VAT Deduction Rights in Financial Institutions: Neutrality Principle and Unjust Enrichment – CAAD 317/2017-T

ARBITRAL DECISION

I – Report

1. On 8.05.2017, the Claimant, A…, S.A., with tax identification number…, with registered office at …, no.…, …, Lisbon requested the CAAD to constitute an arbitral tribunal, pursuant to article 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as LRAT), in which the Tax and Customs Authority is the Respondent, with a view to declaring the illegality and partial annulment of the tax assessment act for Value Added Tax[1] no.…, relating to the first quarter of 2016.

2. The petition for constitution of the arbitral tribunal was accepted by the Honourable President of the CAAD and notified to the Tax and Customs Authority.

Pursuant to the provisions of article 6, paragraph 1, of the LRAT, by decision of the President of the Ethics Council, duly communicated to the parties within the applicable legal periods, the undersigned was designated as arbitrator, who communicated acceptance of the appointment to the Ethics Council and to the Administrative Arbitration Centre within the regularly applicable period.

The Arbitral Tribunal was constituted on 21-07-2017.

1. The grounds presented by the Claimant in support of its claim were, in summary, as follows:

I.

The Claimant is a financial institution with registered office in Portugal, held 92.988% by D…, S.A., a credit institution, specializing in the provision of comprehensive banking, savings and investment services, exempt from VAT under the provisions of article 9, paragraph 27 of the VAT Code.

However, a substantial part of the "exempt" operations carried out confer the right to deduct VAT, under the special regime set out in point V of article 20, paragraph 1, subparagraph b) of the VAT Code, as well as article 169, subparagraph c) of the VAT Directive, since the Claimant has privileged its relationship with the Angolan market.

In the context of calculating the pro rata for the years 2014 and 2015, the Claimant identified deductible VAT which it entered in the periodic declaration for 2016/03 and requested reimbursement of the tax credit in the amount of €327,431.95 on 10 May 2016.

Following internal tax inspection action carried out by the Tax Authority on the Claimant to assess the requested VAT refund, it proposed corrections to deductible VAT in the amount of €85,329.25.

The Claimant acquired, under a leasing contract, for the residual value of €22,629.04 a vehicle from B….

In the case in question, the Claimant entered into a leasing contract with B… where the latter acted as lessor, that is, transferred the use and enjoyment of the vehicle to the Claimant and this, in return, proceeded to payment of a monthly rental.

In turn, these rentals were immediately recharged to one of its employees E…, issuing the Claimant for this purpose the corresponding invoices and liquidating the respective VAT.

The same procedure was adopted for the residual value when the vehicle was sold.

The VAT incurred was recharged under the provisions of article 21, paragraph 2, subparagraph c) of the VAT Code, with a view to obtaining the respective reimbursement from the employee. Thus, the provision of the rule that excepts the exclusion of the right to deduction in these cases is met.

And so it should be, since, although we are dealing with expenses relating to the sale of a passenger motor vehicle, these are incurred by a taxable person, in the case sub judice the Claimant, acting in its own name but on behalf of a third party, that is on behalf of its employee.

Once all the requirements of article 21, paragraph 2, subparagraph c) of the VAT Code have been verified, the right to deduction of the VAT incurred should be recognized on these terms, that is, in the amount of €4,231.45.

A classification that, from the VAT perspective, is correct and ensures neutrality of taxation (the employee ultimately bore the VAT and could not deduce it).

Otherwise, we would have unjustified and unsustainable double taxation relating to a single consumption.

Finally, it should be noted that if there were no right to deduction in the Claimant's sphere, the recharged vehicle should be exempt (thus ensuring neutrality) as per article 9, paragraph 32 of the VAT Code, as well as article 136, subparagraph b) of the VAT Directive. Now, the Tax Authority only corrected one of the terms of the equation, without drawing the due conclusions and exempting the recharged item, thereby reimbursing the VAT liquidated to the Claimant.

II.

The Claimant contracted in 2011 the company C… for the development of the software "Core Banking Miner" with the purpose of meeting the needs of the future banking activity it began to develop from 2012, following authorization from the Bank of Portugal.

As can be seen in the respective contract and software description attached to said contract, it contains core-banking functionalities such as "private banking", "trade finance", "asset management", etc.

According to the Tax Authority, these functionalities are intended mostly to support activities which, under the provisions of article 9, paragraph 27 of the VAT Code are exempt from VAT and do not confer the right to deduction, since they are closely linked to banking activity, but this conviction of the Tax Authority is not correct.

First, because there are activities/operations that the application (software) supports that are taxed, such is the case of custodian position control (securities custodian services).

Second, because a significant part of the financial operations carried out by the Claimant confer the right to deduction by being carried out with third countries (export of financial services) and would fall under the special deduction regime of point V of article 20, paragraph 1, subparagraph b), of the VAT Code.

In fact, the software was being developed over the years 2011 to 2015 and recorded as an intangible asset, with commencement of operations in 2012.

In 2014, the claimant agreed with D…, S.A. the sale of the software license in question, that is, there was a change in the allocation of the asset (intangible).

Thus, the software ceased to be the property of the Claimant and passed to the ownership of a third party, who paid the Claimant for it.

The operation of the sale of the software is a provision of services, under the provisions of article 4, paragraph 1 of the VAT Code, subject to VAT, which confers the right to deduction.

Thus, the Claimant, with respect to the invoices for charges with the software received in the year of sale – 2014 – (and not going back, that is, it was not recovering VAT (tax) from software costs when it was being used in banking activity) exercised the right to deduction under the provisions of article 20, paragraph 1, of the VAT Code.

The fact of being in fixed assets (intangible asset) does not alter this understanding.

On the other hand, article 24, paragraph 5 of the VAT Code provides that in this case the "transfers of assets from fixed assets during the regularization period are made once, for the period not yet elapsed, considering that such assets are allocated to a wholly taxed activity in the year in which the transfer occurs and in the remaining period until the regularization period is exhausted. If, however, the transfer is exempt from tax, under articles 30) or 32) of article 9, it is considered that the assets are allocated to a non-taxed activity, and in the first case the respective regularization must be carried out."

At most, ad cautelam, as a subsidiary argument, it will always be said that at least the VAT incurred with the software would be deductible on the basis of the percentage of the pro rata (32% in 2014) so that the correction would never cover the total amount of the VAT as the Tax Authority maintains, it would have to accept the pro rata of 32%.

1. The Tax Authority – Tax and Customs Administration, when called upon to respond, contested the Claimant's claim, defending itself by impugnation, in summary, with the following grounds:

I.

With respect to the vehicle, it should be noted, as is well established in the inspection report, that it was accounted for as a fixed asset.

Therefore, as is clear, in accordance with the Claimant's accounting, the VAT could not be deducted (as concluded in the inspection report), under the provisions of article 21, paragraph 1, subparagraph a) of the VAT Code.

On the other hand, the Claimant alleges, but does not prove, that it paid the residual value of the vehicle on behalf of a third party to whom it came to recharge such expenses.

It happens, however, that neither in the course of the inspection procedure, nor even to this date, has it managed to demonstrate that it was mandated to carry out such operation on behalf of a third party.

Thus, the inspection services were correct in not accepting such deduction, since, as observed, such tax is not deductible.

Indeed, as referred to by the Claimant, the subsequent transfer of the vehicle is exempt under the provisions of article 9, paragraph 32) of the VAT Code.

However, contrary to what it argues, it is not for the Respondent to carry out such regularization.

The Claimant has legal means available to it that allow it to regularize this tax in its favor, and this matter is not being reviewed in these proceedings.

II.

With respect to the software, it is undisputed that the Claimant acquired it in 2011, that it used it in its activity of provision of financial services and that, on 19 December 2014, it came to cede the exploitation license of this same software to a third party.

The Claimant alleges that the software in question has functionalities, also used in the provision of services that confer the right to deduction (although without specifying or proving, in 2014, some of these operations it carried out).

Now, the software license cession contract to a third party, which occurred 17 days before the end of 2014, still provides, as the inspection services rightly pointed out, that the software would continue to be used by the Claimant.

That is, it clearly results that the Claimant did not bear the tax contained in the acquisition of services for development and cession of use of this software with a view to its transfer to third parties, but rather, with a view to its use within its regular activity.

Having arrived here, it is easily concluded that an actual allocation of the cost with this software during 2014, to the operation of its transfer at the end of that same year and safeguarding that it would continue to use it for its financial services provision, is not plausible.

The tax in question was not borne with a view to carrying out this operation, but rather, as the inspection services correctly concluded, with a view to the exercise of the regular activity of the Claimant.

And, it is in this logic that it is necessary to determine what right to deduction the Claimant would have, with respect to the software, while allocated to its regular activity.

In this context, the inspection services concluded, for the reasons set out in the inspection report and which are hereby fully reproduced, that the Claimant failed to demonstrate the use of this software in the carrying out of operations that confer the right to deduction, reason why they considered the software allocated to the carrying out of exempt operations under article 9 of the VAT Code, operations which do not confer the right to deduction.

It should be said that even today the Claimant has failed to demonstrate that such software is of mixed use.

But, even if it were understood that it were of mixed use, which is not conceded, such right to deduction would never be integral, but rather the result of the application of the pro rata.

In fact, in terms of Union law, the jurisprudence is consolidated to the effect that there is a need to maintain the requirement as to verification of the link between the exercise of a taxed activity and the right to deduct the tax borne in the respective input.

Under penalty of a frontal violation of the principle of neutrality, therefore, of the subversion of the functioning of the common VAT system and of total capitulation in the face of tax fraud and evasion.

For, on the one hand, the Claimant did not demonstrate, as required under article 74, paragraph 1 of the General Tax Law, the verification of the necessary requirements for the exercise of its right to deduction, that is, that the acquisition of the services in question relates to the exercise of a taxed and not exempt activity.

It was incumbent upon, and remains incumbent upon, the Claimant to prove the facts constitutive of its right, in this case, to deduction.

Recall too that, in general, it is incumbent upon taxable persons to maintain their accounting organized in accordance with legal provisions, which includes the maintenance of possession of the supporting documents necessary for proof/verification of their correct legal-tax classification, and that in the accounting, both the vehicle and the software were classified as fixed assets.

Thus, lacking any foundation is the argument of the Claimant when it invokes in its favor the principle of neutrality.

In the case sub judice, it is, therefore, precisely the principle of neutrality, the cornerstone of the common VAT system that requires the Claimant not to deduct these charges.

As amply set out above, in the exposition of the factual matter, to which express reference is made, the services verified the relevant factuality, in accordance with the documentation filed in the accounting of the taxable person, in strict obedience not only to national law but, above all, to Union law, as clarified by the jurisprudence of the Court of Justice.

In summary, when alleging the right to deduction, it was incumbent upon the Claimant to demonstrate the verification of the requirements corresponding to the right invoked, which it failed to do, rather confirming the accuracy of the classification made by the inspection services.

Thus, all the vices attributed to the administrative action are unfounded, and the corrections must be maintained, as they correspond to the correct legal-tax classification of the operations under analysis.

1. Verifying the absence of any situation provided for in article 18, paragraph 1, of the LRAT, which would have made necessary the arbitral meeting provided for there, the holding of the same was dispensed with, on the grounds of the prohibition of performance of useless acts.

The parties were notified to submit optional written submissions within a period of 10 days, running simultaneously for both parties.

The Claimant did not submit submissions.

The Respondent submitted submissions, in which it maintained, in essence, the positions already set out in its Answer.

1. The tribunal is materially competent and is regularly constituted pursuant to the LRAT.

The parties have legal personality and capacity, are legitimate and are legally represented.

The proceedings do not suffer from vices that would invalidate it.

1. It is necessary to resolve the following issues:

a) Illegality of the assessment by non-recognition of the right to deduct the tax relating to the acquisition of the vehicle with registration number…-…-….

b) Illegality of the assessment by non-recognition of the right to deduct the tax relating to charges incurred with the software "Core Banking Miner" in the year of its sale.

II – The Relevant Factual Matter

1. The following facts are considered proven:

2. The Claimant is a financial institution with registered office in Portugal, which has as its corporate purpose banking activity.

3. In the context of calculating the pro rata for the years 2014 and 2015 the Claimant identified deductible VAT which it entered in the periodic declaration for 2016/03 and requested reimbursement of the tax credit in the amount of €327,431.95 on 10 May 2016.

4. The Claimant was subject to internal tax inspection action, relating to VAT and the period 2016/03, with the conclusions of the final report, which are hereby fully reproduced, including in particular the following:

"On 10-05-2016, the taxable person submitted the refund request no. …/…, in the amount of €327,431.95, in the Periodic Declaration (PD) of VAT for the period 2016/03.

As a result of the internal inspection action carried out on the taxable person A…, S.A., NIPC…, irregularities were detected which translate into arithmetic corrections in VAT for a total amount of €85,329.25, as set out in point III of this report.

Thus, partial approval of the VAT refund is proposed in the amount of €242,102.70.

II.3.1. Brief characterization of the company and activity developed

In accordance with the certified copy of the commercial registry records, in 2012 the corporate purpose of D…, S.A. was amended to: "One - The company's purpose is the exercise of banking activity, including all ancillary, related or similar operations compatible with this activity and permitted by law. Two - The company may participate in the establishment or acquisition of holdings in companies with a purpose different from the above, in companies regulated by special laws and in complementary business groupings."

In response to our request for clarification as to the activity actually currently exercised, as well as changes that have occurred to it since its commencement in 2009, the taxable person provided the following information:

"1.1. Activity actually currently exercised

A…, S.A. ("A…" or "Bank") is a financial institution, held 92.988% by D…, S.A., a credit institution with registered office in Angola, specializing in the provision of comprehensive banking, savings and investment services.

(...) D…, S.A. carries out exempt operations without right to deduction, under the provisions of article 9, paragraph 27 of the VAT Code, as well as taxed operations and exempt operations with right to deduction, under article 20 of the said code, so in determining the deductible VAT of the so-called general or common expenses the pro rata method is used in accordance with article 23, paragraph 1, subparagraph b) and paragraph 4 of the VAT Code.

(...)

III.1. Active operations

In the exercise of its activity, the taxable person carries out, simultaneously, VAT exempt operations that do not confer the right to deduction, under the provisions of article 9, paragraph 27 of the VAT Code and operations that confer such right, thus being commonly designated as a mixed taxable person.

Thus, the general principles underlying the exercise of the right to deduct the VAT borne by taxable persons are provided for in articles 19 and 20 of the VAT Code, from which results that in order for the VAT borne in acquisitions of goods and services to be deductible, these must have a direct and immediate relationship with the downstream operations that confer such right.

As a general rule, deductible is, with the exception of situations enumerated in article 21 of the VAT Code, all tax borne on goods and services acquired for the exercise of an economic activity referred to in article 2, paragraph 1, subparagraph a) of the VAT Code provided that it relates to transfers of goods and provisions of services that confer the right to deduction under article 20 of the VAT Code, including those that, although framed within the scope of economic activities referred to in article 2 of the VAT Code, are not located in national territory by virtue of the localization rules contained in article 6 of the VAT Code but are, nevertheless, qualified as operations conferring the right to deduction by article 20, paragraph 1, subparagraph b) of the VAT Code.

Thus, the tax borne on acquisitions of goods or services exclusively allocated to operations that, integrating the concept of economic activity for purposes of the tax, are taxed, exempt with right to deduction, namely, those provided for in article 20, paragraph 1, subparagraph b), point V, of the same normative or, still not taxed that confer such right, under the provisions of article 20, paragraph 1, subparagraph b), point II, of the VAT Code confers the right to full deduction.

If the tax is borne on the acquisition of goods or services exclusively allocated to operations subject to tax, but without right to deduction or to operations that, in terms of VAT, do not fall within the exercise of economic activities, the exercise of the right to deduction is not, naturally, admissible.

It should be noted that the application of article 23 of the VAT Code is restricted to the determination of the deductible tax relating to goods and/or services of mixed use, that is, goods and/or services used jointly in activities that confer the right to deduction and in activities that do not confer such right.

(...)

III.2.3. VAT improperly deducted – light passenger vehicle

D…, S.A. deducted in field 20 - "tax deducted – fixed assets" of the PD, for the period 2014/09T, VAT in the amount of €4,231.45 relating to VAT borne on the acquisition of a light passenger vehicle, with registration number…-…-…, for the residual value of €18,397.59 (Annex 7).

Under the provisions of article 21, paragraph 1, subparagraph a) of the VAT Code, VAT contained in expenses relating to the acquisition of passenger vehicles is not deductible, so the correction is made for the VAT improperly deducted in the amount of €4,231.45.

III.2.4. Field 40 of the Periodic Declaration of 2016-03

On 09-06-2016, a request was made to D…, S.A., in point 7 of our information request:

"7. Accounting movement and supporting documents for the value entered in field 40 of the periods 2016-03.

On 24-06-2016, the person submitted an email with the following explanations and attachments:

"Regarding the value entered in field 40 in period 2016-03 see points 10 and 11 below"

Point 10:

"We send the pro-rata calculation map (in excel file) for the years 2014 and 2015 under the designation of "Annex – Point 10".

Point 11:

"We send the map (in excel file) of all VAT values, and respective tax base, which was subject to deduction on a pro-rata basis, for the years 2014 and 2015 under the designation of "Annexes – Point 11".

In accordance with the maps submitted by the taxable person, the deductible VAT by applying the percentage of the pro-rata determined by the taxable person was €153,042.73 in 2014 and €69,659.81 in 2015, that is, a total amount of €222,702.54:

(...) in field 40 – "VAT regularizations in favor of the taxable person" of the PD of VAT for the period 2016-03, D…, SA mentioned the amount of €265,022.54, so €42,320.00 remained unjustified (€265,022.54 - €222,702.54). Thus, the correction is made in the amount of €42,320.00, in view of the provisions of article 78 of the VAT Code.

(...)

D…, presents in summary the following four grounds in the right to be heard:

(...)

"c) On the third ground: VAT deducted "improperly" in the acquisition of light passenger vehicle (€4,231.45)

Although the Tax Authority understands that VAT was improperly deducted in the amount of €4,231.45, relating to VAT borne on the acquisition of the light passenger vehicle, with registration number…-…-…, and bases its position on article 21, paragraph 1, subparagraph a) of the VAT Code, this position should not hold, since the recharged charges relating to the vehicle were carried out. Thus, it should be concluded that, by application of what is prescribed in article 21, paragraph 2, subparagraph c) of the VAT Code, the exclusion of the right to deduct VAT advocated by the Tax Authority is not verified. For this purpose, the documents evidencing the recharged amounts are attached (Document 3)."

"d) On the fourth ground: "unjustified" regularization relating to pro rata adjustment (€42,320.00)

The last correction proposed by the Tax Authority, contained in the Draft Inspection Report, has a value of €42,320.00 and is based on the justification that "in accordance with the maps submitted by the taxable person, the deductible VAT by applying the percentage of the pro-rata determined by the taxable person was €153,042.73 in 2014 and €69,659.81 in 2015, that is, a total amount of €222,702.54" and that "in field 40 – "VAT regularizations in favor of the taxable person" of the PD of VAT for the period 2016-03, D…, SA mentioned the amount of €265,022.54, so €42,320.00 remained unjustified"."

However, the position of the Tax Authority is not to be maintained since the mentioned amount of €42,320.00 relates to VAT incurred on acquisitions of goods and services that confer the right to deduction by application of the direct allocation method, and the VAT in question is fully recoverable as prescribed by the mentioned paragraph 1 of article 20 of the VAT Code.

In fact, this regularization in the amount of €42,320.00 does not result from the application of the deduction percentage method (pro rata), but rather from the direct allocation of expenses incurred with the development of a software that was sold by the Claimant in 2014.

Indeed, the VAT incurred relates to expenses relating to the software acquired and developed, designated "Core Banking Miner", incurred with the supplier "C… SA". This software was transferred to G…, S.A. (G…) on 19 December 2014, an operation that confers the right to deduction (software sale), so the VAT relating to the expenses borne with its acquisition is deductible under the cited article 20, paragraph 1 of the VAT Code (direct allocation). As to this point, the supporting documents of the software license cession contract and the list of invoices relating to the VAT incurred are attached (Document 4)."

(...)

"Having analyzed the grounds and elements contained in the petition through which D… exercised the right to be heard, we must inform the following:

"c) On the third ground: VAT deducted "improperly" in the acquisition of light passenger vehicle (€4,231.45)

D…, S.A. attached a copy of invoice no. FCL…, dated 05-09-2014, issued by "B…, S.A". to D…, SA, making reference to the ALD contract no.… of the vehicle with registration no. …-…-… and with the description "Residual Value". It also attached a copy of invoice no.…, dated 12-09-2014, issued by D…, SA to E…, with the designation "Vehicle Sale, Vehicle … –… registration …-…-…". The said invoices have a base value of €18,397.59 and VAT of €4,231.45.

The taxable person considers that the recharged charges relating to the vehicle were carried out, however, we are dealing with the sale of a vehicle that was part of the fixed assets of D…, S.A.. The mere fact that the sale invoice corresponds to the amount supported does not, by itself, constitute a recharge. Now, let us see:

The invoice no. FCL… issued by "B…, S.A." (lessor) to D…, S.A. (lessee) has underlying an ALD contract.

ALD is a financing modality in which the lessor temporarily cedes the use of a vehicle to the client, by payment of a monthly installment. It is a financing very similar to leasing, but, unlike this, when the ALD contract period ends, the client must necessarily keep the vehicle permanently, that is, must pay the residual value and purchase the automobile in accordance with the value established at the time of execution of the contract.

An ALD contract should be qualified as "financial lease". In financial leases the lease transfers to the lessee the risks and benefits inherent to the possession of the asset. The lessee registers in accounting the vehicle in tangible assets (fixed assets).

And, in fact, from the analysis of accounting, it is verified that D…, S.A. accounted for the light passenger vehicle in fixed assets. Fixed assets are understood to be patrimonial active assets, whose grouping characteristic lies in the possibility of remaining in the company for longer or shorter periods.

We cannot consider that D…, S.A. incurred expenses related to third parties and that it proceeded to recharge them, nor that this recharge corresponds to a mere reimbursement of charges. In fact, the vehicle belonged to D…, S.A. which at the end of the contract decided to sell it for the residual value.

Thus, we do not consider this to be a recharge of expenses, but an acquisition and subsequent sale of a light passenger vehicle, so the VAT incurred in the amount of €4,231.45 is not deductible under article 21, paragraph 1, subparagraph a) of the VAT Code.

"d) On the fourth ground: "unjustified" regularization relating to pro rata adjustment (€42,320.00).

The taxable person states that the amount of €42,320.00 relates to VAT incurred on the software acquired and developed, designated "Core Banking Miner", which confers the right to deduction by application of the direct allocation method.

The software license cession contract, signed on 19-12-2014, briefly refers to the following (...):

Between:

"The public limited company of Portuguese Law designated A…, S.A. (hereinafter, designated "A…")" (...); and

"The public limited company of Angolan Law designated D…, S.A. (hereinafter, designated "D…")" (...).

"Whereas:

a) That, in 2011, to meet the foreseeable future needs of its activity, Bank A… contracted with the company C…, S.A., the supply, implementation, development and installation, in its favor, of a computer system" (...) "of core-banking based on the Miner platform of said C…" (...).

"b) That the Miner platform is the product of integrated IT solutions of C… intended for the registration and computer processing of activities and financial instruments;"

(...)

"e) That, moreover, Bank A…, in the short term and for the benefit of the development of its commercial activity, will replace the Solution with a different core-banking computer system (hereinafter, the "New Application");

(...)

"g) That, notwithstanding, Bank A… needs, until the entry into production of the New Application, to maintain the faculty of use of the Solution and other related rights and duties and intends to have and maintain, after the entry into production of the New Application, the faculty of use, in interconnection with the New Application, of the functional modules of the Solution identified in the document which constitutes" (...)

Annex I – Core-Banking System Outsourcing Proposal dated 16-03-2011

Point 2 of this proposal contains, under the designation of objectives, in particular the following:

"There is a need to implement a core-banking platform in order to support the future banking activity of F…, S.A."

(...)

"The objectives of this proposal are thus:

• Installation of a platform supporting the banking activity currently intended by the client;

• Supply of a platform with possibility of future development, according to the client's needs.

This platform should integrate and communicate:

• With the solution supporting accounting;

• With the tool for reporting to regulatory authorities;

• With other banks providing complementary services."

Thus, we can conclude that the software was acquired and developed for the exercise of banking activity, and that, after the cession of the license, D…, and already active in the financial sector, had the need to maintain the possibility of use of this application.

Now, within banking activity the taxable person carries out VAT exempt operations under the provisions of article 9, paragraph 27 of the VAT Code.

These exemptions, as well as the others set out in article 9, are designated simple or incomplete exemptions, as not provided for in article 20, both of the VAT Code and are translated for taxable persons practicing such operations in the non-collection of VAT, but in return, prevent the deduction of tax borne on acquisitions of goods and services intended for the carrying out of exempt operations.

In view of the foregoing, the software acquired and developed was intended for the carrying out of exempt operations (banking), so the tax borne on the acquisition of the same does not confer the right to deduction.

The taxable person argues that the regularization of €42,320.00 results "from the direct allocation of expenses incurred with the development of a software that was sold by the Claimant in 2014."

It further adds that "This software was transferred to G…, S.A. (G...) on 19 December 2014, an operation that confers the right to deduction (software sale), so the VAT relating to the expenses borne with its acquisition and development is deductible under the cited article 20, paragraph 1 of the VAT Code (direct allocation)."

Now, the software was not acquired and developed by D…, SA with the intention of being sold to G…, but rather to be used with a long-term character in that's banking activity, and only thus did it make sense for D…, SA to account for it as an intangible asset. If we were dealing with a purchase and sale of software, without any use in banking activity, as the taxable person wants to make believe, then the VAT would be deductible under the cited article 20, paragraph 1 of the VAT Code, but in reality this is not the situation that is verified.

Moreover, as already alluded to, both the proposal for the implementation of the software and the software license cession contract itself make reference to the use of the software designated "Core Banking Miner" in banking operations carried out by D…, S.A., operations which are exempt under article 9, paragraph 27 of the VAT Code and do not confer the right to deduction.

In view of the foregoing, we cannot consider deductible (by direct allocation) the VAT incurred in the amount of €42,320.00 under paragraph 1 of article 20 of the VAT Code."

1. In this sequence the Tax Authority issued the VAT assessment act no.…, of 13 January 2017, from which results the refund amount of €242,102.07, embodying corrections to deductible VAT in the amount of €85,329.25.

2. Among the corrections to deductible VAT resulting from the assessment identified in the present proceedings is included the amount of €4,231.45 relating to the non-recognition of deduction of tax relating to the purchase of the vehicle with registration number…-…-… and also the VAT amount incurred in the amount of €42,320.00, relating to charges incurred with the software "Core Banking Miner" in 2014.

3. The Claimant entered into a contract with B…, S.A., where the latter acted as lessor, that is, transferred the use and enjoyment of the vehicle with registration number…-…-… to the Claimant and this, in return, proceeded to payment of a monthly rental.

4. The vehicle was recorded in the tangible fixed assets of the Claimant.

5. The invoice no. FCL…, dated 05-09-2014, was issued by "B…, S.A., to the Claimant, relating to the ALD contract no.… of the vehicle with registration number…-…-…, with the description "Residual Value", showing as the base value of the transaction €18,397.59 and VAT of €4,231.45.

6. Invoice no. C…, dated 12-09-2014, was issued by the Claimant to E…, with the designation "Vehicle Sale, Vehicle …– … registration …-…-…", showing as the base value of the transaction €18,397.59 and VAT of €4,231.45.

7. The Claimant contracted in 2011 the company C… for the development of the software "Core Banking Miner" with the purpose of meeting the needs of the future banking activity it began to develop from 2012, following authorization from the Bank of Portugal.

8. This software was developed over the years 2011 to 2015 and recorded as an intangible asset of the Claimant, with commencement of operations in 2012.

9. On 19 December 2014, the Claimant ceded to D…, S.A., the license of the software in question.

10. In accordance with clause 5 of the software license cession contract in question, the Claimant retained the right to continue to use the software ("sub-license"), on the following terms:

"1 - By this contract, Bank D…, with immediate effect, grants to Bank A…, exclusively, and this accepts, until the production of the new application, the faculty of use of the Solution and other connected rights and duties, as well as, after the entry into force of the New Application, without time limit and also exclusively, the faculty of use, in interconnection with the New Application or with any other application, of the Solution and its functional modules.

2 - The considerations due by Bank A… for the sub-license stipulated in the preceding number, as well as, without prejudice to the following number, other possible terms and conditions of the sub-license, will be the subject of a specific autonomous agreement."

1. The Claimant with respect to the invoices for charges with the software received in the year of sale exercised the right to deduction, which had not occurred in the previous years with charges of similar nature.

With relevance to the decision of the case, it was not proven that:

• The rentals paid by the Claimant to B…, S.A., were recharged to its employee E…, with the Claimant for this purpose issuing the corresponding invoices and liquidating the respective VAT.

• The software "Core Banking Miner" was used by the Claimant, also, in activities that confer the right to deduct VAT.

1. Grounds for the decision regarding the factual matter.

The Tribunal's conviction regarding the decision on the factual matter considered proven was based on the documents contained in the proceedings, as well as the submissions presented, with no disagreement between the parties regarding such matter.

Regarding the factual matter not proven, alleged by the Claimant and contested by the Respondent, the decision results from the absence of proof regarding such matter.

III - The Applicable Law

1. Illegality of the assessment by non-recognition of the right to deduct the tax relating to the acquisition of the vehicle.

The Claimant argues that it entered into a leasing contract with B…, where the latter acted as lessor, transferring the use and enjoyment of the vehicle to the Claimant and this, in return, proceeded to payment of a monthly rental and that, in turn, these rentals were immediately recharged to one of its employees E…, issuing the Claimant for this purpose the corresponding invoices and liquidating the respective VAT and further that the same procedure was adopted for the residual value when the vehicle was sold.

The Claimant concludes that the VAT incurred was recharged under the provisions of article 21, paragraph 2, subparagraph c) of the VAT Code, with a view to obtaining the respective reimbursement from the employee, thus being the provision of the rule that excepts the exclusion of the right to deduction in these cases is met.

From the factual matter proven, however, does not result the recharge of the rentals to the employee E…, nor that we are dealing with expenses relating to the sale of a passenger motor vehicle incurred by the Claimant, acting in its own name but on behalf of a third party, that is on behalf of its employee.

Only was proved that the Claimant acquired the ownership of the vehicle for the residual value of the contract, with mention of "ALD" in the respective invoice and that it sold it, for the same amount, to its employee, but such is not sufficient for the provision of article 21, paragraph 2, subparagraph c) of the VAT Code to be considered met. In fact, it was not proven that the acquisition of the vehicle by the Claimant and the contract under which it was carried out were made on behalf of a third party, rather to the contrary, from the registration of such vehicle in the tangible fixed assets of the Claimant emerges, presumptively (article 75, paragraph 1, of the General Tax Law), that the contract was made in the interest of the Claimant.

In light of article 21, paragraph 2, subparagraph c) of the VAT Code, therefore, the Claimant's claim fails.

1. Subsidiarily, the Claimant further argues that, if there were no right to deduction in the Claimant's sphere, the recharged vehicle should be exempt, since only thus would neutrality be ensured, as per article 9, paragraph 32 of the VAT Code, as well as article 136, subparagraph b) of the VAT Directive and that the Tax Authority only corrected one of the terms of the equation, without drawing the due conclusions and exempting the recharge, thereby reimbursing the VAT liquidated to the Claimant.

For its part, the Respondent acknowledges that, as the Claimant argues, the subsequent transfer of the vehicle is exempt under the provisions of article 9, paragraph 32) of the VAT Code, but that it is not for the Respondent to carry out such regularization, with the Claimant having legal means available to it that allow it to regularize this tax in its favor, this matter not being reviewed in these proceedings.

Let us see.

The amount of tax deposited in the State coffers in excess, in accordance with what is acknowledged by the Respondent itself, is precisely the same as that which the Claimant contests, since the tax liquidated to the Claimant by B… was in the same amount as the tax liquidated by the Claimant to its employee E…, since the same was the taxable amount of both transactions.

The improper deduction of tax effected by the Claimant had no consequence for tax revenue, since, concomitantly, the Claimant liquidated tax to its employee exactly in the same amount, also improperly, since the sale to its employee is exempt from tax under article 9, paragraph 32 of the VAT Code.

It is manifest, therefore, that the tax liquidated by the Claimant to its employee entered the State coffers in excess.

The question that arises is whether this result is compatible with the principle of neutrality[3], of EU origin and also with the principle of prohibition of unjust enrichment[4], and other principles such as the principle of justice and the principle of pursuit of public interest as a parameter for the action of the tax administration[5] may also be called upon and weighed and, on the other hand, whether the Respondent, when effecting the assessment, should not have simultaneously annulled the tax that the Claimant liquidated in the sale to its employee and whether, in not having done so, there occurred a violation of the legal order, generating illegality of the tax act, by violation of the aforesaid principles.

The Respondent in its response, acknowledging that the tax liquidated from the sale to the employee of the Respondent is improper, argues that the Claimant has legal means to effect the regularization in its favor, it not being incumbent upon the Respondent to effect it.

We understand that we are in the presence of a situation of legal error on the part of the Claimant and, as such, applicable under article 98, paragraph 2 of the VAT Code.[6]

It also seems to us that, in light of the legal principles aforesaid, the Respondent was not prevented in procedural terms from, on this ground, reviewing the correction of the self-assessment on this point, rather such solution is better suited to the principle of procedural economy underlying article 57, paragraph 1, of the General Tax Law[7].

Another aspect to consider is the circumstance that the tax improperly liquidated by the Claimant to its employee is, in principle, borne by this latter, by way of passing-on, and it is necessary to consider the hypothesis of possible unjust enrichment of the taxable person, as a consequence of regularization in its favor.[8][9]

On this issue, the following can be read in the CJEU judgment of 2.10.2003, case C-147/01[10]:

"(...) by virtue of equally settled jurisprudence of the Court of Justice, a national regulation that places on the taxable person the burden of proof of non-passing-on of the tax to third parties, which would translate into the requirement of negative proof, or which establishes a presumption that the tax has been passed on to third parties is not in conformity with EU law (see, in particular, the judgments San Giorgio, already cited, no. 54, and Michaïlidis, already cited, nos. 36 to 38). (no. 111)"

(...)

It is thus necessary to conclude, in relation to this point, that the rules of EU law relating to the repetition of what is undue must be interpreted to the effect that they oppose a national regulation that denies, which it is for the national court to verify, the reimbursement of a tax incompatible with EU law by the mere fact that it has been passed on to third parties, without requiring proof of the extent of the unjust enrichment that would accrue to the operator of the reimbursement of this tax."

In the CJEU judgment, handed down in case C‑566/07, of 18 June 2009[11], it was held that:

"The principle of fiscal neutrality does not, as a rule, prevent a Member State from subjecting the rectification of value added tax due in that Member State, by the mere fact of being mentioned by error in the invoice sent, to the condition that the taxable person delivers to the beneficiary of the services provided a corrected invoice, in which the said tax is not included, provided that this taxable person has not completely eliminated, in good time, the risk of loss of tax revenue."

In arbitral decision 78/2014-T[12], it was considered that:

"if it is true that there are situations of this type in which a situation of unjust enrichment can be configured that justifies the non-recognition of legitimacy to contest assessments of taxes passed on to third parties, there are also situations in which this does not occur, as already recognized by the CJEU in the judgment of 06-09-2011, handed down in case no. C-398/09(...).

On the other hand, as understood in the CJEU judgment of 21-02-2000, handed down in case no. C-441/98, 'although EU law does not oppose a Member State refusing the reimbursement of fees collected in violation of its provisions provided that it is proved that this reimbursement will cause unjust enrichment, it excludes the application of any presumption or rule of proof intended to place on the operator in question the burden of proving that the improperly paid charges were not passed on to other persons and intended to prevent the submission of evidence to contest an alleged passing-on'.

Thus, in line with this CJEU jurisprudence, the answer to the question of the Claimant's legitimacy to request the declaration of illegality of VAT self-assessment acts depends on determining, in the light of the concrete factual circumstances, whether with the reimbursement to the Claimant of the VAT illegally liquidated there is generated or not a situation of unjust enrichment. Or, from another perspective, the solution of the question depends on knowing whether or not the Claimant was harmed by the illegal assessment."

In the case at hand, not only did the Respondent not prove – and nor did it even allege – that economic passing-on to third parties occurred, but it emerges from the proceedings, according to the rules of experience, that such passing-on did not occur.

In fact, the taxable person paid to B… exactly the value that it received from its employee, with tax included.

In accordance with normal occurrence, it is to be believed that if it had proceeded to a correct legal classification it would have sold the vehicle to its employee for the value it bought it for, with exemption from tax, but with the tax amount it paid for the acquisition of the vehicle added to the price, such that the buyer would have paid exactly the amount it actually paid, tax included, and the Claimant would have obtained no gain, nor suffered any loss.

It is not to be believed, nor would it be normal, that the Claimant intended to suffer loss with the operation, nor does the Respondent allege it.[13]

From the factual contours of the case sub judice – very specific – instead of resulting in the presumption of economic passing-on of the tax to the recipient of the invoice issued by the Claimant, it follows, by application of the rules of experience, the presumption that in the specific case such passing-on did not occur.

Furthermore, article 98, paragraph 2, of the VAT Code does not make the reimbursement to the taxable person of the overpaid tax dependent on whether the acquirer became aware of the rectification or was reimbursed of the tax.

On the other hand, even if it were understood that the requirements provided for in article 78, paragraph 5, could be applicable in the specific case, and as decided in arbitral decision 78/2014-T:

"(...) in the situation at hand, in which it is considered proven that it was the Claimant who bore the illegally liquidated VAT, there is no place for the requirement made in article 78, paragraph 5, of the VAT Code, which establishes that, when "the tax is rectified downward, the regularization in favor of the taxable person can only be effected when this has in its possession proof that the acquirer became aware of the rectification or was reimbursed of the tax, without which the respective deduction is considered improper. In fact, this rule is applicable to cases of rectification effected by the taxable person itself and not to those in which there is a judicial declaration of illegality, which has as a corollary the duty of the Tax and Customs Authority to reconstitute the situation that would exist if the illegal act had not been performed [articles 100 of the General Tax Law and 24, paragraph 1, subparagraph b), of the LRAT], regardless of whether the acquirer of the services has or has not knowledge of the illegality."

Furthermore, if the Respondent had doubts regarding this matter, under the principle of inquiry and in light of the principle of procedural economy, it could always clarify this question by even soliciting the collaboration of the acquirer to clarify the facts, being certain that, in the case at hand, the risk of deduction of VAT mentioned in the invoice does not exist.

On the other hand, the Value Added Tax Code does not appear to give legitimacy to the acquirer of goods who is not a taxable person, to request from the Tax Administration the reimbursement of the Tax overpaid (See article 97 and 78, paragraph 4, "a contrario").

In these circumstances, it appears to be appropriate to attribute legitimacy for this purpose to the Claimant. Between a possible, but unlikely – in the case at hand – unjust enrichment of the Claimant and an indubitable unjust enrichment of the Respondent, the first hypothesis appears more acceptable, especially since, if such were the case, the acquirer could always subsequently demand from the Claimant the amount of the tax, in the hypothesis that this results from the terms of the business agreed between the parties, contrary to what, in the understanding of this tribunal, the facts, prima facie, seem to suggest.

Thus, although from a formal perspective the Respondent's position is correct in denying the right to deduction to the Claimant, the principles mentioned above oppose the possibility of doing so without simultaneously and correspondingly restituting (or more rigorously: offsetting) the tax, precisely the same amount, that the taxable person improperly liquidated and paid.

The deduction and liquidation of tax in the sale to the employee, both illegal and of equal amount, are two sides of the same coin, are intertwined with one another, and are even part of the same tax assessment act as they are part of the same period, so the principles of neutrality, prohibition of unjust enrichment, justice, pursuit of public interest and, further, procedural economy, considered together, prohibit the Tax Administration from being able to correct the deduction without also correcting the liquidation, both made by legal error of the Claimant.

Thus, the tax assessment act in question, by violating the legal order, on this aspect, suffers from illegality generating annulment, on this point.

1. Illegality of the assessment by non-recognition of the right to deduct the tax relating to charges incurred with the software in the year of its sale.

With respect to this issue, the Claimant argues that, in 2014, it agreed with Bank D…, S.A. the sale of the software license which was part of the company's intangible assets, understanding that, for this reason, there was a change in the allocation of the asset and that the operation of the sale of the software is a provision of services, under the provisions of article 4, paragraph 1 of the VAT Code, subject to VAT and which confers the right to deduction.

The Claimant adds that with respect to the invoices for charges with the software received in the year of sale – 2014 – it exercised the right to deduction under the provisions of article 20, paragraph 1 of the VAT Code based on article 24, paragraph 5 of the VAT Code.

For its part, the Respondent argues that the Claimant did not bear the tax contained in the acquisition of services for development and cession of use of this software, with a view to its transfer to third parties, but rather with a view to its use within its regular activity and that it is easily concluded that an actual allocation of the cost with this software during 2014, to the operation of its transfer at the end of that same year and safeguarding that it would continue to use it for its financial services provision, is not plausible.

On the other hand, the Respondent argues that the Claimant did not demonstrate that such software is of mixed use, as required under article 74, paragraph 1 of the General Tax Law and that, even if it were understood that it were of mixed use, such right to deduction would never be integral, but rather the result of the application of the pro rata, under penalty of a frontal violation of the principle of neutrality, therefore, of the subversion of the functioning of the common VAT system and of total capitulation in the face of tax fraud and evasion.

Let us assess.

As Sérgio Vasques writes, addressing the issue from European law (VAT Directive):

"From a purposive perspective, it results from the body of article 168 that the taxable person is only recognized the right to deduct the tax incurred upstream when the goods or services it acquires are "used for the purposes of its taxed operations". (...) only when the actual application of tax occurs in the active operations does it become possible to deduct the tax incurred in the passive operations. By contrast, when the active operations benefit from simple exemption, the right to deduction is excluded in principle and the taxable person comes to occupy a position similar to that of a final consumer, bearing in its sphere the tax relating to its acquisitions."[14]

The Claimant, on one hand, supports its position by arguing that the operation of the sale of the software is a provision of services, under the provisions of article 4, paragraph 1 of the VAT Code, subject to VAT which confers the right to deduction and on the other invokes article 24, paragraph 5, of the VAT Code, a provision that refers to regularization of deductions relating to fixed assets of mixed use.

However, article 24, paragraph 5 of the VAT Code is not applicable to the case sub judice since the Claimant did not produce proof that the software in question was of mixed use[15]. Moreover, in strict terms, from the Claimant's own submissions it results that the latter did not treat this asset fiscally as of mixed use when it states that "the Claimant with respect to the invoices for charges with the software received in the year of sale – 2014 – (and not going back, that is, it was not recovering VAT (tax) from software costs when it was being used in banking activity) exercised the right to deduction under the provisions of article 20, paragraph 1 of the VAT Code". Furthermore, in the exercise of the right to be heard within the inspection procedure the Claimant expressly stated "the mentioned amount of €42,320.00 relates to VAT incurred on acquisitions of goods and services that confer the right to deduction by application of the direct allocation method, and the VAT in question is fully recoverable as prescribed by the mentioned paragraph 1 of article 20 of the VAT Code." (article 29).

Article 20 of the Value Added Tax Code provides as follows:

"1 - Tax can only be deducted when it has been borne on goods or services acquired, imported or used by the taxable person for the carrying out of the following operations:

a) Transfers of goods and provisions of services subject to tax and not exempt from it;

b) Transfers of goods and provisions of services consisting of:

I) Exports and operations exempt under article 14."

With respect to the allegation that it exercised the right to deduction under article 20, paragraph 1 of the VAT Code, it is not proven and, in strict terms, the Claimant nor even alleges, that the services to which the invoices for charges with the software relate were provided with a view to carrying out the sale operation. Rather, such services were incurred at a time when such asset was allocated to the company's tangible assets and with a view to its use in the company's normal operational activity, similar to the previous years.

Thus, the requirements provided for in article 20, paragraph 1 of the VAT Code are not met.

Finally, it will always be said that the Claimant also lacks reason in the allegation made subsidiarily, to the effect that "at least the VAT incurred with the software would be deductible on the basis of the percentage of the pro rata (32% in 2014)" since, as stated above, it was not proven that the software in question was of mixed use, nor did the Claimant allege it.

In terms of which, the Claimant's annulment claim fails on this point.

IV - Decision

Thus, the arbitral tribunal decides, judging the request for arbitral pronouncement partially upheld:

1. To annul the tax assessment act insofar as it relates to the correction in the amount of €4,231.45 (relating to the tax regarding the motor vehicle with registration number…-…-…).

2. Not to annul the tax assessment act insofar as it relates to the correction in the amount of €42,320.00 (relating to expenses with the 2014 software).

Amount in controversy: €46,551.45 (forty-six thousand five hundred and fifty-one euros and forty-five cents) pursuant to the provisions of article 306, paragraph 2, of the Code of Civil Procedure and 97-A, paragraph 1, subparagraph a), of the Tax Procedure Code and 3, paragraph 2, of the Regulation of Costs in Arbitration Proceedings.

Costs by the Claimant in the proportion of ninety-one per cent and by the Respondent in the proportion of nine per cent, pursuant to paragraph 4 of article 22 of the LRAT.

Let notification be made.

Lisbon, CAAD, 15.01.2018

The Arbitrator

Marcolino Pisão Pedreiro

[1] Hereinafter "VAT"

[2] Such contract was not attached to the proceedings, with the invoice relating to the residual value making reference to "ALD" which commonly refers to a long-term rental contract. In any case, the type of contract is not, in casu, relevant to the decision of the case.

[3] On this principle see CLOTILDE CELORICO PALMA, in PUBLIC ENTITIES AND VALUE ADDED TAX, A Breach in the Principle of Neutrality, Almedina, 2010, pages 61 et seq., INTRODUCTION TO VALUE ADDED TAX, Almedina, IDEFF Notebooks, no. 1, 2005, pages 20-21 and SÉRGIO VASQUES, VAT NOTEBOOKS 2013, Coord. Sérgio Vasques, Almedina 2013, page 378 and VALUE ADDED TAX, Almedina, 2015, pages 105 et seq.

[4] Referring to article 473 of the Civil Code, PEDRO SOARES MARTINEZ asks: "It may be important to know whether it is a provision confined to private relations or whether it reflects a general principle of law, which in that case must govern the most diverse legal relations, without excluding, therefore, those of public law", MANUAL OF TAX LAW, Almedina, 1984, (1st Reprint), p. 182.

MARCELO REBELO DE SOUSA AND ANDRÉ SALGADO DE MATOS, in GENERAL ADMINISTRATIVE LAW, Dom Quixote, 2007, Volume III, p. 479 write that "The claim for restitution of unjust enrichment must, therefore, be based on the principles of administrative action as well as, possibly, the principles that can be inferred from each of the reintegrating claims of individuals.

The starting point for a legal-administrative basis of unjust enrichment is that the enrichment of the administration at the expense of the individual constitutes an intrusion into its patrimony, a matter which is subject to the requirement of law.

(...)

Unlike what occurs in private law, in which doctrine largely rejects that the prohibition of enrichment is based dogmatically on its illicit character, in administrative law that prohibition results, in the first place, from the prohibition of violations of the principle of legality and of the subjective legal positions of individuals. The principle of just distribution of public burdens is also not indifferent to the institution of unjust enrichment (...) ."

These authors also tell us regarding the question of the subsidiary nature of the claim for restitution (article 474 of the Civil Code) that "this rule cannot be transposed to administrative law, for the same reasons which prevent the transposition qua tale of the rest of the regime of unjust enrichment (...) such subsidiarity does not exist in the absence of specific legal provision of an administrative law nature" (ob. Cit. pp. 480-481).

[5] On the practical application of these principles by tax jurisprudence see General Tax Law Annotated and Commented, by Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, encounters of writing, 4th Ed., 2012, pages 452-455.

[6] In this sense see Alexandra Martins-André Areias, VAT NOTEBOOKS 2017, Coord. Sérgio Vasques, Almedina 2017, page 62, and arbitral decision handed down in proc. No. 117/2013-T (Available at https://caad.org.pt/tributario/decisoes).

[7] And, also, to article 267, paragraph 5 of the Constitution of the Portuguese Republic when it refers to "rationalization of the means to be used by the services"

[8] On this matter write Francisco Geraldes Simões and João G. Gil Figueira "Although the VAT directive is silent on this matter, VAT, as a tax of European origin, must obey a logic according to which any tax affected by illegality must be reimbursed to the taxable person who liquidated it.

Still, the CJEU has understood on several occasions that Union law does not prevent a national legal system from refusing reimbursement of improperly collected taxes in conditions that imply an "unjust enrichment" of whoever claims such right, "unjust enrichment" being understood as an autonomous concept of Union law, a situation in which it is not the taxable person who bears the burden of the tax that is improper, but the client to whom this charge was passed on – passing on – (...)

This rule has been gradually adopted by the CJEU since its famous judgment of 27 February 1980, case Hans Just (Proc 68/79). Said rule provides that the State is not obliged to reimburse the taxable person if it proves that the improper tax remittance delivered by him was entirely supported by third parties (VAT NOTEBOOKS 2017, Coord. Sérgio Vasques, Almedina 2014, pages 152-153) According to the same authors "It is only for the tax authorities to demonstrate that economic passing-on existed, i.e., that the burden of the improper tax remittance was not supported by the taxable person". (Ob. Cit. Page 159.)

[9] Departing from the understanding of these authors, writes Professor Sérgio Vasques:

"Looking at the point that jurisprudence of the CJEU on the subject of passing-on has reached, it can be said that reserving to the taxable person the legitimacy to claim reimbursement from the administration constitutes a solution with some practical convenience, since the economic operator who is a taxable person tends to be better equipped to seek reimbursement from the administration than the buyers who are downstream from him. But admitting that this latter can as a rule seek and obtain reimbursement is a solution that can only be admitted on the condition that we obligate him in turn to reimburse the buyer. Being at stake improper indirect tax, it can only be said that the right has been restored when the circuit of the liquidation is completely undone and the value that the taxable person obtains from the administration as title of tax is returned to those to whom the taxable person as title of tax required it. The taxable person constitutes mere intermediary in the liquidation of VAT and therefore must be treated also as mere intermediary in its reposition" (VAT NOTEBOOKS 2015, Coord. Sérgio Vasques, Almedina 2015, pages 396-397.)

[10] Available at "http://curia.europa.eu/juris".

[11] Available at "http://curia.europa.eu/juris".

[12] Available at https://caad.org.pt/tributario/decisoes

[13] Nor, indeed, as considered in the tax inspection report, does the execution of a long-term rental contract necessarily imply the obligation of the lessee to acquire at the end of the contract at a determined price. As explains Fernando Gravato de Morais, on this matter "Also here one of the parties grants to the other the temporary and remunerated enjoyment of a certain thing, in casu, a movable asset. However, the contract may contain a promise (unilateral or bilateral) of sale or may still integrate an irrevocable proposal of sale inserted in the lease itself. "(MANUAL OF FINANCIAL LEASE, Almedina, 2006, page 53). In financial leasing the acquisition by the lessee at the end of the contract is always an option of the lessee (ob. Cit. pages 25 et seq.)

[14] VALUE ADDED TAX, Almedina, 2015, page 338.

[15] As explain Alexandra Martins-Lídia Santos "(...) as regards goods and services acquired by "mixed" taxable persons that are exclusively allocated to operations and activities which confer the right to deduction, the direct allocation of the corresponding VAT incurred should be made and the tax deducted in full. On the other hand, if the goods and services in question are used only in operations that do not confer such right, no tax should be deducted. We are in these two hypotheses in the domain of application of article 20 of the VAT Code and not of article 23 of this Code.

(...)

The taxable person must, therefore, previously identify the goods and services it uses, exclusively in the different operations and activities, for purposes of the corresponding direct allocation, deducting the tax in full or not deducting it at all, according to the cases (with and without right to deduction). (in VAT CODE AND RITI NOTES AND COMMENTS, Coord. and Organization: Clotilde Celorico Palma-António Carlos dos Santos, Almedina, 2014, pages 278-279)