Process: 328/2017-T

Date: March 14, 2018

Tax Type: IVA

Source: Original CAAD Decision

Summary

CAAD Decision 328/2017-T addresses the VAT treatment of consignment sales under Portuguese tax law. The claimant, A... Lda., challenged VAT assessments for 2014-2015 totaling €108,670.40, arguing that goods shipped on consignment should not be taxed at the moment of delivery to the consignee. The company contended that under Articles 3(3)(c), 7(5), 36(14), and 38(2) of CIVA, the shipment between consignor and consignee does not constitute a taxable transfer of goods. Instead, VAT becomes due only when the consignee sells to the final purchaser. The claimant argued the Tax Authority's assessment resulted in double taxation of a single economic transaction, violating the legal fiction established in CIVA that recognizes consignment operations as having suspended tax payment until actual sale. The case highlights the distinction between legal form and economic substance in VAT law, emphasizing that the mere physical transfer to a consignee for subsequent sale does not trigger VAT liability. The arbitral tribunal, constituted under RJAT (DL 10/2011), examined whether the taxpayer properly applied the consignment regime rules, including invoicing requirements and SAF-T reporting obligations. This decision clarifies the temporal aspect of VAT liability in consignment arrangements and the procedural requirements for challenging VAT assessments through administrative arbitration in Portugal.

Full Decision

ARBITRATION DECISION

The arbitrators Judge José Poças Falcão (arbitrator-president), Dr. Paulo Lourenço and Dr. Raquel Franco (arbitrators) appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 21-07-2017, agree as follows:

1. Report

On 16-05-2017, the company "A..., Lda.", NIPC..., submitted a request for constitution of the collective arbitral tribunal, pursuant to the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter referred to simply as RJAT), in which the Tax and Customs Authority is the respondent.

The request for constitution of the arbitral tribunal was accepted by His Excellency the President of CAAD and automatically notified to the Tax and Customs Authority on 23-05-2017.

Pursuant to the provisions of paragraph a) of article 2 and paragraph b) of article 1 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed the signatories as arbitrators of the collective arbitral tribunal and notified the parties of this appointment on 06-07-2017.

Thus, in accordance with the provisions of paragraph c) of article 1 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 21-07-2017, followed by the relevant legal procedures.

2. Preliminary Matters

The arbitral tribunal was properly constituted in accordance with the provisions of articles 2, paragraph 1, subparagraph a), and 10, paragraph 1, of DL no. 10/2011, of 20 January, and is competent.

The Parties are properly represented, possess legal personality and legal capacity, are legitimate parties and are represented (articles 4 and 10, paragraph 2, of the same instrument and article 1 of Ordinance no. 112-A/2011, of 22 March).

The proceedings are free from nullities.

3. Positions of the Parties

The present request for arbitral decision concerns the challenge of the tax assessment acts for VAT of 2014 and 2015, resulting from the inspection procedure by the Finance Directorate of ..., carried out under the scope of OI 2016.../..., notified by Official Letter no. .../..../2017, of 11.01.2017, with VAT payable in the amount of € 100,952.30, plus compensatory interest, in the amount of € 7,718.10, totalling € 108,670.40.

The Claimant considers having demonstrated the illegality of the VAT assessment, in particular the verification of the shipment of goods between the consignor and the consignee (non-taxable operation), and the subsequent payment of the tax due and enforceable at the moment when the consignee placed the goods at the disposal of the purchaser (taxable operation), all in accordance with the provisions of article 3, paragraph 3, subparagraph c), article 7, paragraph 5, article 36, paragraph 14 and article 38, paragraph 2 of the VAT Code.

The Claimant considers the illegality of the VAT assessment for 2014 and 2015 to be manifest, concerning the tax treatment, under VAT, of the goods sold on consignment regime, on the grounds that the requirements for non-taxation of the operation in question are met, since such operation does not constitute an effective transfer of goods to the consignee, as the true legal transfer only occurs at the moment of sale of goods between the consignor and the third party purchaser.

As regards the Tax Authority's contrary arguments, namely concerning the alleged failure to communicate to the Tax Authority or the alleged improper filling of the invoices, the Claimant submits that these do not apply insofar as only through an oversight was it considered that the shipment of goods on consignment in question was subject to tax, thus requiring the annulment of the appealed tax act and the refund of the tax and compensatory interest paid unduly, plus the respective indemnity interest and default interest due.

It submits as unequivocal that from a harmonious reading of the applicable rules, it follows that the operation constituted by the shipment of goods by the consignor to the consignee for consignment does not constitute a legal transfer of the goods and, as such, should not be taxed under VAT.

With regard to the respective invoices, they should be issued by the 5th business day following: "a) the moment of shipment of goods on consignment"; and also "b) the moment when, concerning such goods, the tax is due and enforceable", with the invoice making reference to the documentation issued at the moment of shipment of goods on consignment, all as provided for in article 38, paragraphs 1 and 2 of the VAT Code, to be processed through computer systems, with all mandatory information, including the name, firm or company name and the tax identification number of the acquiring taxable person, to be entered by the respective invoicing software or computer equipment, as established in article 36, paragraph 14 of the VAT Code.

In this case, even if there was an oversight in communicating to the Tax Authority the VAT on such operation, through the computer system SAFT, for which the Claimant expresses contrition, this can never be relevant, since the legal and material truth underlying the case only permits the conclusion that the operation is not subject to tax.

As a general rule, the transfer of goods is considered, for purposes of objective tax incidence, the costly transfer of tangible goods in a manner corresponding to the exercise of the right of ownership, although there are cases of transfer fiction, namely to make prevail the economic substance of the transaction.

As regards operations for the transfer of goods between consignor and consignee, these do not constitute a legal transfer of goods from the principal to the agent, as the actual transfer (of ownership) of goods only occurs at the moment of sale of goods between the principal and the third party purchaser in a commission sale. Thus, the legislator provided for a legal fiction for VAT purposes, taking into account the intervention of the agent, considering two distinct and autonomous transfers of goods and two distinct moments for issuing invoices, although materially there is a single transfer of goods to the client and it should be only at that moment – when the agent places the goods at the disposal of his purchaser – that the VAT is due and enforceable and must be paid to the State.

Therefore, even if at the first moment – when the goods are delivered to the consignee, for the latter to then send to the purchaser – the consignor must issue an invoice, materially there is no sale or transfer of goods.

This first invoice should be issued without any VAT incidence; therefore, it should be stated that it is a sale on consignment, and at the second moment when the sale occurs, the consignor should issue a new invoice, making reference to the previous one and now including the VAT that has become due. The Tax Authority itself has already ruled on this matter, stating that "the delivery of goods on consignment constitutes a transfer of goods which, however, contains a particularity related to the fact that the payment of tax is suspended until the moment when the goods are sold by the consignee to the purchaser or, until the end of the period of one year from the respective delivery to the consignee, whichever occurs first" – see binding information relating to proc. no. 5480, 23.09.2013.

Thus, the Claimant does not understand why, in this case, where precisely a situation of shipment of goods on consignment and suspension of payment until the moment of sale by the consignee to the purchaser is at issue, the Tax Authority has ruled otherwise, namely for taxation, not only at the moment of sale of goods, but also at the previous moment of their shipment, before the actual sale, resulting in double taxation of a single transfer of goods. In the case at hand, the Claimant shipped the goods on consignment in July so that, during August, even with the company closed for holidays, the goods could be sold to customers, who were therefore unaware of the company closure and received their orders normally. At that moment, although ownership was not transferred to the consignee – who only temporarily had the goods until selling them to the purchaser – an invoice was issued for such transfer, although without VAT due. Thus, it submits that the Tax Authority's thesis that VAT is due for the operation of shipment of goods cannot prevail, as that would mean disregarding the entire regime of goods sold on consignment and the concrete materiality underlying the case. Effectively, the only VAT due for the sale of goods in question was already assessed and paid to the State coffers, and as regards the invoices that document the first operation – that of mere transfer of goods from the consignor to the consignee – they must be formally issued, but are not related to a taxable operation and should not be burdened. In this sense, see the copies of invoices in the possession of the recipients thereof, as results from document no. 1 attached in Annex, and according to which it appears "goods shipped at consignment to....." and also "VAT – Does not confer the right to deduction". As regards the first invoices, the consignee declares that it did not pay the amount shown on them and also did not recover any VAT relating to them (see document no. 2 attached to the request for arbitral decision), and this was never contested by the Tax Authority. Thus, the understanding that, due to the improper mention of VAT, the tax will be due should not prevail, as, according to all that has been stated and all the documentation presented, there was only one transfer of goods and for this, tax was assessed and paid to the State coffers.

It further notes that in the invoice issued to the consignee for the sale of goods, reference was made to the initial invoice for delivery of goods on consignment, so the alleged improper filling of invoices issued at the first moment of shipment of goods on consignment could never be relevant for VAT purposes, under penalty of violating all the aforementioned rules and also the accounting principle that underlies the Fiscal Law of substance over form. Finally, it alleges that requiring the tax again in relation to the same fact constitutes a duplication of collection, and this should be prevented, because it will mean the repetition of charging for the same tax, as referred to by Jorge Lopes de Sousa, in "CPPT Annotated", 3rd Edition, p. 1035, to the effect that "the duplication of collection by reference to a temporal and structural element occurs when, tax being paid, another of the same nature is assessed and required in relation to the same tax fact and the same period of time". In the same sense, it results, by way of example, from the judgment of the Supreme Administrative Court, case 0993/14, of 05.02.2015, which defines duplication of collection as "... when, tax being paid in full, another of equal nature is required of the same or different person, concerning the same tax fact and the same period of time", which means that duplication of collection requires the cumulative verification of the following requirements: i) the tax fact being the same, ii) the nature of the tax already paid being identical and what is newly required, iii) both taxes referring to the same time period".

In summary, the Claimant submits having proven that: i) The transfers of goods in question relate to the shipment of goods on consignment; ii) Each shipment of goods on consignment resulted in the issuance of an invoice with express mention of "VAT – does not confer the right to deduction", and by such mere shipment, no tax is due; iii) There was an oversight in electronic communication to the Tax Authority of these operations, which should be disregarded and in no way alters the enforceability of the tax, under penalty of disregarding substance over form and distorting the tax system and the tax; iv) In turn, all these goods were, in the following month, sold, with the respective invoice issued, making reference to the previous one; v) For this operation tax was assessed and paid; vi) The Tax Authority's understanding to require payment of tax for the first moment incurs in manifest duplication of collection and cannot, therefore, be upheld.

As for the Tax Authority, it responded in the following terms:

The Claimant failed to explain the reason why the invoices shown to the Tax Inspection Services differ from those now attached to the case.

On the other hand, it submits as pointless to attach to the case a statement from the consignee of the goods attesting not to have paid or deducted the tax assessed in the invoices for goods shipped on consignment, in which the expression "VAT – does not confer the right to deduction" did not appear.

Otherwise, the Claimant could have used invoice correction documents and regularised in its favour the improperly assessed tax (and thereby due), pursuant to the provisions of article 78 of the VAT Code.

Thus, it is manifest that the additional assessment here disputed does not result from an automatic communication from the invoicing program, but rather from the improper assessment of tax on an invoice, tax susceptible to conferring the right to deduction/refund to the consignee.

Thus, and because the assessed tax consists, in practice, of a check on the treasury, it was not possible for the Tax Inspection Services to take any action other than the assessment disputed here.

2. Factual Matters

2.1. Proven Facts

The following facts are considered proven:

- The disputed assessment is a consequence of a tax inspection action that complied with OI2016... and OI2016..., both with activity code..., issued on 2016/03/09 pursuant to article 46 of RCPITA.

- The inspection actions began on 2016/03/21 and concluded on 2016/11/25, with dispatch by mail, record of diligences no. NDO2016... and NDO2016..., as personal notification of the taxable person and the persons referred to in article 40 of RCPITA was not possible.

- The Claimant is a company established by public deed on 1990/01/22, which has share capital represented by a single quota with nominal value of € 2,500,000.00, belonging to B..., TIF....

- With the publication of Ordinance no. 157/2013 of 2013/03/15 and dispatch no. 6999/2013 of the Director General of the Tax Authority of 2013/05/30 (Official Journal 2nd series, no. 104), the company became subject to the "permanent monitoring methodology".

- The Claimant is registered for the exercise of the activity of manufacturing other electrical and electronic wires and cables, corresponding to CAE 027320.

- At the time of the facts in question – 2014 and 2015 – the Claimant's premises were closed for holidays.

- By means of the conclusion of consignment contracts relating to goods, the Claimant delivered to a third party, in July of those years, certain goods which were sold by him in August following.

- For this transfer of goods on consignment, in July 2014 and 2015, a first invoice was issued.

- With regard to these invoices of July 2014 and 2015, the Claimant communicated to the Tax Authority, by electronic transmission of data, by way of submission of SAFT file, "VAT assessed".

- In August 2014 and 2015 a second invoice was issued for the sale of the goods.

- This VAT was assessed and paid to the State coffers, after the corresponding deductions were applied.

- In accounting terms, the shipment of goods to the consignee was recorded by debiting account 7129 – movements on consignment, by credit of the same.

- Between 21.03.2016 and 25.11.2016, the Claimant was subject to an external inspection action, of partial scope, in VAT matters, by the Tax Inspection Services of the Finance Directorate of ..., accredited by nos. OI2016... and OI2016....

- As a result of said inspection action, the Tax Authority made corrections of a merely arithmetic nature, considering there to be tax shortfall, concerning the years 2014 and 2015, in the amount of € 53,483.08 and € 47,469.22, respectively.

- With reference to the facts at issue in this proceeding, the Inspection Report contains:

- In view of the facts identified, the Tax Inspection Services reached the following conclusion:

"2. Analysis of the situation: 2.1. Invoices issued by the taxable person:

As demonstrated in the previous point, the taxable person mentions VAT in the invoices it issues that document the shipment of goods on consignment (Annex II and Annex III).

However, although the transfer of goods on consignment is included in the concept of transfer of goods [subparagraph c) of paragraph 3 of article 3 of the VAT Code], it does not, by itself, determine the occurrence of the tax event, as results from paragraph 5 of article 7 of the VAT Code. In these situations, the taxable person should act in accordance with the provisions of article 38 of the VAT Code which regulates the "invoicing of goods shipped on consignment".

However, from the analysis made of the invoicing issued by the taxable person, the following is found: When shipping goods on consignment, the taxable person mentions VAT in the invoices it issues. However, it does not include, as it should, the mention of "VAT - Does not confer the right to deduction", despite including the expression "Goods Shipped at consignment to" (Annex II and Annex III). When the moment occurs when, in relation to such goods, the tax is due and enforceable (normally in the following month), the taxable person issues the respective invoice. However the reference made to the invoice issued when shipping goods on consignment is placed manually, contrary to paragraph 2 of article 38 and paragraph 14 of article 36, both of the VAT Code [by way of example, Invoice IV20556 of 27/08/2014 (Annex IV)].

3. Tax treatment:

Having been proven by the facts described previously that the taxable person mentioned VAT in the invoices that document shipment of goods on consignment and that, additionally, proceeded to communicate said VAT to the Tax Authority (through the obligations resulting from the "e-invoice" system), the requirement of subjective incidence provided for in the provision contained in subparagraph c) of paragraph 1 of article 2 of the VAT Code is met: "1 - The following are taxable persons of the tax: ... "Natural or legal persons who improperly mention VAT on an invoice"... Thus, the requirement of the VAT mentioned in the invoices becomes legitimate, as VAT is revenue of the State and cannot, in any circumstances, be subject to appropriation by the taxable person, even in the case of improper assessment. In that sense, the judgments of the Supreme Administrative Court no. 0555/12 of 2012/09/26 and no. 0807/15 of 2016/01/27 decided.

As for the tax event, it is constituted by the invoices where the taxable person mentions VAT. Consequently, the enforceability of the tax occurs 15 days from the issuance thereof.

Effectively, since we are faced with VAT improperly mentioned on invoices [a situation in which the requirement of subjective incidence provided for in the provision contained in subparagraph c) of paragraph 1 of article 2 of the VAT Code is met], the taxable person should have delivered, in the places of collection legally authorised, the corresponding tax, pursuant to paragraph 2 of article 27 of the VAT Code, thus acting in accordance with the instructions issued by Official Letter no.../2004 of 6 February, of the Collection Services Division. (...)."

- In the exercise of the right of prior hearing, the Claimant provided the following clarifications:

"a) The transfers of goods analysed in this report relate to the shipment of goods on consignment;

b) Each shipment of goods on consignment resulted in the issuance of an invoice with the express mention "VAT – does not confer the right to deduction";

c) All goods were sold, with the respective invoice issued and the respective VAT assessed;

d) Such tax was assessed and paid;

e) The Tax Authority's understanding incurs in manifest duplication of collection."

- On the regime of VAT on sales on consignment, the Tax Inspection Services concluded, after the exercise of the right of prior hearing by the Claimant, that:

II. On "The Regime of Goods Sold on Consignment"

Points 7 to 28

The taxable person expounds on the regime of goods sold on consignment, a matter which is also addressed in the inspection report. Indeed, in the context of this inspection report, the Tax Authority pronounces itself on an objective and concrete fact, which translates into the sale of goods on consignment with improper mention of VAT. For this reason, it is to be noted from the outset that the taxable person did not proceed as it itself understands that it should have proceeded (see point 16), namely, "... to issue an invoice without any VAT incidence...".

Points 29 to 34

The taxable person describes the manner in which it treats the sale on consignment from an accounting perspective. This fact was not challenged within the scope of this report and therefore does not merit counter-arguments.

Point 35

As will be seen below, the statements contained in this point of the prior hearing statement do not invalidate or prevent the consequences of the improper mention of VAT on the invoices in question.

Point 36

As for the conclusion contained in point 36, we have to state that the taxable person, in the invoices it issued when shipping goods on consignment, mentioned and assessed the respective VAT, as demonstrated in this report. For this reason, the conclusion drawn does not merit our agreement.

Points 37 to 41

If the invoices relating to the shipment of goods on consignment had been issued in accordance with articles 36 and 38 of the VAT Code, the VAT would become enforceable pursuant to paragraph 5 of article 7 of the same code.

However, as substantiated in this inspection report, the invoices in question (on consignment) did not respect such requirements or formalities. That is, they were issued with VAT improperly mentioned. In these cases, the VAT must be paid to the State, pursuant to paragraph 2 of article 27 of the VAT Code.

Points 42 to 45

The lack of formalities (established in the VAT Code) in the issuance of invoices cannot be remedied by the mere addition (namely manually) of the missing elements. See, by way of example, the lack of the VAT number of the purchaser in a certain invoice, whose VAT was the subject of deduction made by the latter. In light of the law, this deduction is improper, pursuant to subparagraph a) of paragraph 2 of article 19, combined with paragraph 5 of article 36, both of the VAT Code. Even if the purchaser enters their VAT number on the invoice, the deduction remains improper. It is also stated that the VAT contained in such invoice was paid to the state by the issuer thereof, although it could never, on the basis of that document, be subject to deduction by the purchaser, for the simple reason that such document does not comply with the legal requirements. Effectively, the law, by establishing certain requirements relating to the issuance of invoices, aims to prevent fraud and tax evasion and to comply with the principle of fiscal neutrality, which aims to ensure that economic operators are permitted to recover more equitably the VAT borne in the acquisition of goods and services made by them, and it is certain that whoever bears the payment of VAT is the final consumer (taxable person).... "

Points 46 to 48

If the invoices on consignment had been issued in a lawful manner, the tax event would occur pursuant to paragraph 5 of article 7 of the VAT Code. But that is not what happened. It is proven in this report that the taxable person did not issue the invoices as defined by the VAT Code, namely as defined in its articles 36 and 38. And, by improperly mentioning VAT on the invoices, it became, at that moment, a taxable person of tax, pursuant to subparagraph c) of paragraph 1 of article 2 of the VAT Code.

Point 49

The statement made by the taxable person in this point of the prior hearing statement applies when the issuance of invoices relating to the shipment of goods on consignment was correctly made. But that is not the case here under analysis. It is precisely the opposite. That is, the invoices were incorrectly issued (with improper mention of VAT) and such tax was communicated as having been assessed to the Tax Authority's database through the "e-invoice" system.

Point 50

This matter was duly addressed and clarified throughout this inspection report, and we therefore refrain from repeating it.

Points 51 to 59

In simple terms, it is clarified once again that: a) It is demonstrated in this inspection report that the taxable person, by improperly mentioning VAT on invoices, became a taxable person of tax, pursuant to subparagraph c) of paragraph 1 of article 2 of the VAT Code. b) It was the taxable person itself who informed the Tax Authority, through the "e-invoice" system, that it had assessed the VAT in question.

c) The taxable person did not comply with all requirements in the issuance of invoices on consignment (namely those defined in articles 36 and 38, both of the VAT Code), having placed some of the elements later.

Points 60 to 69

It has already been stated, in the counter-arguments relating to points 42 to 45, that deduction of VAT relating to an invoice not passed in a lawful manner is improper. And, as follows from the law, such VAT had to be paid to the state by the issuer of the invoice. However, the purchaser will never be able to deduce the VAT contained in that particular document. From this the figure of "there being no prejudice to the state" in matters related to invoice formalities does not apply, in our view. Now, in the case analysed in this report, it was found that the taxable person became, through the issuance of certain invoices with improper mention of VAT, a taxable person of tax pursuant to subparagraph c) of paragraph 1 of article 2 of the VAT Code. For this reason, the question of "there being no prejudice to the State" or the alleged "duplication of collection" does not arise, as what is at issue is a formal aspect defined in law that the taxpayer simply did not comply with when issuing the invoices. Moreover, it is the taxable person itself who, as already stated, informs the Tax Authority (through the "e-invoice" system) that it assessed the VAT in question.

Points 70 to 71

The invoices issued by the taxable person under analysis related to goods (merchandise) shipped on consignment. However, it improperly mentioned VAT when issuing the respective documents.

The entry of any formal element in invoices not through the computer program that issues them violates article 36 of the VAT Code, as well as consequently article 38 of the same provision.

It is also stated that the VAT Code clearly distinguishes the enforceability of VAT relating to goods shipped on consignment (paragraph 5 of article 7 of the VAT Code) from VAT improperly mentioned on an invoice (paragraph 2 of article 27 of the VAT Code).

For clarity, the following is transcribed from point 5 of the summary of the Judgment of the Court of Administrative Appeals South, Case 07111/13, of 04-06-2015: "...5. From article 2, no.1, subparagraph c), of the VAT Code, the conclusion is drawn that also a taxable person of the tax is whoever improperly mentions VAT on an invoice or equivalent document that meets the requirements provided for in current article 36, no.5, of the VAT Code, initiating the chain of assessment and deduction of tax, thus becoming, by that fact, a debtor of the tax improperly assessed, so must comply with what is determined by art. 27, no.2, of the same provision. For this not to happen, the issuer of the accounting document in question must include in it the mention that it does not confer the right to deduction of the VAT contained therein. This is so because each invoice with mention of tax constitutes a true "check on the treasury", as it grants to the recipient who is a taxable person the right to deduct the VAT contained therein. For this reason, the simple mention of VAT on an invoice (even if perhaps inappropriate, as there is no tax in that case for any reason) always gives rise to the obligation to pay, regardless of the quality of the issuer, that is, whether or not he is a taxable person. It will become, by the simple fact of the mention, a "debtor of tax". Only in this way can it be ensured that the right to deduction, which the invoice grants to the recipient taxable person, always corresponds to an obligation to pay and the proper functioning of the system of fractional payments is ensured in VAT..."

Concluding, and following the analysis of the prior hearing statement presented by the taxable person, as well as the counter-arguments presented here, we understand that, within the scope of the analysis of this document, nothing new has been brought to the proceeding that would allow us to alter the content of the draft report duly notified.

Consequently, all corrections proposed in said draft report are to be maintained.

- With regard to expenses recognised as bad debts, the amounts of € 84,098.21 were considered by the Claimant in the year 2012 and € 73,354.83 in the year 2013.

2.2. Unproven Facts

The Claimant alleges that "Each shipment of goods on consignment resulted in the issuance of an invoice with the mention "VAT – does not confer the right to deduction"".

From the comparison between the invoices shown to the Tax Inspection Services and contained in pages 34 et seq. of the Administrative File attached to the case with the same invoices (numbers, dates, etc.) submitted by the Claimant with the prior hearing statement (document no. 6) it appears that only in the latter does the expression "VAT – does not confer the right to deduction" appear, which seems to be an affixing made with a stamp.

Thus, what appears to result from this factuality is that the affixing of this expression occurred at a later moment after the Tax Inspection Services made the copies attached to the case with the Administrative File, and therefore the same did not appear on the invoices when they were issued.

Thus, this tribunal cannot consider proven what was alleged by the Claimant with regard to this aspect, that is, that the invoices issued with each shipment of goods on consignment contained the expression in question.

2.3. Justification for the Determination of Factual Matters

The facts were determined as proven based on the documents attached with the request for arbitral decision, in the administrative proceeding and on facts stated by the Parties in their respective procedural pleadings with regard to which there is no controversy.

With regard to factual matters, the Tribunal does not have to pronounce itself on everything that is alleged by the Parties, but rather has the duty to select the facts that matter for the decision and to discriminate the proven and unproven matters (cf. article 123, paragraph 2, of the Code of Procedure and Tax Process and article 607, paragraph 3 of the Code of Civil Procedure, applicable by virtue of article 29, paragraph 1, subparagraphs a) and e) of RJAT).

Facts are selected according to their legal relevance, which is determined in function of the various possible solutions for the case (cf. the previous article 511, paragraph 1, of the Code of Civil Procedure, now article 596, applicable by virtue of article 29, paragraph 1, subparagraph e) of RJAT).

Having regard to the positions assumed by the Parties, the facts enunciated above are considered proven, with relevance to the decision, with the fact contained in the preceding subsection not being considered proven for the reasons indicated.

3. Legal Matters

The corrections that gave rise to the assessments are based, in summary, on the fact that the invoices do not comply with the regime provided for in articles 36 and 38, both of the VAT Code, as they should have been issued by the 5th business day following the moment of shipment of goods on consignment and also the moment when, in relation to such goods, the tax is due and enforceable. Furthermore, they must make reference to the documentation issued at the moment of shipment of goods on consignment, in accordance with the provisions of article 38, paragraphs 1 and 2 of the VAT Code, to be processed through computer systems, with all mandatory information, including the name, firm or company name and tax identification number of the acquiring taxable person, to be entered by the respective invoicing software or computer equipment, as established in article 36, paragraph 14 of the VAT Code.

Let us then examine this.

*

The Tax Authority understood, in short, that "the consequence of invoices not meeting all the legal requirements provided for in articles 36 and 38 of the VAT Code is not being valid support to avoid the obligation to assess tax on transfers, even if on consignment, of goods in question, as, by the manner in which they were issued, they create in the purchaser the conviction that it is legitimate to exercise the right to deduction of the tax, in accordance with paragraph 2 of article 19 of the same provision".

Thus, to assess the right to deduction, compliance with the formal condition provided for in paragraph 2 of article 19 of the VAT Code should be verified, which determines that tax can only be deducted if mentioned on invoices issued in the form required by law, that is, issued in accordance with article 36 of the VAT Code (paragraph 6 of article 19 of the VAT Code).

The understanding sustained in the Inspection Report is based on dated jurisprudence of the Supreme Administrative Court, which in a judgment cited therein even came to state that:

"I – The invoice or equivalent document issued in the form required by article 19, paragraph 2 of the VAT Code for the deduction of tax is one that respects all the requirements of article 35, paragraph 5 of the same Code.

II – The requirement of this formalism constitutes a true substantial requirement of the right to deduction of tax, even if the taxable person is exempt from VAT."

This understanding, which considers that the invoice is a formality ad substantiam of the right to deduction of VAT, should be considered currently superseded in view of what has been the jurisprudence of the CJEU on the matter, which understands "that the fundamental principle of VAT neutrality requires that the deduction of this tax paid upstream be granted if the material requirements are met, even if taxable persons have neglected certain formal requirements."

As the CJEU states in the same judgment, "the purpose of the mentions that must necessarily be included on the invoice consists in allowing the Tax Administrations to carry out controls of the payment of tax due and, if the case may be, the existence of the right to deduction of VAT. It is therefore in light of this purpose that it is important to analyse whether the invoices (...) respect the requirements of article 226, paragraph 6, of Directive 2006/112."

Continuing, it is pointed out that "the Tax Administration cannot refuse the right to deduction of VAT by the simple fact that the invoice does not meet the requirements required by article 226, paragraphs 6 and 7, of Directive 2006/112, if it has all the data to verify whether the substantive requirements relating to this right are satisfied.

In this regard, the Tax Administration should not limit itself to the examination of the invoice itself. It must also take into account supplementary information provided by the taxable person. This finding is confirmed by article 219 of Directive 2006/112 which equates the invoice to any document or message that alters the initial invoice and makes specific and unequivocal reference to it."

The CJEU also recalls that "Member States are competent to provide for sanctions in case of violation of the formal requirements relating to the exercise of the right to deduction of VAT. Under article 273 of Directive 2006/112, Member States have the option to adopt measures to ensure the exact collection of tax and prevent fraud, provided that such measures do not go beyond what is necessary to achieve such objectives nor put at risk the neutrality of VAT (...).

In particular, Union law does not prevent Member States from applying, where appropriate, a proportionate fine or monetary penalty to punish the violation of the formal requirements"

That is, and from the outset, contrary to what was understood in the Inspection Report, the consequence of invoices not meeting all the legal requirements provided for in article 36 of the VAT Code is not to not be valid support for the deduction of tax, with the CJEU being categorical in the sense that the Tax Administration cannot refuse the right to deduction of VAT by the simple fact that the invoice does not meet the requirements.

The said consequence will only be legitimate, therefore, if the Tax Administration does not have all the data to verify whether the substantive requirements relating to this right are satisfied, in terms of not allowing it to carry out controls of the payment of tax due and, where the case may be, the existence of the right to deduction of VAT, with the Tax Administration not being limited to the examination of the invoice itself but should also take into account supplementary information provided by the taxable person.

Equally, it is not because tax has been improperly assessed that there is an obligation to deliver it to the State coffers, since the taxable person must be given the opportunity to demonstrate that the improperly assessed tax was not subject to deduction.

Moreover, in this case as well, the Tax Administration always has the possibility of knowing whether the purchaser exercised or not the right to deduction of the tax improperly mentioned on the invoice.

It is therefore in light of these criteria that the legality of the corrections made must be assessed.

*

Having regard to what has been stated, it is considered that the formal deficiencies detected by the Tax Authority are not, in concreto, suitable to, by themselves, imply the obligation to deliver the improperly assessed tax, since the Tax Authority has all the data to verify that the right to deduction of this tax was not exercised and that the subsequent transfers were subject to tax assessment.

On the other hand, the proceeding contains sufficient elements to conclude that the merchandise was initially shipped on consignment, and there is therefore no reason to subject such transfers to tax at the moment of their shipment.

Thus, and without prejudice to any sanctions that may be applicable in this case, for violation of the regulations that govern the formality of invoices, the Tax Authority is in possession of the necessary information to ensure the control and verification of the substantive requirements inherent in the operations carried out, and it is not lawful for it to subject to tax an operation which, under the VAT Code, is in a regime of suspension of assessment.

Moreover, the Tax Authority is aware that the purchaser of the goods shipped on consignment did not deduct the tax on the acquisition, which means that the grounds justifying the obligation to deliver, to the State coffers, the VAT improperly assessed do not exist in the concrete case at hand. In fact, the legislator established such obligation to deal with cases in which the improperly assessed VAT was subject to deduction by the purchasers of goods or services.

In this conformity, requiring the taxable person to deliver to the State coffers the tax that was not subject to deduction by the purchaser of goods shipped on consignment would constitute a tax accumulation contrary to the neutrality, which is the main characteristic of Value Added Tax, all the more so as it was duly proven that the subsequent transfer was subject to VAT, which, by way of the periodic declaration, was delivered to the State coffers.

*

As for the request for indemnity interest filed by the Claimant, article 43, paragraph 1 of the General Tax Law establishes that indemnity interest is due when it is determined that there was error attributable to the services resulting in payment of the tax liability in an amount greater than legally due.

In this case, the errors affecting the assessment, and which are indicated above, are attributable to the Tax and Customs Authority, which made the assessment act on its own initiative.

The Claimant therefore has the right to be refunded of the amount that was paid unduly (pursuant to the provisions of articles 100 of the General Tax Law and 24, paragraph 1, of RJAT) and also to be indemnified by the Respondent for the improper payment, through indemnity interest, from the date of payment of the tax until full refund, at the legal default rate, pursuant to articles 43, paragraphs 1 and 4, and 35, paragraph 10, of the General Tax Law, article 559 of the Civil Code and Ordinance no. 291/2003, of 8 April.

5. Decision

In accordance with what has been stated, this Arbitral Tribunal agrees to grant the claim and, in consequence, determine the annulment of the additional VAT assessments for the years 2014 and 2015.

6. Value of the Case

The value of the case is fixed at € 100,952.30, pursuant to article 97-A, paragraph 1, a), of the Code of Procedure and Tax Process, applicable by virtue of subparagraphs a) and b) of paragraph 1 of article 29 of RJAT and paragraph 2 of article 3 of the Regulations of Costs in Tax Arbitration Proceedings.

7. Costs

The amount of costs is fixed at € 3,060.00, pursuant to Table I of the Regulations of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, as the claim was judged entirely well-founded, pursuant to articles 12, paragraph 2, and 22, paragraph 4, both of RJAT, and article 4, paragraph 5, of the said Regulation.

Lisbon, 14 March 2018

The Arbitrators

(José Poças Falcão)

(Paulo Lourenço)

(Raquel Franco)

Frequently Asked Questions

Automatically Created

What is the VAT treatment of consignment goods under Portuguese tax law (CIVA)?
Under Portuguese VAT law (CIVA), consignment goods receive special treatment per Articles 3(3)(c) and 7(5). The shipment of goods from consignor to consignee does not constitute a taxable transfer. Instead, VAT becomes due and enforceable only when the consignee places the goods at the disposal of the final purchaser, creating a legal fiction that recognizes two distinct moments: delivery to consignee (non-taxable) and sale to customer (taxable). This prevents double taxation of what is economically a single transaction.
When does the taxable event occur for goods sent on consignment between consignor and consignee?
The taxable event for consignment goods occurs at the moment when the consignee sells the goods to the final purchaser, not when the consignor initially delivers them to the consignee. According to Article 7(5) of CIVA, tax payment is suspended until either: (a) the consignee sells the goods to a third party, or (b) one year elapses from delivery to the consignee, whichever occurs first. At the initial shipment, the consignor must issue an invoice without VAT, indicating it is a consignment sale; upon actual sale, a second invoice with VAT must be issued referencing the first.
Can a taxpayer challenge IVA liquidation assessments through CAAD arbitration proceedings?
Yes, taxpayers can challenge IVA (VAT) liquidation assessments through CAAD (Centro de Arbitragem Administrativa) proceedings under the Legal Regime of Arbitration in Tax Matters (RJAT - DL 10/2011). This case demonstrates the process: the claimant filed a request for arbitral tribunal constitution pursuant to Articles 2 and 10 of RJAT, the tribunal was constituted with three arbitrators appointed by the Deontological Council, and the proceedings followed established legal procedures. CAAD arbitration provides an alternative to judicial courts for resolving tax disputes.
How do Articles 3, 7, 36, and 38 of the Portuguese VAT Code (CIVA) apply to consignment transactions?
Article 3(3)(c) establishes the consignment regime as a special case of goods transfer; Article 7(5) governs the timing of tax liability, suspending payment until sale to final purchaser or one year; Article 36(14) requires invoices to be processed through computer systems with mandatory information including purchaser identification; Article 38(2) mandates invoices be issued by the 5th business day after shipment to consignee and after the tax becomes due, with the second invoice referencing the initial consignment documentation. Together, these provisions create a framework preventing taxation at the consignment delivery stage.
What are the legal consequences of incorrect VAT assessment on consignment merchandise in Portugal?
Incorrect VAT assessment on consignment merchandise can result in: (1) double taxation of a single economic transaction, (2) obligation to pay both principal tax and compensatory interest on improperly assessed amounts, (3) right to challenge through CAAD arbitration seeking annulment of the assessment, (4) entitlement to refund of unduly paid tax and compensatory interest, plus indemnity and default interest if the challenge succeeds, and (5) potential application of legal principles favoring economic substance over form. Taxpayers must demonstrate compliance with invoicing and reporting requirements under Articles 36 and 38 CIVA to successfully challenge such assessments.