VAT Self-Supply on Activity Change: Article 3(3)(f) CIVA – CAAD Arbitration 305/2014-T

ARBITRAL DECISION

A – REPORT

Ruling in these proceedings, Arbitrator Judge Professor Doctor Clotilde Celorico Palma:

1. REPORT CAAD: Tax Arbitration

Case no.: 11/2012-T

1. A... – MEDICAL SERVICES, LTD., legal entity number …, with registered office at Rua …, Algés (hereinafter "A..."), requested an arbitral ruling under the terms of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (hereinafter Tax Arbitration Legal Regime - RJAT), on the issue opposing it to the Tax and Customs Authority (hereinafter AT), requesting the declaration of illegality of the additional assessment of Value Added Tax ("VAT") no. ..., as well as the annulment of the assessment of corresponding compensatory interest no. ..., both of 22 October 2013, relating to the period 10/12Q.

2. Substantiating these requests, the Claimant alleged, in summary, that:

a) The present A... was established on 13 July 2007 under the name "B..., Lda.", then exercising retail trade activity of foodstuffs and beverages, import and export, corresponding to CAE 047293, having been classified as a taxable person under the normal quarterly periodicity regime;

b) This activity was effectively exercised by the Claimant until February 2010, the date of the shop's closure;

c) When it initiated the said activity in 2007, it acquired various equipment, having concluded for this purpose two financial leasing contracts with C... Specialized Credit;

d) The Claimant deducted the amount of tax contained in the monthly rent payments, corresponding to the amount of amortized capital;

e) In addition to the assets referred to above in letter c), it also acquired other assets which it recorded as administrative equipment and basic equipment;

f) In April and May 2010, it prematurely terminated the leasing contracts, having proceeded to the full payment of outstanding rents until the end of the contract, becoming full owner of the said assets;

g) On 29 October 2010, the object of the company was amended, coming to consist of "the provision of medical services and other connected services, as well as, accessorily, other technical consultancy services in various areas", corresponding to CAE 86220, and the company name ceased to be B..., Lda, to become designated as "A... – Medical Services, Lda.";

h) Nevertheless, this activity was never actually carried out by the company, the previous activity continuing to be exercised, albeit in wind-up phase;

i) Following an internal partial tax inspection action for the year 2010 carried out by the Tax Inspection Services of the Finance Directorate of Lisbon, it was notified of the tax inspection report;

j) According to the conclusions of this Report, corrections are made with respect to certain assets, considering that these were not subject to sale by the Claimant, but rather were assigned to purposes foreign to the company, in accordance with the provisions of letter f) of item 3 of article 3 of the Value Added Tax Code (CIVA);

k) For the Claimant it is evident that the assignment of the said assets to alien purposes did not occur, since these were subject to sale to third parties;

l) In this context, it invokes that the assets acquired by the company and effectively assigned to its activity until the closure of the shop were not assigned to any foreign purpose, but were subject to sale to third parties, as evidenced through analysis of the invoices forming part of the final inspection report, such sales being subject to VAT and this being included in the periodic VAT declarations submitted by the Claimant;

m) Thus, "it is not the fact of the existence of alleged irregularities in the invoices issued ... that removes that irrefutable reality";

n) As it alleges, the mere finding that the sale of those assets occurred is sufficient for the conclusion that there was no assignment of these to purposes foreign to the company's activity for purposes of VAT assessment, under the terms mentioned above, and that their sale occurred, thus, in the course of the company's activity in which this phase of liquidation of assets is included;

o) Otherwise, there is a violation of the principle of neutrality that governs VAT and the very purpose inherent in article 3, no. 3, letter f), of the VAT Code is frustrated;

p) Indeed, the reason underlying the said provision of the VAT Code and which is a consequence of that neutrality principle, is to prevent a certain company from acquiring assets for its activity, deducting the respective VAT and assigning them subsequently to private consumption or to other purposes without bearing the respective VAT;

q) Now, this is not what occurred in the case sub judice, given that, having the Claimant alienated the said assets, as well as assessed and declared the respective VAT, there was no private consumption, nor assignment to purposes foreign to the company, that would justify the application of the provisions of article 3, no. 3, letter f), of the VAT Code;

r) Otherwise, the Tax Administration would collect the VAT assessed on the sales of the assets and the VAT assessed on an alleged external self-consumption of the same assets, thus prejudicing the necessary neutrality of VAT;

s) Thus, and in light of the foregoing, being entirely evident that that assignment to alien purposes did not occur, one can only conclude for the illegality of the tax acts in question, which should be annulled;

t) To this conclusion is also not foreign the fact that the tax inspection services themselves recognize that the Claimant did not exercise the new activity in the years 2011 and 2012 (see page 6 of doc. no. 3 attached to the proceedings by the Claimant);

u) This means, then, that the Claimant continued to exercise the previous activity – albeit in wind-up phase – and, as such, cannot be considered at any moment that there was an assignment to purposes foreign to the activity;

v) Finally, regarding the various statements contained in the final inspection report related either to the substance of the sales in question, or to the very place where the activity was exercised by the Claimant (see pp. 8 and 19 to 25 of doc. no. 3 attached to the proceedings by the Claimant), one can only argue their lack of foundation and manifest irrelevance to the case sub judice, not being possible to conceive the scope and utility of these statements within the framework of the determination of tax on alleged assignment of assets to purposes foreign to the company;

w) Thus, and in summary, being certain that the burden of proof of the requirements on which the tax assessment depends falls on the tax administration in accordance with the provisions of article 74 of the General Tax Law (LGT), and that not only has it not demonstrated that the assets in question were assigned to purposes foreign to the Claimant's activity, but it has been evidenced that that assignment did not exist, it results evident the inapplicability of article 3, no. 3, letter f), of the VAT Code and, as such, the illegality of the present tax acts, which should be annulled;

x) It is further noted that, as the assessment under consideration stems from an error attributable to the services from which resulted payment of totally undue tax, the Claimant also has the right, under the terms of article 43, no. 1, of the LGT, to compensatory interest whose recognition it also requires.

1. The CAAD Deontological Council designated as sole arbitrator Professor Doctor Clotilde Celorico Palma, the collective arbitral tribunal being constituted on 4 June 2014.

2. Notified in accordance with article 17, no. 1, of the RJAT, the AT came to respond, arguing for the dismissal of all claims, invoking, in summary, the following:

a) The nature of the company's activity was substantially altered, which until then translated into the commercialization of foodstuffs, to an activity of provision of medical services;

b) One is unaware of what destination and use was given to the equipment assets subject to the leasing contracts;

c) If the simple transition from an activity of commercialization of goods to any activity of provision of services implies significant alterations in the regular functioning of the same at an accounting level, with tax implications, they would have to translate a profound alteration if we take into account that only within the scope of value added tax are we talking of a taxed activity to an exempt activity;

d) If the assets were property of the Claimant and had been recorded as such, with the tax consequences flowing therefrom; if the assets cannot, by their nature and of the activities in question, be assigned to the new activity of the company, if they were not sold nor are they found in the Claimant's installations, no doubts remain that there was assignment of these to purposes foreign to its activity;

e) That assignment implies, under the general terms of the norms of the VAT Code, the assimilation to a transfer of assets subject to taxation, since upon acquisition of the said assets there was full deduction of the tax that burdened them;

f) Thus being, either the Claimant would have to proceed to the regularization of the tax it had previously deducted, which it did not do, or it would have to assess tax on its assignment which it also did not do, violating the rules of the VAT Code;

g) Having the Claimant initiated its activity as a trader in gourmet products and altering it, after three years, to the provision of medical services, what is found is that such activities are diametrically opposed which made the transfer of assets from one to the other unfeasible;

h) Thus, it was necessary to regularize the VAT with respect to merchandise existing in the shop taking into account the final inventory on 31 December 2010, in the terms described at page 16 of the inspection report, in the amount of € 1,115.83;

i) With respect to non-current assets, intended for the development of the activity of commercialization of foodstuffs, acquired through the conclusion of the leasing contracts mentioned above, subject to early termination by the Claimant, it was necessary to calculate the net value of the said assets, taking into consideration the amount of accumulated depreciation as of 31 December 2009;

j) From the analysis of the present proceedings one cannot discern what "irrefutable reality" is that to which the Claimant refers, when from the content of the said invoices it is found, namely:
- The non-existence of precise identification of the assets subject to sale;
- The non-existence of any mention regarding the brand or model, as well as regarding the quantity and unit price of each of them;
- Identification of certain assets in the invoices that do not appear either in the leasing contracts concluded or in the depreciation and amortization schedule;
- Assets that are subject to sale more than once;
- Assets subject to sale that do not form part of the taxable person's assets;

k) It is further added that the Claimant has not presented, nor presents, proof that it issued any transport document capable of evidencing the departure of the assets and their respective transport with destination to the purchaser, acquirer thereof;

l) On the other hand, it also did not make available, nor attached to the present proceedings, any proof of receipt of the amounts relating to the said sales;

m) Thus, the Claimant has not provided proof, as it continues not to prove, the realization of the said sales;

n) Indeed, some of them could never have occurred, in the circumstance of the Claimant as seller, since the assets subject to the said transfers did not form part of its assets;

o) Finally, during the exercise of the right of hearing, it was possible to make alterations to the corrections initially recommended by the Respondent (in favor of the Claimant), through the proof it provided within the scope of that proceeding, which it had not done in the course of the inspection procedure, despite being requested to do so;

p) As regards the burden of proof, the Claimant's allegation has no foundation if we take into account what is provided for in article 342 of the Civil Code and also article 74 of the LGT;

q) In truth, it was the Claimant that had the burden of proving the sale of the assets, proof that it failed to provide;

r) Thus being, the present proceedings have the least foundation, the tax assessments effected not suffering from any illegality.

1. On 17 July 2014, this Court issued an order to the effect that the parties inform the proceedings whether they waived the holding of the meeting referred to in article 18 of the RJAT, and, if the answer was affirmative, whether they waived the presentation of arguments and whether they wished to request any additional means of proof beyond the documentary evidence already incorporated in the proceedings.

2. Having the parties waived the said meeting, the same was declared void.

3. The presentation of arguments was also waived, and no additional means of proof beyond the documentary evidence already incorporated in the proceedings was requested.

B – PROCEDURAL SANITATION

The Court is competent.
The parties have legal capacity and standing, are legitimate and are regularly represented. There are no nullities and preliminary issues affecting the entire proceeding.

C – REASONING

1. Issues to be decided

The issue whose ruling is required of the Arbitral Court consists, essentially, in assessing whether or not in the concrete case all the material and formal conditions are met so that one can conclude that, effectively, the transfers of assets now put in question by the AT were realized, and whether or not the Claimant, for this purpose, produced sufficient proof of factuality.

1. Matter of fact

As is known, with respect to the matter of fact, the Court does not have to rule on everything that was alleged by the parties, it falling to it, rather, the duty to select the facts that matter for the decision and discriminate between proven and unproven matters (see article 123, no. 2, of the Administrative Procedure and Process Code (CPPT) and article 659, no. 2, of the Civil Procedure Code (CPC), applicable by operation of article 29, no. 1, letters a) and e), of the RJAT).

Thus, the relevant facts for the judgment of the case are selected and distinguished based on their legal relevance, which is established in light of the various plausible solutions of the question(s) of law (see article 511, no. 1, of the CPC, applicable by operation of article 29, no. 1, letter e), of the RJAT).

2.1 Proven facts

In this context, in light of the positions of the parties expressed in the pleadings and of the documents forming part of the attached administrative proceedings, the following relevant facts are judged as proven for the decision of the case (the documents indicated below refer to those attached by the Claimant in its request for constitution of this Court):

a) The Claimant A... was established on 13 July 2007 under the name "B..., Lda.", then exercising retail trade activity of foodstuffs and beverages, import and export, corresponding to CAE 047293;

b) The Claimant was classified as a taxable person under the normal quarterly periodicity regime in accordance with letter a) of no. 1 of article 41 of the VAT Code;

c) The said activity was in fact exercised by the Claimant until February 2010, the date of the shop's closure;

d) At the time of the start of the said activity, the Claimant acquired various equipment, having concluded for this purpose two financial leasing contracts with C... Specialized Credit;

e) The Claimant deducted the amount of tax contained in the monthly rent payments, corresponding to the amount of amortized capital;

f) The said equipment subject to the leasing contracts are properly described and identified in the tables contained at pages 9 and 10 of the Inspection Report (Doc. no. 3) and were acquired by the financial institution from the companies D… – Equipment for Food and Hospitality Distribution, Lda. and N… – Distribution S.A.;

g) The Claimant also acquired the assets described in the tables mentioned on page 12 of the Inspection Report which it recorded as administrative equipment and basic equipment (Doc. no. 3);

h) In April and May 2010, the Claimant prematurely terminated the leasing contracts it had concluded, becoming full owner of the said assets (Doc. no. 1);

i) On 29 October 2010, the object of the company was amended, and the company name was also altered;

j) The corporate object of the company came to be "the provision of medical services and other connected services, as well as, accessorily, other technical consultancy services in various areas", and the company name ceased to be B..., Lda, to become designated as "A... – …, Lda.";

k) Following an internal partial tax inspection action for the year 2010 carried out by the Tax Inspection Services of the Finance Directorate of Lisbon, the present Claimant was notified of the tax inspection report (Doc. no. 3);

l) The objective of the said inspection action consisted of "(…) verification and control of VAT assessment in the assignment of fixed tangible assets to capital holders, following the alteration of the company's activity" (see page 3 of doc. no. 2);

m) In this sequence, the Inspection Services determined VAT shortfall in the partial amounts of € 1,115.83 (VAT relating to Inventory at 2010-12-31), of € 29,692.31 (VAT relating to non-current assets) and of € 327.94 (VAT from invoice for acquisition of non-current asset) (see pages 15 to 18 of doc. no. 3);

n) During the inspection action, and confronted with the determination of said alleged VAT shortfall, the Claimant presented invoices no. 1/2011, no. 2/2011, no. 4/2011, no. 1/2012 and no. 3/2012, relating to the alienation of some of the assets in question (pp. 104 to 109 of doc. no. 3);

o) From those invoices, the Inspection Services considered that only invoice no. 4/2011, in the amount of € 4,436.66, could be relevant (see page 25 of doc. no. 3);

p) In these terms, the amount of € 29,692.31 (VAT relating to non-current assets) was reduced to € 28,760.61, the difference of € 931.70 (€ 29,692.31 - € 28,760.61) corresponding to the VAT levied on the said amount of € 4,436.66, at the rate of 21% (see page 27 of doc. no. 3);

q) The other invoices were disregarded either because "(…) they do not comply with some of the essential requirements required by art. 36, no. 5 of the CIVA (…)", or also because "No transport documents were issued (…)" and "(…) the assets should not be depreciated (…)", or, finally, because "With respect to invoice no. 3/2012, a sequence of facts indicative of the realization of a simulated operation was stated (…)" (see pages 26 and 27 of doc. no. 3);

r) On 26 July 2013, the right of hearing prior to the issuance of the final inspection report was exercised (Doc. no. 4);

s) Following the exercise of that right, the Inspection Services recognized that invoices no. 1/2011, in the amount of € 31,276.50, no. 2/2011, in the amount of € 2,532.09, and no. 1/2012, in the amount of € 9,307.54, should also be relevant (see page 33 of doc. no. 3);

t) In this manner, that amount of € 28,760.61 (VAT relating to non-current assets) was reduced to € 19,706.22, the difference of € 9,054.39 (€ 28,760.61 - € 19,706.22) corresponding to the sum of VAT levied on the said amounts of € 31,276.50, € 2,532.09 and € 9,307.54 (€ 6,568.07 + € 531.74 + € 1,954.58), at the rate of 21% (see page 33 of doc. no. 3);

u) In this sequence, they determined VAT shortfall in the partial amounts of € 1,115.83 (VAT relating to Inventory at 2010-12-31), of € 19,706.22 (VAT relating to non-current assets) and of € 327.94 (VAT from invoice for acquisition of non-current asset) (see page 34 of doc. no. 3), totaling an amount of VAT shortfall of € 21,149.99;

v) On 19 December 2013, the Claimant proceeded to the payment of the tax under the terms of Decree-Law no. 151-A/2013, with waiver of the corresponding compensatory interest (Doc. no. 6);

x) The technical correction is embodied in the act of VAT assessment no. ..., and in the assessment of the corresponding compensatory interest no. ..., both of 22 October 2013, relating to the period 10/12Q.

For the establishment of the facts fixed in the foregoing letters, the Arbitral Court based itself on a critical weighing of the documents contained in the administrative proceedings.

2.2 Unproven facts

In light of the positions of the parties expressed in the pleadings and of the documents forming part of the attached administrative proceedings, there is insufficient proof that the assets acquired by the company assigned to its activity until the closure of the shop and which form the basis of the corrections made by the Tax Administration were, effectively, subject to sale to third parties.

1. Questions of law

With the matter of fact established as proven, it next becomes important to determine the applicable law to the underlying facts, in accordance with the foregoing questions.

It is of particular interest to decide on the principal question to be analyzed in these proceedings, namely: assessing whether or not in the concrete case all the material and formal conditions are met so that one can conclude that, effectively, the transfers of assets now put in question by the AT were realized, whereby it is particularly important to analyze whether the Claimant produced sufficient proof of factuality.

For this purpose we will make a brief excursus into the rules that govern this tax in accordance with European Union Law, with the respective transposition at domestic level and with the administrative and judicial interpretation that has been carried out, especially by the Court of Justice of the European Union (CJEU).

It should be noted that, as has been consistently understood by case law and is a corollary of the obligation of preliminary ruling provided for in article 267 of the Treaty on the Functioning of the European Union (which replaced article 234 of the Treaty of Rome, former article 177), the case law of the CJEU has binding character for national courts, when it concerns issues connected with European Union Law[1].

3.1 Treatment of asset transfer operations in VAT

VAT, given its characteristics as a general consumption tax defined at the level of the European Union, applies, tendentially, to every act of consumption. This tax, whose characteristics were defined at community level in the so-called Second VAT Directive and reiterated in the usually denominated Sixth Directive, replaced by the VAT Directive (DIVA)[2], applies to all phases of the economic circuit, only on the value added generated in each one.

Its rules of incidence presuppose, as a general rule, the exercise of economic activity as such, in the capacity of a taxable person.

In conformity with this legislation, the VAT Directive encompasses two categories of facts susceptible to taxation: "supplies of goods" and "supplies of services".

These operations are subject to VAT when they are carried out in the territory of a country by those who carry out independently production, commercialization or supply of services activities and exercise liberal professions or equivalent.

As taxable operations under this tax we find transfers of assets, supplies of services, imports and intra-community operations. Except for supplies of services, all taxable operations are defined positively.

Article 14, no. 1, of the VAT Directive, defines the operations "supplies of goods" as follows: "by supply of a good, the transfer of the power of disposal of a corporeal good as an owner is understood". In no. 1 of article 3 of the CIVA "transfer of assets" ("supply of goods", in the terminology of the VAT Directive) is defined as "the onerous transfer of corporeal goods in a manner corresponding to the exercise of the right of ownership", resorting, thus, to a formulation of the Civil Code — that of the concept of possession of article 1251.

Beyond the operations directly qualified as transfers of assets, we have a series of operations which are, through the technique of assimilation, qualified as such, either because the goods are not corporeal, or to make the economic substance of the transaction prevail, or because the transfers are free of charge. Among these situations we have assimilations that are mandatory and others that are merely optional.

Now, among the mandatory assimilations, in accordance with what is provided for in the VAT Directive, specifically in its article 16, the following stands out: being assimilated "(…) the supply of goods carried out for consideration to the assignment, by a taxable person, of assets of his business to his own use or that of his staff, the transfer of those assets free of charge or, in general, their assignment to purposes alien to the business, when those goods or the elements that constitute them have conferred the right to full or partial deduction of VAT". The deflection of the business assets from their natural destination to another purpose is thus at issue, when, with respect to those goods or the elements that constitute them, there has been full or partial deduction of the tax, a situation provided for among us in article 3, no. 3, letter f), of the CIVA. Thus, under the terms of this norm, we have assimilated to transfers of assets, subject to the provision of article 25, the permanent assignment of business assets to own use, that of staff, or in general, to purposes alien to the same, as well as their free transfer (that is, the deflection of the goods from their natural destination to another purpose), when, with respect to those goods or the elements that constitute them, there has been full or partial deduction of the tax.

It concerns, in this norm, the situation of taxation of external self-consumption of assets. As we have explained, the intention is to prevent cases of evasion, in which goods acquired for productive purposes with respect to which there has been deduction of the tax are diverted, for example, to private consumption (as is known, individuals do not have the right to VAT deduction)[3]. Should such procedure not be followed, the act of consumption would not be taxed, which would violate the principle of neutrality, given that the same operations carried out by third parties who are taxable persons are taxed.

This provision is only justified if the right to VAT deduction has been exercised. Should the tax not have been deducted, the operation is not taxable. As Xavier de Basto explains in an illuminating manner, with respect to this provision, "both the system of exemption typical of single-phase taxes, and the system of VAT credit typical of VAT, would become vulnerable to legitimate evasion, it being sufficient that goods acquired for productive purposes, and thus having merited exemption or benefited from the credit, were diverted by the business to purposes alien to its productive activity — private use of the owner, his staff, gifts, etc. In the absence of corrective legal provisions, there would be a possibility of releasing consumption from the impact of the tax. It would suffice that a taxable person acquired the goods for productive purposes consequently benefiting from exemption, in single-phase taxation, or exercising the right to deduct VAT borne — and later diverted the goods, themselves or the product of their transformation, created by the business, to non-productive purposes, for example, to own consumption. Consumption would thus be exempt from tax. Serious distortion would arise with respect to those persons who had acquired, in the capacity of final consumers, the same merchandise. A door would open for legitimate tax evasion. It is for this reason that all non-cumulative transaction taxes must contain provisions that safeguard these maneuvers"[4].

In the same sense, in the Explanatory Note of the Draft of the Value Added Tax Code, it is explained that the assimilation provided for in this norm is justified by the very function of the consumption tax, given that otherwise the consumption resulting from the deflection of productive or commercial activity would not be taxed and by the need to avoid easy escapes from the tax[5]. It is equally clarified there the reason why the legislator does not opt for taxation of so-called internal self-consumption, i.e., the production by the company itself of a capital good or raw material necessary for its activity.

As is explained, the taxation of internal self-consumption would only have interest in the case in which the taxpayer does not have the right to full deduction of the tax paid upstream, by conducting simultaneously taxable and exempt operations. The distortive effects caused by non-taxation do not appear sufficiently relevant to overcome the administrative advantage resulting therefrom.

As is emphasized, for the taxation of free operations assimilated to onerous ones to occur, the following requirements must be cumulatively verified[6]:

a) The goods must form part of the business's assets, that is, they must be assigned to the business's assets;

b) The operation must be carried out free of charge, that is, without specific consideration;

c) The operation must have as its objective to serve the private needs of the taxable person or his staff, or purposes alien to the company's activity;

d) There must have been a right to deduction, full or partial, of VAT borne.

The Directive does not define what "purposes alien to the business" are, nor do the legislations that transpose it to domestic law generally do so.

Now, on this point, it is certain that the solution of assimilation to transfer of assets is only justified if the assignment of the goods to alien purposes is permanent. It will not thus be the simple fact of the good being used for alien purposes that will satisfy the hypothesis of the norm under consideration. It is necessary that such use imply that the good ceases to be permanently available for productive purposes[7]. This is what is deduced from the very literal expression of the Directive.

3.2 Requirements to which invoices must comply

Article 178, letter a), of the DIVA, provides for the obligation of the taxable person to "... possess an invoice in compliance with articles 220 to 236, 238, 239 and 240". That is, the concept of "invoice" should be interpreted by reference to the combined provisions of articles 226 and 231 of the DIVA.

As is known, it follows from the rules of VAT that taxable persons are obliged to issue an invoice for each transfer of assets or supply of services, as well as for advance payments, regardless of the quality of the acquirer of the goods or recipient of the services, and even if these do not request it (article 220 of the DIVA and article 29 of the CIVA).

As regards the requirements that must appear on invoices, article 226 of the DIVA determines that, "Without prejudice to the specific provisions provided for in this directive, the only mentions that must mandatory appear, for purposes of VAT, in invoices issued in application of the provisions of articles 220 and 221, are the following:

1. The date of issue of the invoice;

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

3. The VAT identification number, […] under which the taxable person made the supply of goods or supply of services;

4. The VAT identification number of the acquirer or recipient […];

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

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

7. The date on which the supply of goods or supply of services was made, or completed […];

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

9. The applicable VAT rate;

10. The amount of VAT to be paid, except in case of application of a special regime for which this directive excludes such mention;

[…]"

In turn, no. 5 of article 36 of the CIVA comes to reproduce the said norm, determining for the purpose that invoices should be dated, sequentially numbered and contain the following elements:

– Names, firm names or corporate denominations and registered offices or domiciles of the parties and their respective VAT numbers;

– Quantity and usual designation of goods and services. Packagings not transacted are indicated separately, mentioning that their return has been agreed;

– The price, net of tax and other elements included in the taxable amount;

– The applicable rates and the amount of tax due;

– The justifying reason for the non-application of the tax;

– The date on which the goods were placed at the disposal of the acquirer, on which the services were provided or on which advance payments were made prior to realization of the operations, if that date does not coincide with the date of issue of the invoice.

Comparing the information elements required by article 36 with what is provided for in article 226 of the DIVA, which establishes the maximum content of invoices, it is found that the domestic norm contemplates requirements that do not integrate the list of mandatory mentions permitted by the community regime. This is the case of the indication of the "justifying reason for the non-application of the tax" which, in accordance with the community regime, is only applicable to exemptions[8], but not the case, which interests us for the purpose, of the identification of the goods subject to sale.

It should be noted that the need to harmonize the elements contained in invoices and to provide mandatory minimum elements is connected, naturally, with the nature of the tax taking into account making it adequately possible the exercise of deduction of the tax borne upstream, it being necessary to safeguard duly the effective and proportional control by the Tax Administration of a correct assessment and deduction of VAT by the taxable persons. Thus we will verify from the analysis, albeit brief, of the case law of the CJEU.

3.3 Case law of the CJEU

Invoices that contain the mandatory elements provided for in the CIVA are considered to be issued in legal form for purposes of the exercise of the right to deduction, it being understood by the CJEU that Member States can only associate the exercise of the right to deduction with the observance of conditions relating to the content of invoices expressly provided for in the DIVA. Nevertheless, in accordance with the case law of that Court, the principle of neutrality requires that VAT deduction be granted if the substantive requirements have been met, even if taxable persons have neglected certain formal requirements.

In the Judgment of 8 May 2013, Case Petroma (Proc. C-271/12, not yet published in the Reports), the issue was that following inspections carried out, the Belgian Tax Administration had put in doubt, both as regards direct taxes and VAT, the intra-group invoices and the deductions resulting therefrom on the main ground that they were incomplete and could not be demonstrated that they corresponded to real services. Most of the said invoices indicated a lump sum, without mention of the unit price and the number of hours provided by members of the staff of the service-providing companies, preventing, in this context, any inspection by the Tax Administration of the exact collection of the tax.

One of the issues raised consisted in assessing whether a Member State can refuse deduction effected by taxable persons recipients of services who have incomplete invoices, notwithstanding having been completed through the presentation of documents with the objective of proving the reality, nature and amount of the invoiced operations.

In this context, it was questioned whether "A Member-State that refuses deduction effected by taxable persons recipients of services on the ground of the inaccuracy of invoices should it not also declare that the invoices are too imprecise to permit the collection of VAT? Consequently, will the Member-State not be obliged to grant to the companies providing the disputed services the reimbursement of VAT paid, in order to guarantee the principle of neutrality of VAT?"

As noted by the CJEU, the requirement, for the exercise of the right to deduction, of other elements on the invoice beyond those stated in the Directive, should be limited to what is necessary to ensure the collection of VAT and its inspection by the Tax Administration. Furthermore, those elements must not, by their number or technicality, make the exercise of the right to deduction practically impossible or excessively difficult (no. 28).

In this context, the CJEU noted that the common VAT system does not prohibit proceeding to the rectification of incorrect invoices. Thus, when all the material conditions are met so that one may benefit from the right to deduction of VAT and, before the decision of the authority in question, the taxable person furnished to it a rectified invoice, the benefit of this right cannot, in principle, be refused to it by the fact that the initial invoice contained an error (no. 34).

However, as it notes, in the concrete case the necessary information to complete and regularize the invoices had been presented after the Tax Administration had adopted its decision to refuse the right to VAT deduction, so that, before adoption of this decision, the invoices provided to the said Administration had not yet been rectified to permit it to assure itself of the exact collection of VAT and its respective inspection (no. 35).

On the other hand, as we also began by referring to, it results from the case law of the CJEU, namely from the Judgment of 22 December 2010, Case Dankowski (Proc. C-438/09, Reports p. I-14009), that formal requirements may in exceptional situations be waived provided that, through alternative credible means, the objectives that the norm intends to ensure can be fully guaranteed, i.e., that of the exact collection and inspection of VAT.

Thus, in this holding the CJEU concludes that, "Even though the said provision provides for the mention of the "VAT identification number", it must be considered that the VAT identification number assigned in the case at issue assures the identification of the taxable person in question and is, thus, of a character to satisfy the requirements of article 22, no. 3, letter b), third indent, of the Sixth Directive."

In this context, it notes that, since the competent Tax Administration has the necessary data to determine that the taxable person, as recipient of the operations in question, is a debtor of VAT, it cannot impose, with respect to this right to deduce the tax paid upstream, supplementary conditions that may have the effect of making the exercise of that right completely useless (see Judgments of 8 May 2008, Case Ecotrade, Proc. C-95/07 and C-96/07, Reports, p. I-3457, no. 64, and of 30 September 2010, Case Uszodaépítő, Proc. C-392/09, Reports, p. 08791, no. 40)[9].

Thus, the CJEU concludes that the said articles of the Directive should be interpreted to the effect that a taxable person benefits from the right to deduction with respect to VAT paid for supplies of services provided by another taxable person who is not registered for VAT purposes, when the corresponding invoices contain all the information required, in particular, those necessary for the identification of the person who issued the said invoices and the nature of the services provided.

With all the risks of generalizations, we could perhaps synthesize the position of the CJEU as to invoice requirements, concluding that proof requirements must ensure an inspection of the exact collection of the tax by the Tax Administration, and must respect the principles of legal certainty, proportionality and VAT neutrality. In the regulation of means of proof, States cannot thus impose excessive burdens on operators. Substantive requirements take precedence over formal requirements, the non-compliance with formal requirements not being able to lead to the denial, for example, of the application of an exemption, when the substantive requirements are satisfied. But, it should be noted, underlying this "tolerance" of the CJEU is, naturally, the fact that, notwithstanding the non-compliance with the formal requirement, adequate control of the operations by the Tax Administration is properly assured in practice.

Thus, as we have seen, in conformity with the case law of the CJEU, the principle of VAT neutrality requires that the deduction of the tax paid upstream be granted should the substantive requirements have been met, even should taxable persons have neglected certain formal requirements. In this context, in accordance with the CJEU, since the Tax Administration has the necessary data to determine that the taxable person, as recipient of the operations, is a debtor of VAT, it cannot impose, with respect to its right to deduction, additional conditions that may have the effect of the absolute impeding of the exercise of that right[10].

Also in this context and as regards Cases decided at the CAAD, attention should be paid to the grounds invoked in Case 61/2013-T.

As is noted, it follows from the provision of no. 5 of article 36 of the CIVA, as supported in the Judgment of the CJEU of 15 July 2010, made in the scope of Case Pannon Gép Centrum (Case C-368/09, Reports p. I-07467), that "it is not legitimate for Member States to associate the exercise of the right to deduction of VAT with the fulfillment of requirements concerning the content of invoices that are not expressly provided for in the provisions of Directive 2006/112. This interpretation is equally corroborated by article 273 of this directive, which provides that Member States can impose obligations that they consider necessary to ensure the exact collection of VAT and to avoid fraud, but that this power cannot be used to impose invoicing obligations additional to those fixed, namely, in article 226 of the said directive". This means that, in accordance with the case law of the CJEU, although this provision permits Member States to adopt certain measures, these should not, however, go beyond what is necessary to achieve that end and cannot, therefore, be used in such a manner as to systematically put into question the right to VAT deduction, which is a fundamental principle of the common VAT system (see Judgments of 18 December 1997, Molenheide and C-286/94, C-340/95, C-401/95 and C-47/96, Reports, p. I-7281, no. 47).

Indeed, the principle of effectiveness requires that "national legislations, as well as administrative procedures adopted by Member States do not make, in practice, impossible or excessively difficult the exercise of rights conferred by the community legal order". The CJEU emphasizes, in the Judgment made in Case C/25-03, that "(…) it is settled case law that the requirement, for the exercise of the right to deduction, of other elements on the invoice beyond those stated in article 22, no. 3, letter b), of the Sixth Directive must be limited to what is necessary to ensure the collection of value added tax and its inspection by the Tax Administration. Furthermore, those elements must not, by their number or technicality, make the exercise of the right to deduction practically impossible or excessively difficult (Judgment of 14 July 1988, Jeunehomme and EGI, 123/87 and 330/87, Reports P. 4517, no. 17). Otherwise, the measures that Member States have the possibility to take, under the terms of no. 8 of article 22 of the same Directive, to guarantee the exact receipt of the tax and avoid fraud must not exceed what is necessary to achieve those objectives. They cannot therefore be used in a manner that puts into question the neutrality of VAT, which constitutes a fundamental principle of the common VAT system established by community legislation on the matter (judgments of 21 March 2000, Gabalfrisa and others, C110/98 to C147/98, Reports, p. I-1577, no. 52, and of 19 September 2000, Schmeink & Cofreth and Strobel, C454/98, Reports, p. I-6973, no. 59)."

In this context, it is concluded in the said CAAD Case that the corrections made by the inspection services are justified and which had as basis the non-acceptance of the corresponding VAT deductions, relating to invoices that use vague and imprecise expressions that did not permit the identification of the goods nor the terms of the transaction in question, nor to carry out a full control of the tax, not complying with the requirements of article 36, no. 5, of the Code of VAT Code.

3.4 Burden of proof

In conformity with the provision of article 342, no. 1, of the Civil Code, upon those who invoke a right falls the burden of proving the facts constitutive of the right alleged.

As refers Manuel de Andrade, this provision determines "for the party upon whom falls the burden of furnishing proof of the fact in question, incurring the unfavorable consequences of having as clear the contrary fact, when it omitted or failed to produce such proof: or in the need for, in any case, to suffer such consequences if the proceedings do not contain sufficient proof of that fact (brought or not by the same party)"[11].

In turn, it prescribes no. 1 of article 74 of the General Tax Law that the burden of proof of the facts constitutive of the rights of the Tax Administration or of taxpayers falls on those who invoke them.

Article 100, no. 1, of the CPPT, is no more than the application (in judicial proceedings) of the general rule on the burden of proof in tax procedure stated in article 74, no. 1 of the LGT (identical to that provided for in article 342, nos. 1 and 2 of the Civil Code) and which applies in administrative contentiousness in general: "it must fall, in principle, upon the Administration the burden of proof of the verification of the legal prerequisites (mandatory) of its action, especially if aggressive (positive and unfavorable); in counterpart, it will fall upon the administered person to present sufficient proof of the illegitimacy of the act, when these prerequisites are shown to be verified"[12].

As points out Jorge Lopes de Sousa, it is "an application in judicial proceedings of the general rule on the burden of proof in tax procedure stated in article 74, no. 1 of the LGT, in which it is established that the burden of proof of the facts constitutive of the rights of the tax administration or of taxpayers falls on those who invoke them"[13].

D - APPLICATION TO THE CONCRETE CASE

In view of the matter of fact and law, the following are our conclusions:

1. The taxable person acquirer of goods or services can only effect the deduction of the tax borne to the extent that it is mentioned in invoices issued by suppliers for the acquisition of goods and services, provided they have been issued in legal form.

2. The Tax and Customs Authority cannot require of the taxable person requirements on invoices that do not respect what is provided for in no. 5 of article 36 of the VAT Code and what is provided for in article 226 of the DIVA. That is, as we have seen, and as results from the case law established by the CJEU in this context, the required requirements must be restricted to the elements provided for in the legislation in question, the requirement of other elements being limited to what is necessary to ensure the collection of value added tax and its inspection by the Tax Administration.

3. According to the Claimant, full proof was made of the alienation of the said assets.

4. However, the fact is that the Claimant, in the concrete case, did not provide sufficient proof of the factuality impeding the right of taxation of the Tax and Customs Authority legally presumed, i.e., it did not prove that the assets in question had been effectively sold.

5. As the AT concludes, if the assets were property of the Claimant and had been recorded as such, if they could not, by their nature and the activities in question, be assigned to the new activity of the company, if they were not sold nor are they found in the Claimant's installations, having the right to VAT deduction been exercised, then one must conclude for their assignment to purposes alien to its activity, the respective conditions of application being verified.

6. In these terms the Claimant would have had to proceed to the regularization of the tax it had previously deducted, which it did not do, or it would have had to assess tax on its assignment which it also did not do.

7. Indeed, having analyzed all the documentation contained in the proceedings, the Court verified the conformity of the invoices in question with the requirements provided for in the former no. 5 of article 36 of the VAT Code and in the DIVA and, consequently, whether the same could permit the Tax Administration to avoid fraud and to ensure the correct collection of the tax.

8. Let us then focus on the invoices in question which are indicated hereinafter:

a) Invoice no. 1/2011

· The goods sold are not identified by code nor by brand and model, as appears from the pro-forma invoice relating to the respective leasing contract, it not being possible to proceed to their correct identification.

· There are goods identified on the invoice that do not appear either in the leasing contracts nor in the depreciation and amortization schedule, their existence being unknown.

· The goods are not identified by unit price.

· There are goods that are alienated and that are again alienated in Invoice no. 1/2012.

· No dates or registration number of the transport vehicle are mentioned on the invoice.

· No transport document was presented that would evidence the departure of the goods from the place of loading and the transport to the place of unloading, nor the respective means of payment.

b) Invoice no. 2/2011

· Following a visit by the Inspection Services to the address of the acquiring company, it was verified that the premises were abandoned, the restoration activity not being carried out.

· The goods sold are not identified by code nor by brand and model, as appears from the pro-forma invoice relating to the respective leasing contract, it not being possible to proceed to their correct identification.

· No dates or registration number of the transport vehicle are mentioned on the invoice.

· No transport document was presented that would evidence the departure of the goods from the place of loading and the transport to the place of unloading, nor the respective means of payment.

c) Invoice no. 1/2012

· The goods sold are identified by the same code, but are not identified by brand and model, as appears from the pro-forma invoice relating to the respective leasing contract, it not being possible to proceed to their correct identification.

· Some of the goods are being sold for the second time.

· At the date of its issue the acquirer had already ceased its activity some four years earlier.

e) Invoice no. 3/2012

· The goods sold are not identified by code, and some not even by brand and model, as appears from the pro-forma invoice relating to the respective leasing contract, it not being possible to proceed to their correct identification.

· The designation of some goods is not made in conformity with that appearing in the pro-forma invoice, it not being possible to identify the goods sold.

· There are goods identified on the invoice that do not appear either in the leasing contracts nor in the depreciation and amortization schedule, their existence being unknown.

· The goods are not identified by unit price.

· There are inconsistencies between the goods appearing in the depreciation and amortization schedules.

1. That is, having analyzed the invoices, one cannot fail to conclude, as the AT does, that from their content one cannot withdraw precise identification of the goods subject to sale, as well as any mention regarding brand or model, as well as regarding the quantity and unit price of each of them. In reality the said invoices do not permit the Tax and Customs Authority to carry out the control of the determination of the tax, this Court understanding that the identification of the goods "subject to sale" is an essential element for this purpose.

2. Indeed, this Court considers that compliance with the provision of article 36, no. 5, letter b), of the VAT Code would only be assured with the missing specifications, the elements contained being insufficient to permit an inspection of the exact collection of the tax.

3. Effectively, as we have seen, there are identified goods on the invoices that do not appear either in the leasing contracts concluded nor in the depreciation and amortization schedule, there are goods that are subject to sale more than once and goods subject to sale that do not form part of the taxable person's assets.

4. On the other hand, the defense presented by the Claimant contains no information that would permit even assessing these specifications.

5. Having been given the possibility to the Claimant to make full proof that the objects were effectively sold, it did not do so, contrary to what was found as regards the procedure adopted by it in relation to the sale of certain goods put into question during the exercise of the right of hearing, in which alterations were made to the corrections initially recommended by the Respondent (in favor of the Claimant), through the proof it produced in the scope of that proceeding.

6. It should be noted that the Claimant did not present, namely, proof that it issued any transport document capable of evidencing the departure of the goods and their respective transport with destination to the purchaser, acquirer thereof. It also did not make available any proof of receipt of the amounts relating to the said sales.

7. As regards the burden of proof, the Claimant's allegation has no foundation if we attend to the provision of article 342 of the Civil Code and, also, to article 74 of the General Tax Law.

8. In the case, given that the Tax and Customs Authority had in its favor the legal presumption of transfer of assets contained in article 86 of the CIVA, it thus fell to the taxpayer to prove that it had alienated the assets to third parties.

9. In truth, it was the Claimant that had the burden of proving the sale of the goods, proof that, as we have seen, it failed to provide.

10. The Claimant further invokes, albeit without expressly appealing to the mechanism of double taxation, the objective underlying the mechanism provided for in article 3, no. 3, letter f), of the CIVA and the fact that with the corrections now proposed the AT would come to assess VAT twice given that it already included that VAT in its respective periodic declarations.

11. To this end, it is important to note that article 205 of the Code of Tax Procedure and Process, in its no. 1, comes to delimit this figure by determining that there will be double taxation when, with a tax fully paid, another of equal nature is demanded from the same or a different person, relating to the same tax fact and the same period of time.

12. Under the terms established in its no. 2, double taxation may only be alleged once, except being based on a subsequent document demonstrating payment or new assessment.

13. It falling equally to the Claimant to provide proof of such fact, it did not do so.

14. Now, in conclusion, the taxable person not having succeeded in meeting the burden that fell upon it of proving that it effectively proceeded to the transfer of the assets in question having assessed and delivered to the State the corresponding VAT, one cannot find censure in the decision of the Tax Administration to proceed to the corrections now in question, applying the mechanism provided for in article 3, no. 3, letter f), of the CIVA.

15. In these terms it is concluded that the tax assessments effected by the AT do not suffer from any illegality as the Claimant seeks to make valid, the Claimant's claims not being received in this context.

16. It should further be noted that, the assessment not stemming from consideration of an error attributable to the Services from which resulted payment of totally undue tax, the Claimant does not have, under the terms of article 43, no. 1, of the LGT, the right to compensatory interest.

E - DECISION

In light of the foregoing, the Arbitral Court rules the request for arbitral ruling completely without merit, whereby it rejects the request for declaration of illegality and annulment of the additional VAT assessments no. ..., as well as the annulment of the assessment of the corresponding compensatory interest no. ..., both of 22 October 2013, relating to the period 10/12Q and the request for payment of compensatory interest.

Value of the case: € 23,356.54 (twenty-three thousand, three hundred and fifty-six euros and fifty-four cents).

Costs in the amount of € 1,224.00 (one thousand, two hundred and twenty-four euros), to be borne by the Claimant, in accordance with article 12, no. 2, of the Tax Arbitration Regime, article 4, no. 3, of the Regulation of Costs in Tax Arbitration Proceedings, and Table I attached to the latter.

Notify parties.

Lisbon, Administrative Arbitration Center, 17 October 2014

Text produced by computer, in accordance with article 138, no. 5, of the Civil Procedure Code (CPC), applicable by operation of article 29, no. 1, letter e), of the Tax Arbitration Legal Regime, with blank verses and reviewed by us.

The preparation of this decision is governed by the former spelling.

The Arbitrator Judge,

(Clotilde Celorico Palma)