefore, determining the tax provisions that must, from a temporal point of view, apply to the operation to which the document relates.

31 In the case in question, it follows from the reference for a preliminary ruling that the legal services concerned by the invoices at issue in the main proceedings give rise to payments on account or to successive payments. Article 64 of Directive 2006/112 provides that such service provisions are deemed to be effected at the end of the period to which these payments relate. Therefore, in order to satisfy the requirements of Article 226, paragraph 7, of Directive 2006/112, it is imperative that these periods be mentioned in the invoices relating to such service provisions.

32 In this respect, it should be noted that the invoices in question relating to 'legal services rendered from a given date to the present' appear to specify the billing period. In contrast, one of the invoices in question only contains the mention 'legal services rendered to the present'. That invoice does not mention the date at the beginning of the period in question and does not therefore allow determining the period to which these payments on account relate.

33 Consequently, it must be considered that an invoice which only contains the mention 'legal services rendered to the present', without specifying a date of beginning of the billing period, does not satisfy the requirements laid down by Article 226, paragraph 7, of Directive 2006/112.

34 It is, however, for the referring court, should it find that the invoices in question do not satisfy the requirements arising from Article 226, paragraphs 6 and 7, of that directive, to verify whether the documents annexed presented by A… contain a more detailed presentation of the legal services concerned in the main proceedings and may be equated to an invoice under Article 219 of that directive, as documents which alter the initial invoice and make specific and unequivocal reference to it.

35 It follows from the foregoing considerations that the answer to the first part of the question submitted is that Article 226 of Directive 2006/112 should be interpreted as meaning that invoices which only contain the mention 'legal services rendered from a given date to the present', such as those at issue in the main proceedings, do not, in principle, respect the requirements laid down in paragraph 6 of that article and that invoices which only contain the mention 'legal services rendered to the present' do not, in principle, respect the requirements laid down in that paragraph 6 nor the requirements laid down in paragraph 7 of that article, which, however, remains for the referring court to verify.

Regarding the second part of the question, relating to the consequences of an invoice which does not comply with the requirements laid down in Article 226, paragraphs 6 and 7, of Directive 2006/112 for the exercise of the right to deduction of VAT

36 By the second part of its question, the referring court seeks, in substance, to determine the consequences of a violation of Article 226, paragraphs 6 and 7, of Directive 2006/112 in the exercise of the right to deduction of VAT.

37 It should be recalled that, according to settled case law of the Court of Justice, the right of taxable persons to deduct from the VAT for which they are liable the VAT due or paid on goods acquired and services supplied to them upstream constitutes a fundamental principle of the common VAT system established by Union legislation (judgment of 13 February 2014, Maks Pen, C‑18/13, EU:C:2014:69, paragraph 23 and case law cited therein).

38 The Court of Justice has repeatedly stated that the right to deduction of VAT provided for in Articles 167 et seq. of Directive 2006/112 forms an integral part of the mechanism of VAT and cannot, in principle, be limited. This right is exercised immediately in relation to all taxes which have borne the operations effected upstream (see in this respect judgment of 13 February 2014, Maks Pen, C‑18/13, EU:C:2014:69, paragraph 24 and case law cited therein).

39 The regime of deductions aims to free the business person entirely from the burden of VAT due or paid in the context of all its economic activities. The common VAT system thus guarantees, therefore, the neutrality of the tax charge on all economic activities, whatever the aims or the results of those activities, provided that the said activities are, in principle, themselves subject to VAT (judgment of 22 October 2015, PPUH Stehcemp, C‑277/14, EU:C:2015:719, paragraph 27 and case law cited therein).

40 With respect to the substantive requirements required for the creation of the right to deduct VAT, it follows from Article 168(a) of Directive 2006/112 that the goods and services invoked to support that right must be used by the taxable person downstream for the purposes of its own taxable operations and that, upstream, those goods or services must be provided by another taxable person (see in this respect judgment of 22 October 2015, PPUH Stehcemp, C‑277/14, EU:C:2015:719, paragraph 28 and case law cited therein).

41 With respect to the formal requirements relating to the exercise of that right, it follows from Article 178(a) of Directive 2006/112 that its exercise is subject to possession of an invoice issued in accordance with Article 226 of that directive (see in this respect judgments of 1 March 2012, Kopalnia Odkrywkowa Polski Trawertyn P. Granatowicz, M. Wąsiewicz, C‑280/10, EU:C:2012:107, paragraph 41, and of 22 October 2015, PPUH Stehcemp, C‑277/14, EU:C:2015:719, paragraph 29).

42 The Court of Justice has stated that the fundamental principle of neutrality of VAT requires that the deduction of this tax paid upstream be granted if the substantive requirements are met, even if the taxable persons have neglected certain formal requirements. Consequently, when the Tax Administration has the necessary data to know that the substantive requirements have been met, it cannot impose supplementary conditions on the taxable person's right of deduction of the tax which may have the effect of eliminating that right (see in this respect judgments of 21 October 2010, Nidera Handelscompagnie, C‑385/09, EU:C:2010:627, paragraph 42; of 1 March 2012, Kopalnia Odkrywkowa Polski Trawertyn P. Granatowicz, M. Wąsiewicz, C‑280/10, EU:C:2012:107, paragraph 43; and of 9 July 2015, Salomie and Oltean, C‑183/14, EU:C:2015:454, paragraphs 58, 59 and case law cited therein).

43 It follows from this that the Tax Administration cannot refuse the right to deduct VAT on the sole ground that the invoice does not satisfy the requirements laid down in Article 226, paragraphs 6 and 7, of Directive 2006/112, if it has all the data available to verify whether the substantive requirements relating to this right are satisfied.

44 In this respect, the Tax Administration must not limit itself to examining the invoice itself. It must also take into account complementary information provided by the taxable person. This finding is confirmed by Article 219 of Directive 2006/112 which equates to an invoice any document or message which alters the initial invoice and makes specific and unequivocal reference to it.

45 In the main proceedings, it is therefore for the referring court to take into account all the information contained in the invoices in question and the documents annexed presented by A… in order to verify whether the substantive requirements of its right to deduct VAT are satisfied.

46 In this context, it should be emphasized, first, that it is incumbent upon the taxable person requesting the deduction of VAT to prove that it meets the requirements to benefit from it (see in this respect judgment of 18 July 2013, Evita‑K, C‑78/12, EU:C:2013:486, paragraph 37). The tax authorities may thus require from the taxable person themselves the proofs which they consider necessary to assess whether or not the requested deduction should be granted (see in this respect judgment of 27 September 2007, Twoh International, C‑184/05, EU:C:2007:550, paragraph 35).

47 Secondly, it should be noted that the Member States are competent to provide for sanctions in case of violation of the formal requirements relating to the exercise of the right to deduct VAT. Under Article 273 of Directive 2006/112, Member States have the power to adopt measures to ensure the correct collection of the tax and prevent fraud, provided that such measures do not go beyond what is necessary to achieve such objectives nor undermine the neutrality of VAT (see in this respect judgment of 9 July 2015, Salomie and Oltean, C‑183/14, EU:C:2015:454, paragraph 62).

48 In particular, Union law does not preclude the Member States from applying, as the case may be, a fine or pecuniary penalty proportionate to the seriousness of the infringement, in order to punish the violation of the formal requirements (see in this respect judgment of 9 July 2015, Salomie and Oltean, C‑183/14, EU:C:2015:454, paragraph 63 and case law cited therein).

49 It follows from the foregoing considerations that the answer to the second part of the question submitted is that Article 178(a) of Directive 2006/112 should be interpreted as meaning that it precludes national tax authorities from refusing the right to deduct VAT on the sole ground that the taxable person possesses an invoice which does not comply with the requirements laid down in Article 226, paragraphs 6 and 7, of that directive, when those authorities have at their disposal all the information needed to verify whether the substantive requirements relating to the exercise of that right are satisfied.

(…)

For these reasons, the Court of Justice (Fourth Chamber) declares:

Article 226 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax should be interpreted as meaning that invoices which only contain the mention 'legal services rendered from a given date to the present', such as those at issue in the main proceedings, do not, in principle, respect the requirements laid down in paragraph 6 of that article and that invoices which only contain the mention 'legal services rendered to the present' do not, in principle, respect the requirements laid down in that paragraph 6 nor the requirements laid down in paragraph 7 of that article, which, however, remains for the referring court to verify.

Article 178(a) of Directive 2006/112 should be interpreted as meaning that it precludes national tax authorities from refusing the right to deduct value added tax on the sole ground that the taxable person possesses an invoice which does not comply with the requirements laid down in Article 226, paragraphs 6 and 7, of that directive, when those authorities have at their disposal all the information needed to verify whether the substantive requirements relating to the exercise of that right are satisfied."

2.3. Concrete Assessment

Regarding the Content of Invoices: Description and Date of Service Performance

As the CJEU emphasizes, Article 226(6) of the VAT Directive requires that invoices contain reference to the extent and nature of services provided, even if this description is not necessarily exhaustive, and should be evaluated in close dependence on the objectives pursued by such a requirement, which are embodied in enabling Tax Administrations to carry out checks on the payment of the tax due and the existence of the right to deduct VAT (paragraphs 26 and 27 of CJEU Judgment C-516/14).

In the present situation, the four invoices allow only that it be understood that they refer to legal services. The mention of "legal services rendered from a given date to the present" or "legal services rendered to the present" is too generic. It does not indicate the nature of the services in question in a sufficiently detailed manner, nor does it allow determining the extent of the services provided. At this point, it must be concluded that the invoices in the possession of the Claimant do not comply with Article 36(5)(b) of the VAT Code and Article 226(6) of the VAT Directive.

Regarding the date on which the services were performed, invoices which indicate the beginning and end of the period to which the service provision relates, through mention of a given date to the present [invoices nos. …/2008, of 26.08.2008; …, of 17.12.2008, and … of 02.06.2010], satisfy such requirement (paragraphs 29 to 35 of CJEU Judgment C-516/14).

This is not the case, however, with the invoice which only refers to "legal services rendered to the present" [invoice no. …, of 29.04.2009], which does not satisfy the conditions provided for in Article 36(5)(f) of the VAT Code and Article 226(7) of the VAT Directive.

Thus, the understanding of the Tax and Customs Authority is confirmed that the four invoices in question do not conform to the formal requirements established by the VAT Code relating to the (insufficiency or lack of) specification of the quantity and designation of services rendered and, furthermore, one of them does not contain the date of start/performance of the services.

Implications for the Right to Deduction

Regardless of the conclusion reached under Article 219 of the VAT Directive regarding the assimilation into the concept of invoice of the Annexes presented by the Claimant, and considering that the CJEU has ruled that the Tax Administration cannot refuse the right to deduct VAT when it possesses all the information necessary to verify that the substantive requirements for the exercise of this right are met (paragraph 43 of CJEU Judgment C-516/14), it is necessary to assess whether the Tax and Customs Authority, in fact, possesses such information.

In effect, the Annexes 1, 2, 3 and 4, presented by the Claimant during the prior hearing, contain detailed descriptions of the services provided, broken down by department and with specific indications of the work carried out, the meetings held, the documents elaborated and the assistance given. This is evident from the descriptions contained in Facts F, H, I and L.

Moreover, these Annexes are accompanied by supporting documents and proofs of expenses incurred on behalf of the Claimant, as shown in Facts G, K and M, which allow verification of the reality and characteristics of the services provided.

It is also undeniable that the Claimant's position, as demonstrated by its conduct during the inspection procedure (when it provided the detailed documentation), is based on the fact that the information regarding the services provided is fully available and can be disclosed without compromising the professional secrecy obligations incumbent on lawyers.

Taking all this into account, it is concluded that the Tax and Customs Authority, in the present case, possessed all the information necessary to verify that the substantive requirements for the exercise of the right to deduction were met. That is, it had all the data to assess:

(a) That the legal services were indeed provided (as evidenced by the detailed descriptions of the work carried out);

(b) That the services were provided to the Claimant and for its economic activity (as shown by the invoices and annexes, and the context in which they were rendered);

(c) That the VAT was actually charged (as shown in the invoices themselves);

(d) That the legal services were used by the Claimant for its taxable activities (as confirmed by the economic context).

This being the case, and in light of the CJEU's clarification in Judgment C-516/14, the refusal to grant the right to deduct VAT cannot be justified by the formal deficiencies of the invoices, as the Tax and Customs Authority had at its disposal all the information necessary to verify that the substantive requirements for the exercise of this right were satisfied.

Furthermore, it must be noted that the Claimant exercised the right to be heard and presented the complementary information during the tax inspection procedure, allowing the Tax and Customs Authority to obtain knowledge of the detailed characteristics of the services provided, the periods to which they relate, and the expenses incurred. The Tax Authority cannot now invoke the formal insufficiency of the original invoices when it had the possibility, and indeed did have access to, information that would allow it to verify the substantive reality of the operations.

Regarding Compensatory Interest

The Claimant seeks reimbursement of the VAT unduly assessed, plus compensatory interest as provided for in Article 43(1) of the General Tax Law.

Under the aforementioned provision, the State is obliged to pay compensatory interest when it unduly withholds public funds that should be returned to the taxpayer. In the present case, since it is concluded that the VAT assessments were illegal and the deduction right should have been granted, the Claimant is entitled to compensatory interest on the amounts unduly withheld from it.

The compensatory interest corresponds to the amount owed by the State as a form of compensation for the time during which the taxpayer was deprived of the use of its own funds, calculated from the date of payment until the date on which restitution should have occurred.

As the Claimant paid the VAT assessments on 07.06.2013, and given that the refund should have been granted when the right to deduction was established (which, in light of the CJEU judgment and the substantive requirements being met, should have occurred much earlier), the Claimant is entitled to compensatory interest calculated from the date of payment until the date of the present award.

However, the calculation of the precise amount of compensatory interest is a matter that may require further technical determination, and it is appropriate that the Tax and Customs Authority be ordered to calculate and pay the compensatory interest in accordance with the legal parameters established in Article 43(1) of the General Tax Law.

1. CONCLUSION

Based on all the foregoing legal and factual analysis, and having regard to the interpretation provided by the CJEU in Judgment C-516/14, which clarifies that:

(1) Invoices with insufficient descriptions of legal services are, in principle, not in compliance with formal requirements;

(2) However, the Tax Administration cannot refuse the right to deduct VAT when it possesses all the information necessary to verify that the substantive requirements for the exercise of this right are satisfied;

(3) The Tax Administration must take into account not only the invoice itself but also complementary information and documents presented by the taxable person;

And given that in the present case:

(1) The Tax and Customs Authority had access to detailed information regarding the services provided, through the Annexes presented during the inspection procedure;

(2) This information allowed verification of the substantive requirements for the exercise of the right to deduction;

(3) The Claimant's conduct demonstrated its willingness to disclose the necessary information without compromising professional confidentiality;

It is concluded that the refusal to grant the right to deduct VAT was not justified, and the VAT assessments and corresponding compensatory interest assessments are illegal.

RULING

For the foregoing reasons:

The Tribunal decides:

1. The VAT assessments totaling €8,689.49, broken down as follows:
   • €4,410.66 for period October 2008
   • €2,417.33 for period December 2008
   • €1,102.50 for period May 2009
   • €759.00 for period June 2010

are declared illegal and are hereby annulled.

1. The compensatory interest assessments totaling €1,241.53 are declared illegal and are hereby annulled.

2. The Tax and Customs Authority is ordered to refund to the Claimant the total amount of €9,931.02, plus compensatory interest calculated in accordance with Article 43(1) of the General Tax Law, from the date of payment (07.06.2013) until the date of this award, at the applicable legal rate.

3. The compensatory interest shall be calculated by the Tax and Customs Authority in accordance with the legal parameters of Article 43(1) of the General Tax Law and shall be added to the refund amount.

4. All other claims are dismissed.

So decided by the Arbitral Tribunal.

Lisbon, [date]

Alexandra Coelho Martins
Sole Arbitrator