VAT Invoice Rectification Deadline: 4-Year vs 2-Year Period in CAAD Case 309/2015-T

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Luís Menezes Leitão and Ana Maria Rodrigues, appointed by the Deontological Council of the Centre for Administrative Arbitration to form an Arbitral Tribunal, hereby agree:

I – REPORT

1. On 14 May 2015, A…, E.M., taxpayer no. …, with registered office at Rua…, no. …, …-… …, filed a request for constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by Article 228 of Law no. 66-B/2012, of 31 December (hereinafter, abbreviated as LFAT), seeking the declaration of illegality "of the self-assessed acts committed in VAT proceedings, which underlie [the claim], relating to the period between January and December of the year 2010 and between January and April of the year 2011", as well as of the "Decision to dismiss the request for ex officio review (…), issued on 09 February 2015, by the Honorable Deputy Finance Director of the Finance Department of …, in exercise of delegated powers, and notified to the Claimant here on 13 February last, through Official Letter no. …".

2. To support its request, the Claimant alleges, in summary, that the decision dismissing the request for ex officio review of said self-assessed acts suffers from illegality, invoking for this purpose the applicability of the provisions of Article 98 of the VAT Code and Article 78 of the General Tax Law (LGT), from which it results that it would have a four-year period to request the review of tax acts, and therefore the two-year period enshrined in Article 78, paragraph 3 of the VAT Code, relating to the regularization regime, should not apply to the case sub judice.

3. On 18-05-2015, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).

4. The Claimant did not proceed to appoint an arbitrator, and therefore, pursuant to the provisions of subparagraph a) of paragraph 2 of Article 6 and subparagraph a) of paragraph 1 of Article 11 of the LFAT, the President of the Deontological Council of CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the assignment within the applicable period.

5. On 13-07-2015, the parties were notified of these appointments and expressed no wish to challenge any of them.

6. In accordance with the provisions of subparagraph c) of paragraph 1 of Article 11 of the LFAT, the Collective Arbitral Tribunal was constituted on 28-07-2015.

7. On 01-10-2015, the Respondent, duly notified to that effect, filed its defence both by exception and by substantive challenge.

8. On 16-10-2015, notified to do so, the Claimant replied to the matter of exception contained in the Respondent's Defence.

9. Given that none of the purposes legally assigned to it were present in the case, pursuant to the provisions of Articles 16(c), 19 and 29/2 of the LFAT, as well as the principles of procedural efficiency and the prohibition of useless acts, the Arbitral Tribunal dispensed with the holding of the meeting referred to in Article 18 of the LFAT.

10. Having been granted a period for the filing of written submissions, these were submitted by the parties, pronouncing themselves on the evidence produced and reiterating and developing their respective legal positions.

11. A period of 30 days was fixed for the issuance of the final decision, following the filing of submissions by the Respondent.

12. The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with the provisions of Articles 2, paragraph 1, subparagraph a), 5 and 6, paragraph 1, of the LFAT.

The parties have legal standing and capacity, are legitimately interested and are duly represented, in accordance with Articles 4 and 10 of the LFAT and Article 1 of Ordinance no. 112-A/2011, of 22 March.

The proceedings do not suffer from any nullities.

Therefore, there is no obstacle to the consideration of the case.

All duly considered, it is necessary to issue

II. DECISION

A. FACTS

A.1. Facts Found to be Proven

1. The Claimant is a public legal entity, endowed with legal personality and administrative, financial and patrimonial autonomy, subject to the supervision of the Municipality of ….

2. The social purpose of the Claimant is "the management of the municipality's housing stock, as well as the activity of maintenance of equipment and infrastructure, in the public or private domain", for the Municipality, which delegated to it the powers necessary for its pursuit.

3. The management of the Municipality's housing stock "(…) includes, in particular, the functions of organizing and executing processes of acquisition, allocation and sale of dwellings, ensuring their proper occupancy, ensuring the entire administrative process of collection of rents or other amounts due for their use, preparing proposals for updating rates and rents and ensuring liaison with entities promoting social housing.".

4. The activity of maintenance of municipal equipment and infrastructure, namely the carrying out of works and other maintenance services, "(…) is reflected in the maintenance of the municipal network of roads, buildings and fixed and movable equipment.".

5. The relationship between the Claimant and the Municipality of … is governed by framework contracts concluded annually, which define in detail the purpose and mission of the municipal company, as well as its functions.

6. For the years 2010 and 2011, framework contracts were concluded, attached as Documents no. 3 and no. 4 of the Initial Claim.

7. In the aforesaid framework contracts, the price of the services (in particular, the execution of civil engineering contracts) to be provided by the Claimant to the Municipality, within the scope of the competencies previously described, was defined, based on the prepared budget.

8. Additionally, the amount to be transferred by the Municipality to cover the losses of the Claimant (designated as "structural subsidy") was also defined.

9. In this context, and given its nature, the amounts received by the Claimant, foreseen in the said framework contracts, related to the following situations:

a. Performance of contract works related to the maintenance of the housing stock, infrastructure and other equipment;

b. Recharging of expenses incurred with the housing stock;

c. Structural subsidy; and

d. Other services, namely the maintenance of various equipment, such as elevators, heating systems, ventilation, air conditioning, gas, kitchen equipment located in Municipality properties, and also the printing and design of the tenant manual.

1. In the execution of the framework contracts for the years 2010 and 2011, referred to above, the Claimant was tasked with carrying out maintenance works on the housing stock and infrastructure belonging to the Municipality or whose management was entrusted to it (which included various properties used by social intervention institutions, schools, municipal pavilions and municipal services).

2. In the same context, the Claimant also carried out the necessary interventions in properties not included in the municipal heritage (intervention in private properties) and which were communicated to it by the safety and sanitation office or other equivalent municipal structure (designated as "coercive works").

3. The Claimant's activities in this matter encompassed the carrying out of any and all preventive or planned acts and initiatives, with a view to the conservation, maintenance and recovery of the building destined for housing stock and infrastructure, ensuring its respective subcontracting and execution of works.

4. Within the scope of said activity the Claimant initiated the appropriate procurement procedures, concluding the respective contracts and ensuring the management of works, from their conception to their reception by the Municipality.

5. During the execution of works, the Claimant centralized all purchases necessary for their performance, paid suppliers the respective invoices and developed the necessary diligence for the proper execution of works, to be delivered to the Municipality, along with the contractor and other suppliers, and acquired various goods and services, including (sub)contracts, projects or any other services deemed indispensable to ensure the performance of the works in question.

6. In the year 2010 (February to December), the Claimant here invoiced the Municipality of … for the full amount of the services it acquired for the performance of these works, considering that it was making a mere recharging to the Municipality of the services and goods it acquired.

7. In 2010, the Claimant assessed VAT at the standard rate in the invoicing relating to goods and services connected with the contracts it carried out for the Municipality of … (materials acquired and labour hired for the work, equipment rental, inspection, electrical installation certification fee).

8. On the other hand, the Claimant applied the reverse charge rule provided for in subparagraph j) of paragraph 1 of Article 2 of the VAT Code whenever it was invoicing contract services acquired from contractors.

9. The Claimant also recharged to the Municipality expenses that were related to the housing stock and its operation and were incurred and paid by the Claimant (e.g. water, electricity, postal services, condominium).

10. Indeed, in the social housing neighbourhoods where a condominium was constituted (which occurred in properties where there were tenants who became owners of the fractions they occupied), the Claimant paid the condominium amount (without VAT) for the fractions of which the Municipality is owner.

11. Subsequently, the Claimant charged the Municipality (owner of the fractions in question) the condominium amount.

12. When there was no constituted condominium, the Claimant bore the usual condominium expenses (such as water, electricity, postal services) and also recharged these to the Municipality.

13. During the year 2010, the Claimant invoiced all the expenses referred to (water, electricity, postal services, condominium) to the Municipality, for the exact amount it incurred, applying VAT at the standard rate on the total amount thereof, without distinguishing in the invoices it issued to the Municipality the goods and services that gave rise to such debit.

14. The amounts referring to "structural subsidies" received by the Claimant corresponded to a revenue allocation made by the Municipality to the Claimant, under the framework contracts concluded annually between these two entities.

15. In 2010 and 2011 (January to April), the Claimant assessed VAT at the standard rate on these amounts.

16. With respect to the situations described in subparagraphs a) and b) of point 9 above, the Claimant presented, on 21 April 2010, a request for binding information with urgent character.

17. As for the VAT classification of the "structural subsidy", the Claimant presented on 1 July 2011 another request for binding information, with urgent character.

18. The framework proposed and conveyed by the Tax Authority, in the responses to the requests submitted, consisted, in summary, of the following:

a. Contract services related to the maintenance of the housing stock, infrastructure and other equipment [subparagraph a) of point 9 above] should be taxed at the reduced VAT rate, regardless of the entity that should assess the VAT (i.e., whether or not the reverse charge rule applies);

b. In the recharging of expenses incurred with the housing stock [subparagraph b) of point 9 above], the respective VAT rate or any exemption should be applied, depending on the nature of the amounts to be charged; and

c. As for structural subsidies [subparagraph c) of point 9 above], the Tax Authority considered that they are not subject to VAT, in accordance with the provisions of Official Letter no. …, of 15 April 2011, of the VAT Services Department.

1. In light of the aforementioned binding information issued by the Tax Authority, the Claimant proceeded to review its procedures in VAT matters, for the situations and years in question.

2. The Claimant proceeded to issue credit notes correcting the VAT classification applied to the operations referred to above, cancelling the VAT assessed in excess in the invoices initially issued, having in its possession the respective proof of the Municipality's acknowledgment of this rectification.

3. Specifically, on 30 January 2014, the Claimant issued credit notes 2014…, 2014…, and 2014…, in which it calculated a total amount of VAT to be regularized of €1,456,552.30.

4. In order to recover the VAT it considered to have assessed in excess as a result of the VAT classification it had applied to the operations referred to, the Claimant presented, on 31 January 2014, a request for ex officio review, asking the Tax Authority for the regularization in its favour of the tax paid in excess during the years 2010 and 2011, in the total amount of €1,456,552.30.

5. Following said request, the Claimant was notified, on 13 February 2015, through Official Letter no. …, of 10 February, of the Decision to dismiss the request for ex officio review submitted.

6. Which, in turn, relegated its reasoning to the content of the draft decision to dismiss, previously notified to the Claimant here through Official Letter no. … of 14 January 2015, on 16 January 2015.

A.2. Facts Found to be Not Proven

None.

A.3. Reasoning for the Proven and Not Proven Facts

With respect to the facts, the Tribunal does not need to pronounce on everything alleged by the parties; rather, it is its duty to select the facts that matter for the decision and to distinguish the proven facts from the not proven facts (cf. Article 123, paragraph 2, of the Tax Procedure Code and Article 607, paragraph 3 of the Code of Civil Procedure, applicable ex vi Article 29, paragraph 1, subparagraphs a) and e), of the LFAT).

Thus, the facts pertinent to the judgment of the case are chosen and defined according to their legal relevance, which is established in view of the various plausible solutions to the legal question(s) (cf. former Article 511, paragraph 1, of the Code of Civil Procedure, corresponding to the current Article 596, applicable ex vi Article 29, paragraph 1, subparagraph e), of the LFAT).

Therefore, taking into account the positions assumed by the parties, in light of Article 110/7 of the Tax Procedure Code, the documentary evidence and the procedural file attached to the case, the facts listed above were considered proven, insofar as they are relevant to the decision.

B. LAW

a. Preliminary Issues

i. On Material Incompetence

The Respondent begins by arguing the exception of material incompetence of this arbitral tribunal, alleging that "The act subject to arbitral pronouncement is the decision dismissing the request for ex officio review, in which the Claimant requested only authorization to carry out tax regularizations in its favour", and therefore, not being within the scope of the competencies of the Arbitral Tribunals "the consideration of requests for authorization to carry out regularizations in favour of taxpayers or for restitution or refund of amounts assessed and paid in excess", there would be "material incompetence of the Tribunal to consider the request for restitution or refund of tax assessed in excess".

With all due respect, it is understood that the Respondent's position is not well founded in this matter.

Indeed, and from the outset, the request for ex officio review – naturally, and as unquestionably results from Article 78 of the LGT – is a request for ex officio review of tax acts (and not for consideration, in the first instance, of claims of taxpayers, in this case, authorizations for the performance of acts), tax acts which, in this case, can be none other than the acts of self-assessment of VAT by the Claimant, relating to the period between January of the year 2010 and April of the year 2011.

Therefore, this Tribunal has no doubt as to its material competence to assess the legality of those tax acts, as well as the decision on the request for ex officio review thereof, and to draw the proper and legal consequences, including, and where appropriate, condemning the AT to refund tax which, due to the illegality of such acts, has been induly paid.

The Respondent also argues the material incompetence of this Arbitral Tribunal, to the extent that "in the situation sub judice, there was always an obligatory requirement for prior gracious recourse in accordance with the provisions of paragraph 1 of Article 131 of the Tax Procedure Code", since "disputes having as their object the declaration of illegality of self-assessment acts, as occurs in the situation sub judice, are excluded from the material competence of arbitral tribunals if not preceded by gracious recourse in accordance with Article 131 of the Tax Procedure Code", an understanding which should be imposed "by force of the constitutional principles of the rule of law and separation of powers (cf. Articles 2 and 111, both of the Constitution), as well as of legality (cf. Articles 3, paragraph 2, 202 and 203 of the Constitution and also Article 266, paragraph 2, of the Constitution, in its corollary of the principle of indisponibility of tax credits inherent in Article 30, paragraph 2 of the LGT, which bind the legislator and all activity of the AT".

As can be seen, the AT bases its understanding on the provisions of Article 2(a) of Ordinance 112-A/2011, of 22 March, which excludes from the disputes cognizable by arbitral tribunals operating within CAAD, "Claims relating to the declaration of illegality of self-assessed acts, withholding at source and payments on account that have not been preceded by recourse to the administrative means in accordance with Articles 131 to 133 of the Tax Procedure Code".

The AT understands, in light of this rule, that it should be interpreted in its literal sense, excluding from the scope of tax arbitral jurisdiction claims relating to the declaration of illegality of self-assessment acts that have not been preceded by recourse in accordance with the said provisions of the Tax Procedure Code.

All of the AT's arguments in the matter, however, ultimately come down to sustaining that it was the legislator's intention to restrict the competence of tax arbitral jurisdiction, as far as knowledge of illegalities of self-assessment acts is concerned, solely to situations where there exists a gracious recourse filed in accordance with Articles 131 to 133 of the Tax Procedure Code, for that is what the text of the rule being interpreted says.

With all due respect, no substantial reason is discernible from among those offered by the AT that explains the rationality of the understanding it sustains. Indeed, no substantial reason is discernible – and the AT presents nothing in that sense – for why, considering the conditions and specificities peculiar to each of the gracious means at issue, in the same way that tax courts are bound, the legality of self-assessment acts should not be cognizable in arbitral proceedings.

On the other hand, even a literalistic reading of the rule in question, provided it is properly contextualized, does not inexorably lead to the result defended by the AT in the case.

Indeed, the expression used by such rule is parallel to the rule itself of Article 131/1 of the Tax Procedure Code, which should be understood as a realization of the assumed, and peacefully recognized, legislative intention that the tax arbitral process constitutes an alternative procedural means to the process of judicial challenge.

The rule of subparagraph a) of Article 2 of Ordinance 112-A/2011, of 22 March, should also be understood as being explained by the circumstance that, in its absence – and in light of the content of Article 2 of the LFAT – direct challenge of self-assessment acts would appear possible, without the need for prior administrative pronouncement. That is: considering that in light of the LFAT, any prior administrative intervention before arbitral challenge of a self-assessment was not configured as necessary, the content of the Ordinance should be interpreted as equating – in this matter – the tax arbitral process to the process of judicial challenge and not, as would follow from the position sustained by the AT, making a change from 80 to 8, converting a broader challengeability than possible in Tax Courts into a more restricted one.

Thus, no reason is seen – and, once again, the AT provides no support in that sense – for interpreting one and the other rule differently, all the more so as the wording of the rule of Ordinance 112-A/2011, of 22 March, ends up being less restrictive than that of the Tax Procedure Code, in that it does not include the expression "obligatorily", nor does it refer to "gracious recourse" but to "administrative means". Therefore, it is possible to read the letter of the law in the sense that only excluded from the scope of tax arbitral jurisdiction is the knowledge of claims relating to the declaration of illegality of self-assessed acts, withholding at source and payments on account that have not been preceded by recourse to the administrative means in terms compatible with Articles 131 to 133 of the Tax Procedure Code.

And it is this reading that is endorsed, following the Decision issued in process 48/2012T of CAAD, and subsequent arbitral jurisprudence, as well as the doctrine that has been formed[1], there being no grounds, insofar as the interpretation carried out is contained within the letter of the law, to deduce therefrom the violation of any constitutional provision, most notably, Articles 2, 3, paragraph 2, 20, 111, 202, 203 and 266, paragraph 2, all of the Constitution.

The Respondent also argues the material incompetence of this arbitral tribunal, alleging that the decision dismissing the request for ex officio review now being challenged "was motivated by the subsumption of the concrete case under the provisions of paragraph 3 of Article 78 of the VAT Code, having consequently concluded that the two-year deadline for invoice rectification was not met", and therefore "the legality of any tax assessment act was not considered".

Thus, in the AT's thesis, we would be "faced with an administrative act in tax matters which, by not assessing or disputing the legality of the assessment act, cannot be subject to challenge through judicial impugnation, as provided in subparagraph a) of paragraph 1 of Article 97 of the Tax Procedure Code and Article 2 of the LFAT", and therefore considering "that it does not fall within the scope of arbitral competencies to assess the legality or illegality of decisions dismissing requests for VAT regularization presented under Article 78 of the LGT", the raised exception would be verified.

Now, it is already clear from the request for ex officio review, to the Tribunal and to any average recipient, that the Claimant seeks the annulment of its VAT self-assessment acts relating to the period between January of the year 2010 and April of the year 2011, acts which are, moreover, within the knowledge and in the possession of the Respondent[2], and that such claim is based on the incorrect amount of tax mentioned in the invoices underlying those self-assessments, and moreover, the present arbitral action is also based on the alleged illegality of the decision dismissing the request for ex officio review of those self-assessment acts, based on the incorrect application of the deadline referred to in paragraph 3 of Article 78 of the VAT Code.

On the other hand, as has been stated already, the gracious means enshrined in Article 78 of the LGT does not have as its object requests for authorization or "requests for VAT regularization", but tax acts already carried out in the legal order.

Finally, it is evident to this Tribunal, as will be developed below, that the invoices whose correction the AT deemed inadmissible for being beyond the deadline of Article 78/3 of the LGT, are not the object of the request for ex officio review, but a prerequisite of the legality of the self-assessment acts by the Respondent – those very acts that are both the object of that request and of the present arbitral process – acts that will be, for what now matters, legal or illegal, depending on whether they conform to what is the Claimant's invoicing, in this case, legally relevant.

Therefore, there is no doubt that in the request for ex officio review, the legality of the Claimant's VAT self-assessment acts at issue in the present process was actually considered.

Finally, the Respondent alleges that "it is necessary to conclude, as stated above, that the present action has only as its immediate object the decision dismissing ex officio review, and does not have as its mediate object any tax assessment act", since "as the Claimant has not submitted the cancelled invoices, it is not possible to ascertain whether, on the one hand, the invoices issued in 2010 and 2011 contained an incorrect VAT classification in accordance with the understanding conveyed in the responses to the requests for binding information and, on the other hand, with the issuance of credit notes and new invoices, such error was corrected".

Now, with all due respect, the allegation in question is completely unfounded, since the presentation or non-presentation of cancelled invoices will always be a matter of proof of the facts alleged, and never of the Tribunal's competence.

On the other hand, as has been stated already, the mediate object of the present process is the VAT self-assessments of the Claimant for the periods between January 2010 and April 2011.

Thus, and in light of all the above, the Respondent's position not being well founded in this matter, the exception of incompetence of the Arbitral Tribunal should be judged unfounded.

ii. On Timeliness

Admitting already "that the mediate object of the present request for arbitral pronouncement is constituted by the self-assessment acts, (…) identified by the indication of the periods to which they relate", the Respondent then understands that "having exceeded the deadline for direct challenge of the tax self-assessment act (that is, of the primary act), the 'timeliness' of the request could only be founded on the existence of some gracious challenge means of the self-assessment act where a decision had been rendered denying/dismissing the claims formulated therein by the tax subject (which would constitute a second-instance act)".

The Respondent's understanding is based on the already-analyzed perspective above that "in the ex officio review proceedings the Claimant only requested authorization for VAT regularization, having not sought the (il)legality of any self-assessment act".

Now, as has been noted already, the request for review had as its object tax acts, and such acts were, unquestionably, the VAT self-assessment acts on which the present arbitral action is also based.

Thus, given that there exists a gracious challenge means of the self-assessment act where a decision was rendered denying/dismissing, in whole or in part, the claims formulated therein by the tax subject (which constitutes a second-instance act), this exception should also be judged unfounded.

b. On the Merits of the Case

The situation at issue in the present proceedings, which is submitted for decision by this Tribunal, is, in its essential contours, of simple definition.

Indeed, what occurred is that the Claimant, in the periods between January 2010 and April 2011, assessed in invoices it issued to the Municipality of …, and received from it, VAT which, in its opinion, wrongly and in excess, it included in its corresponding periodic declarations which, in due time, it delivered to the State. Subsequently, on 30/01/2014 the Claimant proceeded to issue credit notes correcting the VAT classification applied to the operations referred to above, cancelling the VAT assessed in excess in the invoices initially issued, in the amount of €1,456,552.30, and having in its possession the respective proof of the Municipality's acknowledgment of this rectification, and, on the same day, filed a request for ex officio review of the self-assessment acts embodied in said periodic declarations, which request was dismissed by the AT, as it understood that to correct the situation at issue, it was necessary to proceed with the correction of the invoices in accordance with the provisions of Articles 29/7 and 78/1 of the applicable VAT Code, within the deadline referred to in paragraph 3 of that latter article.

It is necessary, then, to assess the legality of such decision, as well as of the Claimant's self-assessment acts embodied in its periodic declarations for the periods between January 2010 and April 2011.

Following what has just been stated, it is necessary to verify whether the self-assessments in question were, or were not, carried out in non-conformity with the law.

To this end, Article 27/1 of the applicable VAT Code provides that "taxpayers are obliged to remit the amount of tax due, calculated in accordance with Articles 19 to 26 and 78, within the period provided for in Article 41, at legally authorized collection sites"[3], and the amount of tax due is calculated, by deduction, in accordance with Articles 19 and following of the same Code, to be effected on the tax incident on the taxable transactions they carried out.

For this purpose, and insofar as the present case is concerned, taxpayers are obliged to "Submit monthly a declaration relating to operations carried out in the exercise of their activity during the second month preceding, indicating the tax due or the credit existing and the elements that served as the basis for their respective calculation" (Article 29/1/c) of the VAT Code).

These are the declarations which, insofar as they give rise to an obligation to pay tax, constitute acts of (self-)assessment, were at issue in the request for ex officio review and are presently at issue.

Now, unless better informed, the VAT incident on the taxable transactions carried out by the taxpayer and which should be included in such declarations will be the VAT which was assessed in the corresponding invoices issued by the declaring taxpayer, in compliance with the legal obligations enshrined in Articles 36/5/d) and 37/1 of the VAT Code.

This understanding will be necessary, from the outset, in light of the Common VAT System itself (Directive 2006/112/EC of the Council, of 28 November 2006), which expressly provides (Article 203) that "VAT is due by all persons who mention that tax in an invoice", and that, in accordance with Article 226 thereof, the invoice must include, mandatorily, the applicable VAT rate[4].

Also – and as could not be otherwise – the national legal order points in the same direction, providing, from the outset, Article 2/1/c) of the VAT Code, that persons subject to the tax are "Natural or legal persons who, in an invoice or equivalent document, induly mention VAT".

From this results, clearly, as is considered, the obligation to remit to the State the VAT invoiced, even if induly, for whatever reason, including, obviously, both the application of a rate higher than due, and its undue mention, which are the two situations at issue in the present case.

For this very reason, Article 29/7 of the same Code provides that "An invoice or equivalent document must also be issued when the taxable amount of an operation or the corresponding tax is altered for any reason, including inaccuracy", and here account should be taken of Article 219 of the Directive referred to above, which provides that "Any document or message that alters the original invoice and specifically and unequivocally refers to it is assimilated to an invoice".

Finally, but no less relevantly, Article 97/3 of the VAT Code provides that "Assessments can only be annulled", following hierarchical appeal, recourse and/or challenge, "when it is proven that the tax was not included in the invoice or equivalent document passed to the acquirer in accordance with Article 37".

In this way it is demonstrated, as is considered, that the self-assessment carried out by VAT taxpayers in the declaration filed in accordance with Article 29/1/c) of the VAT Code can only be annulled, whether in the context of ex officio review or of challenge, as far as the determination of the amount of tax incident on the taxable transactions they carried out is concerned, if the tax in question is not contained in an invoice or equivalent document passed to the acquirer and in effect.

Which, moreover, makes sense, since the mechanics of the tax in question is based on the essentiality of the invoice, and therefore, from the outset, the acquirer(s) of the Claimant's services, who retain the invoices issued by the latter, will be able, meeting the requirements that the applicable law imposes on them, to deduct the tax contained therein.

It is concluded, thus, that in order to be able to annul the self-assessments in question, it was necessary that the invoices issued by the Claimant, in which it, admittedly, included 23% VAT, be corrected, in accordance with legal provisions, so that, in some cases, the mention of VAT be eliminated, and, in others, the rate that the Claimant considers to be correct would appear, as well as the corresponding amount of tax resulting from the application of this rate to the taxable amount of the operation.

It was necessary, therefore, that the procedure established in Article 78 of the VAT Code be followed, which provides, in its paragraph 1 that "The provisions of Articles 36 and following must be observed whenever, once the invoice or equivalent document is issued, the taxable amount of an operation or the respective tax undergoes rectification for any reason".

If such requirements are met, the self-assessments can be annulled.

If such requirements are not met, there will be no legal basis for the annulment of the self-assessments in question, as they are carried out in accordance with the rules governing them.

This conclusion is not affected by the circumstance – which is not disputed – that the operations in question, in light of the legal framework (the "regulatory framework", in the Claimant's words) are not taxable, or are so at a rate lower than the 23% invoiced by the Claimant. Indeed, from this results, not the illegality of the self-assessments carried out by the Claimant in the declarations referred to in Article 29/1/c) of the VAT Code, but of the assessments carried out by the Claimant itself in the invoices it issued, in compliance with Article 37/1 of the VAT Code[5], assessments whose correction was necessary by the Claimant itself, in accordance with what has been set out above.

Thus, as decided in the Decision of the Tax Court of the South of 04-07-2000, issued in process 1525/98[6]:

"1. Each taxpayer's VAT debt is found by deducting from the total tax mentioned in the invoices processed to their clients the tax borne in the acquisition invoices of goods and services intended for their production, all reported to a certain period of time;

1. If there is an alteration in the taxable value of the goods or services, the taxpayer may proceed with its rectification, which is optional if the tax mentioned in the invoice is superior, and mandatory if such tax is inferior;

2. In the case of tax mentioned in the invoice of an amount superior to that due, as long as it is not rectified, it is still due, and it falls to the Tax Authority to assess it additionally, in case the taxpayer does not do so;".

In the case, it is determined that the Claimant proceeded to issue credit notes correcting the VAT classification applied to the operations referred to above, cancelling the VAT assessed in excess in the invoices initially issued, in the amount of €1,456,552.30, and having in its possession the respective proof of the Municipality's acknowledgment of this rectification.

The Respondent questions, in the first place, in arbitral proceedings, whether the Claimant has complied with the provisions of Articles 29/7 and 78/1 of the applicable VAT Code, since it has not attached copies of the corrected invoices it will have issued to the case.

With all due respect, it is understood that the AT is not well founded in such matter, insofar as the provisions in question must be interpreted in light of the applicable Community Law and, as has been seen already, Article 219 of the VAT Directive provides that "Any document or message that alters the original invoice and specifically and unequivocally refers to it is assimilated to an invoice", which is the case, unquestionably, as is considered, of the credit notes presented by the Claimant.

The AT also argues, in the present proceedings, that the regularization of the tax resulting from the rectification of the invoices in question should take place in the declaration of the period in which the rectification occurs, and not in the period to which the corrected invoices relate, stating that "the restitution of tax truth, in the concrete case, is effected through the issuance of new invoices, which should be reported in field 40 of the periodic declaration relating to the period in which the regularization was effected, and never through the replacement or annulment of the periodic declarations relating to the period corresponding to the invoices that were annulled".

Also here it is considered that the AT is not well founded. Indeed, and from the outset, that Authority bases this position on Annex V to Circular Official Letter no. 30082/2005, of 17 November, of the VAT Services Department, which contains no reasoning.

Now, properly interpreted, the applicable rules will have to be concluded in the opposite sense, that is, that the rectification of the invoices should be reflected in the periodic declaration relating to the period in which they were issued, and not the period in which the rectification took place.

Indeed, the rectification does not correspond to the performance of a new taxable transaction, or even to an alteration thereof, but rather to the rectification of the taxable value thereof, or of the amount of tax incident thereon, contained in the invoice originally issued[7], and therefore it should be reflected in the tax assessment for the period in which the corrected invoice was issued, and not that in which the correction took place.

This will be, moreover, the basis for the temporal limitation of 2 years, enshrined in the provision of paragraph 3 of Article 78 of the VAT Code.

Indeed, unless better informed, such limitation will be directly related to the general limitation period for the right to assess taxes, fixed in Article 45/1 of the LGT, on the one hand, and to the mechanism of the deduction right, intrinsic to the functioning of VAT, on the other. That is, since the assessment of tax by a VAT taxpayer normally corresponds to the right to deduction of another taxpayer, the downward correction by a VAT taxpayer of the taxable value of an operation, or of the tax due on it, will normally correspond to a decrease in the corresponding right to deduction of another taxpayer.

It will be this circumstance that will justify the provision of the reduced period of 2 years for the rectifications in question, since if this were not the case, and the taxpayer could proceed with them in 4 years, with the rectification occurring near the end of this period, the AT would be unable to supervise and correct the repercussions of the rectification operated in the legal sphere of the counterparty of the taxpayer effecting the correction.

Therefore, as will be seen, the limitation to two years of the possibility of correction will only be comprehensible within the framework of the understanding that considers that the rectification does not correspond to the performance of a new taxable transaction, or to an alteration thereof, but rather to the rectification of the value of the original transaction, or of the amount of tax incident on it, contained in the invoice originally issued, since if this were not the case, and the rectification were considered a new taxable transaction or an alteration thereof, it would make no sense to limit the possibility of rectification to two years counted from the operation underlying the rectified invoice, since the AT would always have the period of 4 years, counted from the rectification, to supervise and correct what it saw fit.

Indeed, precisely because the rectification relates to the period in which the inaccurate invoice was issued, can it only "be carried out without any penalty until the end of the period following that to which the invoice to be rectified relates"[8].

It is concluded, in this way, that the rectifications carried out in accordance with paragraph 3 of Article 78 of the VAT Code, should be reflected in the tax assessment for the period in which the corrected invoice was issued, as occurred in the case sub iudice, and not that in which the correction took place.

Notwithstanding that it is considered, as has been seen, that the Claimant proceeded with the correction of the invoices which it understood to suffer from error, by undue application of VAT, or by application of a rate higher than due, and that the rectifications should be reflected in the self-assessments of the periods in which the rectified invoices were issued, as occurred, it is considered that the rectifications carried out by the Claimant, at issue in the present process, will not be effective in VAT matters, as they occurred beyond the deadline enshrined in Article 78/3 of the VAT Code, as was understood in the decision on the request for ex officio review.

The Claimant argues that that deadline will not be applicable, in casu, since, in its opinion, "the rule in paragraph 1 of Article 98 of the VAT Code is applicable to the situation at issue, which provides that 'when for reasons attributable to the services, tax higher than due has been assessed, ex officio review shall proceed in accordance with Article 78 of the LGT', and the VAT assessed in excess may be recovered within the period of 4 years".

Now, with all due respect, it is considered that, contrary to what the Claimant appears to understand, the rules of Article 98/1 and 78/3 of the VAT Code will not be incompatible or exclusive of one another.

Indeed, and following all that has been set out above, it must be borne in mind that the assessment of tax operated in the invoice issued by a taxpayer, in which it charges the tax to the acquirer of the good or service, will be one thing, and another will be the self-assessment carried out in the corresponding periodic declaration, where it fixes the tax to remit to the State.

As has been seen, also, the self-assessment must be in conformity with the VAT actually assessed by the declaring taxpayer in its invoicing (deducted from VAT mentioned in invoices in which it appears as acquirer, and which is deductible). Therefore, the illegality thereof (of the self-assessment), to the detriment of the taxpayer, for what now matters, may stem from two types of situation, namely:

• from the non-conformity between the self-assessment and the VAT actually assessed by the declaring taxpayer in its invoicing, or mentioned in invoices in which it appears as acquirer, and which is deductible;

• from the downward rectification of the VAT actually assessed by the declaring taxpayer in its invoicing.

In either case, Article 98/1 of the VAT Code will apply. However, in the first of the said cases, the self-assessment will already be illegal, for not being in conformity with the VAT actually assessed by the declaring taxpayer in its invoicing, or mentioned in invoices in which it appears as acquirer, and which is deductible. In the second of the said cases, the self-assessment will only become illegal, superveniently, as a function of the rectifications in the invoicing. And here is where the rule of paragraph 3 of Article 78 of the VAT Code will come in, which does not limit the deadline for ex officio review of VAT self-assessment acts, a matter regulated by Article 98/1 of the VAT Code, nor does it, as the AT understood in the decision on the request for ex officio review, establish a special deadline for the regularization of errors in the self-assessment[9], but merely restricts the effectiveness, for VAT purposes, of rectifications of invoices in which tax in excess was assessed[10].

In the concrete case, the errors on which the Claimant bases its claim occurred in the assessments included in the invoices it issued to the Municipality of …, and not in its self-assessments, which were made in conformity with the tax it mentioned in those invoices, and, as such, lawfully. Therefore, the Claimant, admittedly[11], proceeded with the rectification of the invoices it issued to the Municipality of …, precisely because it was aware that the self-assessments it carried out would only be illegal – and, as such, susceptible to being ex officio reviewed or contentiously annulled – if they were in non-conformity with the VAT assessed in its invoicing.

It happens, however, that the rectifications undertaken by the Claimant took place beyond the deadline referred to in Article 78/3 of the VAT Code, and relate to invoices where tax in excess will have been assessed.

The Claimant alleges that such a rule (of Article 78/3 of the VAT Code) will not be applicable, since there will not be "inaccurate" invoices at issue, as is the prerequisite of that rule, arguing, in this matter, with arguments contained in the decision of the arbitral process 245/2013-T of CAAD, where it was written that:

"Given that the requirements to which invoices must comply are expressly provided for in Article 36, paragraph 5 of the VAT Code, we are faced with a situation of invoice inaccuracy when one of the requirements to which it is bound is not observed".

It is disagreed, however, and from the outset, with this understanding, insofar as it is understood that an invoice inaccuracy situation will exist, not only when one of the requirements to which it is bound is not observed (for example, there being no mention of the applicable VAT rate, or the tax assessed), but also when one of such requirements is incorrectly observed (when the mentioned rate or the tax assessed are not the correct ones), as happens in the case at hand.

Moreover, one cannot lose sight of the fact that paragraph 3 of Article 78 of the VAT Code is directly related to paragraph 1[12], there being, therefore, no doubt that the rectification referred to in paragraph 3 is the same as that referred to in paragraph 1, that is, relating to the "taxable amount of an operation or the respective tax", which not only, normally, in the cases of rectification, will not be omitted, but simply incorrect, and, in cases where they are omitted, from the rectification of the invoice, at least as far as concerns the omission of the tax due, will never result in the payment of tax to a lesser amount[13], and therefore, at best, the interpretation propounded in the decision on which the Claimant relies would result in a (practically) total disuse of the regime of Articles 78/1 and 3 of the VAT Code.

Therefore, it is considered, in summary, that an invoice inaccuracy situation, relevant for the purposes of, and capable of correction in accordance with, paragraphs 1 and 3 of Article 78 of the VAT Code, will exist when the taxable amount of the operation or the respective tax mentioned therein are not the correct ones, in light of the facts ascertained and the applicable law.

On the other hand, as has been seen already, the Claimant itself – correctly – became aware that in order for the correction of the self-assessments it carried out to be possible, it was necessary that, previously, the invoices it issued be corrected, in accordance with legal provisions, so that, in some cases, the mention of VAT be eliminated, and, in others, the rate that the Claimant considers to be correct would appear, as well as the corresponding amount of tax resulting from the application of this rate to the taxable amount of the operation, and it is certain that both the rate and the amount of tax are expressly provided for in subparagraph d) of paragraph 5 of Article 36 of the VAT Code.

Further it is stated in said decision that:

"the legal-tax classification of an operation is not foreseen in any of the requirements stipulated in Article 36, paragraph 5 of the VAT Code.

Notwithstanding the reference to applicable rates and the amount of tax due, it appears that this does not encompass errors in legal classification. Indeed, the amount of tax indicated in the initial invoices issued (subject to alteration) was in accordance with the VAT classification given by the Claimant to its operations.

We are faced with situations of invoice inaccuracy, with respect to the requirements in question, when, notwithstanding a correct classification of the operation, the taxpayer indicates an incorrect VAT rate or the amount of tax is incorrectly computed or indicated in the invoice.

Thus, the incorrect application of a particular legal regime to the operations carried out does not constitute an invoice inaccuracy, and therefore it is clear that it cannot have the regime referred to in Article 78, paragraph 3 of the VAT Code applied to it.

The error in the legal-normative classification in VAT of an operation is not an invoice inaccuracy, in the terms referred to in Article 78, paragraph 3 of the VAT Code, because it embodies an error of law regarding the legal regime applicable and not an inaccuracy in compliance with the formal requirements provided for invoices".

With all due respect for what was decided, and following what has just been set out, if it is true that the legal-tax classification of an operation is not expressly provided for in any of the requirements stipulated in Article 36, paragraph 5 of the VAT Code, it is equally true that the mention of the amount of tax due and the applicable rate are expressly provided for therein, in subparagraph d), being – unless better informed – impossible to determine whether a tax amount is due on a particular operation, and what the applicable rate is, without proceeding to a legal-tax classification – correct or incorrect – of that operation.

On the other hand, it will be inevitable that one of the normal causes – if not the main one – of inaccuracies in the mentions imposed by subparagraph d) of paragraph 5 of Article 36 of the VAT Code will be, precisely, the incorrect legal-tax classification.

Thus, being correct the link – resulting from the text of the rule of Article 78/1 of the VAT Code itself – between the inaccuracies capable of correction in accordance with that paragraph 1 and the subsequent paragraph 3, and Article 36/5 of the VAT Code, it is considered that the said regime – of paragraphs 1 and 3 of Article 78 – will be applicable to the rectifications of inaccuracies in the mentions imposed by that paragraph 5, regardless of the cause of such inaccuracies, that is, whether these are due to an incorrect classification of the law or the facts, intentional fraud, negligence, incompetence, carelessness, or any other cause or motivation.

No material basis is discerned, indeed, to distinguish, as is done in the decision under analysis, the cases in which "the taxpayer indicates an incorrect VAT rate", intentionally, because it is wrong in the classification it makes of the operation, from all other cases in which this occurs, unintentionally or deliberately. Indeed, as has been pointed out already, it is considered that the temporal limitation enshrined in Article 78/3 of the VAT Code has underlying the need to ensure the AT sufficient time for, within the limitation period of the taxes, to proceed with the supervisions and corrections that, as a function of the rectifications carried out, become necessary. Now, the truth is that such necessity is verified precisely with the same intensity, whether the rectification occurs because the taxpayer proceeded, in the invoices it issued, with an incorrect classification of the law of the taxable operation in which it was involved, or occurs for any other reason, with no injustice being discernible (all the more so, "manifest")[14], in the circumstance that the Tax Authority can effect corrections against the taxpayer within the 4-year period, and the taxpayer is only permitted to provide for corrections in its favour within a shorter period (2 years), from the outset, because the corrections which will be limited to 2 years, in accordance with Article 78/3 of the VAT Code will be the corrections in the assessments to third parties[15], carried out by the subject in invoices it issued, from which results tax to pay less, and not in the self-assessments of tax to be delivered by itself to the State, and, secondly, because, as has been seen, resulting from the rectification of the invoices, in accordance with Article 78/3, from which results tax to less, the need, normally, of corrections downstream[16], at least[17], it will be just that the AT has a reasonable period – and two years is one – to ensure that such corrections are verified[18].

On the other hand, if the cases in which "the amount of tax is incorrectly computed or indicated in the invoice" following material errors or calculation errors, are capable of rectification in accordance with paragraphs 1 and 3 of Article 78 of the VAT Code, such situations do not exhaust the scope of that kind of rectification, from the outset because when the legislator intended that this be so, it said so, as happens in paragraph 6 of the same Article 78, where it referred expressly[19].

It is understood, therefore, that "the incorrect application of a particular legal regime to the operations carried out" may, or may not, constitute an invoice inaccuracy, depending on whether or not it accords with what the law properly interpreted, applied to the facts as they occurred, requires.

In this way, if, for example, by "incorrect application of a particular legal regime to the operations carried out" a taxpayer does not deduct tax correctly mentioned in invoices it possesses, and which is deductible, one is faced with an error of law in the self-assessment, without there being any invoice inaccuracy[20].

On the other hand, if "the incorrect application of a particular legal regime to the operations carried out" leads to the invoices not having been issued in the terms in which, in light of the law and the facts, they should have been, then they will be inaccurate and, as such, in need of rectification.

Thus, if here as there, "the amount of tax indicated in the initial invoices issued (subject to alteration) was in accordance with the VAT classification given by the Claimant to its operations", the fact is that "the amount of tax indicated in the initial invoices issued" will not, after all, accord with what the Claimant now considers to be the correct interpretation of the law and the facts, and in light of which such invoices will then be inaccurate, both now and at the time they were issued.

In other words: if the interpretation of the law and facts now sustained by the Claimant is correct, so it will be now, as it was when the invoices were issued, and therefore, in that case, the invoices will be objectively inaccurate, both now and at the moment they were issued, and it is not discernible how it could be legitimate to assess the regularity of the invoice as a function of what, at each moment be the assessment of the factual and legal framework underlying it, carried out by its issuer.

Thus, the Claimant's assertion is not endorsed, according to which the price and the amount of tax due, indicated in the said invoices, were correct "having regard to the VAT classification given, at the time, by the Company to the said operations". Indeed, the consideration of this subjective understanding of the Claimant will lack support in the law, since nothing in the legal regime at issue – unless better informed – permits sustaining that the correction of the invoices should be assessed as a function of what is the subjective perception – whether of the facts or of the applicable legal framework – of its issuer.

It is thus understood, and in summary, that the regularity of the invoice should be assessed objectively, based on what is the law concretely applicable to the facts as they occurred, and therefore, in the perspective in which the Claimant sustains its claim, the invoices at issue in the present process should be reputed as inaccurate.

Further it was written still, in the decision in question, that:

"in the concrete case we are faced with an 'error in the classification of operations' or 'error of law'. Indeed, the Claimant had been giving the operations identified in subpoints i) to iii) of subparagraph g) of the proven facts a particular classification in VAT, having proceeded with an alteration of it.

In this context, the Claimant issued credit notes cancelling the initial invoices and issued new invoices (cf. subparagraph l) of the proven facts).

Thus, it is necessary to assess whether the said classification error or 'error of law' is a requirement that leads to a rectification being capable of being qualified as an invoice 'inaccuracy'.

In this context, it does not appear that the classification of the transaction carried out is capable of being framed within the concept of 'inaccurate invoice' provided for in Article 78, paragraph 3 of the VAT Code".

Now, once again, it is considered that the reading to be made of the applicable legal regime will be distinct from what was done there. Indeed, in light of the content of the rules of paragraphs 1 and 3 of Article 78 of the VAT Code, it appears that whenever an invoice requires rectification to the taxable amount or the amount of tax mentioned therein, it will be, for the purposes of Article 78/3 of the VAT Code, inaccurate, regardless, as has been seen already, of the subjective motivations of such inaccuracy[21].

This conclusion is not affected by the wording of Article 29/7 of the VAT Code, according to which "An invoice or equivalent document must also be issued when the taxable amount of an operation or the corresponding tax is altered for any reason, including inaccuracy", since "the taxable amount of an operation or the corresponding tax" may, in accordance with the VAT Code, be altered for other reasons than the inaccuracy of the invoice, as understood above, in cases, for example, referred to in paragraph 2 of Article 78 thereof.

For all the foregoing, it is considered that, in the case of a downward rectification of the amount of tax relating to the taxable operations carried out by the Claimant, the rectification of the invoices should have been effected within the period of 2 years, as follows from paragraph 3 of Article 78 of the VAT Code.

Having not been done so, it is necessary to determine what the consequences of exceeding such deadline are.

Such consequences will not, from the outset, be reflected in the timeliness of the request for ex officio review of the tax act, a matter which, as has been seen already, is exclusively regulated by Articles 98/1 of the VAT Code and 78/1 of the LGT.

Nor will the violation of the temporal limitation at issue result in, as is considered, the illegality/invalidity of the rectification carried out by the Claimant. Indeed, the relevance of invoices is not exhausted at the tax level and, within this area, in the scope of Value Added Tax.

Therefore, in view of the violation of a rule proper to this tax, relating to regularizations, the consequence of such violation should be confined to the scope of the regulation in question. For this reason, it is considered that invoices in which tax in excess was assessed, rectified beyond the deadline set out in paragraph 3 of Article 78, will be valid and legally relevant, except as far as concerns the downward regularizations in VAT matters, in which they will not be capable of producing any effects (they will, for these purposes, be ineffective).

Therefore, having the rectifications carried out by the Claimant in its invoicing, at issue in the present process, been carried out beyond the deadline fixed in Article 78/3 of the VAT Code, they will not be capable of producing effects as far as the intended regularizations, at least in VAT matters, are concerned.

Therefore, the Claimant's self-assessments at issue in the present process will not suffer from any illegality, insofar as they are in accordance with its invoicing, as this matters for the purposes of the tax in question, and therefore they should be reputed as conforming to the rules governing self-assessment, analyzed above, with it not being verified that, contrary to what the Claimant alleges, and presumed by Article 98/1 of the VAT Code, in the self-assessment more tax than due was assessed[22], and its annulment is prohibited in accordance with paragraph 3 of Article 97 of the VAT Code.

Neither will it be a case of application of Article 98/2 of the VAT Code, also invoked by the Claimant, insofar as – manifestly – a situation of the right to deduction is not at issue, nor reimbursement of tax remitted in excess. Indeed, having the Claimant remitted to the State the tax it invoiced (which appears in its invoicing legally relevant for the purpose), it will have remitted, precisely, the tax due, and not in excess.

The Claimant's argument is not accepted, either, according to which "properly speaking, the request for ex officio review submitted by the Claimant does not constitute a correction of inaccurate invoices but rather, differently, a request for ex officio review submitted with a view to correcting an error in the classification of operations (i.e., reiterate, an 'error of law')", which, in itself, and with all due respect, contains various misunderstandings underlying the claim formulated.

Thus, and from the outset, it is true that "the request for ex officio review submitted by the Claimant does not constitute a correction of inaccurate invoices", nor could it, since the request for ex officio review, as has been stated already, has as its object tax acts, and therefore, in the case, had as its object the self-assessments incorporated in the periodic VAT declarations of the Claimant for the periods in question.

For the same reason, however, it is not a question of that request being "a request for ex officio review submitted with a view to correcting an error in the classification of operations", since the "error in the classification of operations" (such "error of law") in question did not occur in the self-assessments that are the object of the request for ex officio review, but in the assessments carried out by the Claimant to the Municipality of …, in the invoices it opportunely issued to it.

The "correction of inaccurate invoices" is, therefore, in the case, a requirement of the illegality of the self-assessments in question. That is: these (the self-assessments), as has been seen, will be legal if they are in conformity with the invoicing legally relevant, and will be illegal if they are not. Having the rectification of the inaccurate invoices been carried out beyond the deadline enshrined in Article 78/3 of the VAT Code, they will not be acceptable for VAT regularization purposes, and therefore, for the purposes of the legality of the corresponding self-assessments of tax to be delivered to the State, they will be relevant, solely, in accordance with the rules indicated above, the original invoices.

The Claimant's allegation will also not proceed, based on "paragraph 3 of Article 78 of the VAT Code (…) combined with the provisions of paragraph 1 of Article 98 of the same Code", according to which "the regime provided for in that legal provision allows for the correction of inaccurate invoices within a period of 2 years, without it being necessary for their prior assessment by the Tax Authority (…) while maintaining, however, the possibility of, when the tax to be corrected has been paid more than 2 years ago, requesting from the Tax Authority the respective ex officio review"[23], as one would be here, once again and with all due respect, faced with a confusion of the scope of the rules involved. Indeed, it is reiterated that Article 78/3 has as its object invoices in which the taxpayer assessed tax in excess to third parties, and which suffer from inaccuracy in the taxable amount of the operation or the respective tax, while Article 98/1, for what now matters, refers to the review of tax acts in which it is the taxpayer itself that is the debtor of tax, and which, in the case, correspond to VAT self-assessments.

Therefore, and for all the foregoing, the arbitral request formulated should be entirely unfounded.

C. DECISION

Therefore, this Arbitral Tribunal decides to judge the arbitral request formulated unfounded and, consequently,

a) Absolves the Respondent of the claim;

b) Condemns the Claimant to pay the costs of the proceedings.

D. Case Value

The case value is fixed at €1,456,552.30, in accordance with Article 97-A, paragraph 1, a), of the Tax Procedure Code, applicable by force of subparagraphs a) and b) of paragraph 1 of Article 29 of the LFAT and paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is fixed at €19,584.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Claimant, since the claim was entirely unfounded, in accordance with Articles 12, paragraph 2, and 22, paragraph 4, both of the LFAT, and Article 4, paragraph 4, of the cited Regulation.

Notify the parties.

Lisbon

14 December 2015

The Presiding Arbitrator

(José Pedro Carvalho - Reporting Arbitrator)

The Arbitrator Member

(Luís Menezes Leitão)

The Arbitrator Member

(Ana Maria Rodrigues)

[1] Cf., in this sense, Carla Castelo Trindade, "Legal Framework for Tax Arbitration - Annotated", Almedina, pp. 96 et seq.

[2] Which, moreover, invokes the application of Article 74/2 of the LGT.

[3] Being that, in the present case, in which invoice issuance is mandatory, the tax became due with the issuance thereof, in accordance with Article 29/1/a) of the VAT Code.

[4] "Without prejudice to the specific provisions laid down in this Directive, the only mentions that must compulsorily appear, for VAT purposes, in invoices issued in application of Articles 220 and 221 are as follows: '(…) 9) The VAT rate applicable;'"

[5] "The amount of the tax assessed must be added to the amount of the invoice or equivalent document, for purposes of its exaction from the acquirers of the merchandise or from the users of the services".

[6] Available at www.dgsi.pt.

[7] Although it may not be very clear at first sight, it can be easily illustrated: an alteration of the taxable transaction will occur when, for example, the parties, following the performance thereof, agree on a price reduction; there will be an alteration in the invoice when, by oversight, it has been issued with a price different from what had been agreed.

[8] Cf. Article 78/3 of the VAT Code.

[9] Indeed, the self-assessment, as long as it is in conformity with what has been invoiced – for what now matters – will be regular. Hence, it should be understood that Article 78/3 of the VAT Code does not dispose on the regularization of the self-assessment, but of the assessment of tax in invoices. It will be the rectification of these, if legitimate, which, subsequently, will require the regularization of the self-assessment.

[10] Thus, if invoices are altered within the deadline referred to in Article 78/3 of the VAT Code, nothing will prevent the request for ex officio review from being filed within the 4-year period referred to in Article 98/1 of the VAT Code, thereby demonstrating that, contrary to what the Claimant appears to understand, the applicability of this latter article does not imply the exclusion of the applicability of the former. From this, moreover, also stems the understanding that in the request for ex officio review the merits of the Claimant's request were actually considered, a prerequisite of this Tribunal's competence, in accordance with what was decided above. Indeed, if in the decision on that request, it had been considered that it had been filed beyond the deadline of Article 98/1 of the VAT Code and 78/1 of the LGT, a procedural prerequisite would be at issue, without knowledge of the merits. Being the deadline of Article 78/3 of the VAT Code at issue, the timeliness of the procedural means used is not questioned, but rather (the effectiveness of) the Claimant's right to correct the invoices it incorrectly issued.

[11] Cf. points 54 to 56 of the Initial Claim, and 21, 22, and 89 to 95 of its Submissions.

[12] Indeed, paragraph 1 provides that "The provisions of Articles 36 and following must be observed whenever, once the invoice is issued, the taxable amount of an operation or the respective tax undergoes rectification for any reason", and paragraph 3 that "In cases of inaccurate invoices which have already given rise to the entry referred to in Article 45, the rectification is mandatory (…) [or] optional".

[13] Indeed, if the invoice is silent as to the tax due, the rectification consisting of its mention will give rise to the obligation to pay the tax mentioned.

[14] And, consequently, no violation of Article 266 of the Constitution.

[15] Indeed, one cannot lose sight of the fact that, economically, the correction sought by the Claimant will be, in its view, neutral. Indeed, the Claimant remitted to the State the tax it charged the Municipality of …, hence, as results from the case, having any patrimonial harm for it. The sought-for regularization would entail the obligation of the Claimant to refund to the Municipality the amounts of tax induly invoiced, and, for that Municipality, the obligation to correct the deductions effected, in accordance with Article 78/4 of the VAT Code. That is: the taxpayer subject to the limitation of 2 years enshrined in Article 78/3 of the VAT Code will not, normally, as occurs in the case, be harmed by the inaccurate invoicing.

[16] Namely those prescribed by Article 78/4 of the VAT Code.

[17] Since, in certain cases, the reduction in the amount of VAT may entail, for example, corrections at the level of Corporate Income Tax.

[18] This will be, therefore, one of those situations necessary to prevent fraud and tax evasion, proper to the regime of the tax in question.

[19] "The correction of material or calculation errors"

[20] These were the cases considered, for example, in arbitral processes 185-2014T, 277-2014-T and 56-2015-T.

[21] That is, of the incorrect mention of the taxable amount or the amount of tax in the invoice having been involuntary or deliberate, and, in this case, of having been due to an error in the legal classification of the operation, or to any other subjective motivation of the issuing taxpayer.

[22] Indeed, being the self-assessment in conformity with the invoicing legally relevant for the purpose, the tax therein determined must be taken as correct. Where, possibly, tax higher than due was assessed, it was in the invoices issued by the Claimant to the Municipality of …. However, the rectification of these, as has been seen, at the time it occurred, was not already capable of having relevance for purposes of VAT regularizations.

[23] An assertion which is, moreover, contradictory with another, already analyzed above, according to which "properly speaking, the request for ex officio review submitted by the Claimant does not constitute a correction of inaccurate invoices".