VAT Deduction on Intra-Community Supply with Installation Services on Immovable Property – CAAD 329/2017-T

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Diogo Leite de Campos and Artur Maria da Silva, appointed by the Deontological Council of the Administrative Arbitration Center, agree to form an Arbitral Court:

I – REPORT

On 18 May 2017, A…, taxpayer no. …, with registered office in …, …, Sweden, filed a request for establishment of an arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, briefly designated as RJAT), seeking the declaration of illegality of the act of additional assessment of Value Added Tax ("VAT") and corresponding compensatory interest, with reference to the years 2008, 2009 and 2010, in the global amount of € 485,590.25 (corresponding to € 448,899.64 of tax and € 36,690.61 of compensatory interest), as follows in the table below:

[Table with years 2008, 2009, 2010 and corresponding amounts]

as well as the dismissal of Hierarchical Appeal No. …2012…, the dismissal of the Gracious Complaint proceeding No. …2011…, which had those assessments as their subject matter.

To support its request, the Applicant alleges, in summary, that it and its tax registration in national territory are one and the same legal entity, A…, that is, an entity based in Sweden, which, by carrying out intra-Community acquisitions of goods in Portugal, proceeded to register for VAT in this territory and which supplied goods to its national clients, with installation or assembly of those goods in the clients' properties in Portugal, having subcontracted national taxpayers for this purpose, which issued invoices relating to the services provided, with mention of the Applicant's Portuguese tax identification number.

The Applicant further alleges that the said installations or assemblies were carried out through subcontracting of national companies, constituting a provision of services realized at its clients (B…, C…, D…), in accordance with Article 4(1) of the VAT Code.

It also alleges that these installation or assembly services are related to immovable property located in national territory, with these operations being located in Portugal, in accordance with the provisions of Article 6(8)(a) of the VAT Code.

Understanding that the NIF [Tax Identification Number] used in the documents supporting the operation (Swedish or Portuguese) corresponds to the same legal person, the Applicant concludes that the refund claimed by it in its respective tax returns is due, corrected by the Tax Authority.

On 19-05-2017, the request for establishment of the arbitral tribunal was accepted and automatically notified to the Tax Authority.

The Applicant did not proceed with the appointment of an arbitrator, whereby, pursuant to Article 6(2)(a) and Article 11(1)(a) of the RJAT, the President of the Deontological Council of CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable period.

On 07-07-2017, the parties were notified of these appointments, having manifested no intention to refuse any of them.

In accordance with the provision of Article 11(1)(c) of the RJAT, the Collective Arbitral Tribunal was constituted on 21-07-2017.

On 03-10-2017, the Respondent, duly notified for this purpose, presented its response defending itself solely by way of contestation.

Pursuant to Article 16(c) and (e) and Article 29(2), both of the RJAT, the holding of the meeting referred to in Article 18 of the RJAT was dispensed with.

A period having been granted for the presentation of written pleadings, the parties opted not to present them.

A period of 30 days was set for the pronouncement of the final decision, following the deadline for the Respondent's presentation of pleadings.

The Arbitral Tribunal is materially competent and is regularly constituted, pursuant to Articles 2(1)(a), 5 and 6(1) of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with Articles 4 and 10 of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.

The proceeding does not suffer from nullities.

Thus, there is no obstacle to the examination of the case.

Everything considered, we must therefore pronounce:

II. DECISION

A. FACTUAL MATTER

A.1. Facts Established as Proven

The Applicant, currently with the designation E… – due to a merger in 2011 between A… and R…, and subsequently, in 2014, a change of designation – is an entity based in Sweden, member of the international group F…, of Finnish origin, and one of the largest economic groups in the world in the development and engineering of equipment and mechanical solutions for various industries.

The Applicant is a global supplier of technology and services for mining, construction, power generation, oil and gas, recycling, and paper and pulp industries.

It is in Sweden that the company centralizes its activity, dedicating itself to the development of projects for clients established throughout the world.

The projects developed by it consist of the supply of goods or services, whereby, in the case of supply of goods, the same may involve their respective installation or assembly, depending on the technical requirements of clients.

In view of the technical specifications of different types of projects, the now Applicant resorts, as a rule, to suppliers located in various countries in order to meet the wishes of its clients efficiently and within its quality standards.

The Applicant's activity, with destination Portugal, consisted of the acquisition of equipment and its subsequent supply to clients in Portugal, including, when necessary, their respective installation or assembly.

In view of such activity, the Applicant registered with the National Register of Legal Entities, in Lisbon, under number … .

The Applicant initiated its activity for VAT purposes in Portugal on 2 December 1997, having, for this purpose, delivered a declaration of commencement of activity.

The Applicant proceeded to acquire equipment with a view to its subsequent supply to clients in Portugal, and whenever such equipment required installation or assembly, the Applicant subcontracted national taxpayers to carry out this installation or assembly service, and possible maintenance, of equipment in the facilities of its clients located in national territory.

The Applicant incurred VAT in the acquisitions of services from national providers, having carried out the corresponding deduction in its periodic VAT declarations.

The services in question consisted of the installation of goods sold by the Applicant in the facilities of its clients, in accordance with the contractual obligations assumed by it towards them.

The active operations carried out by the Applicant, referring to Portugal, consisted of the sale of equipment and machinery, with the respective transport and installation and assembly in the facilities of its clients located in this territory.

In 2008, 2009 and 2010, the Applicant, in Portugal, (with tax identification number PT…) filed periodic VAT declarations, in which it reported no active operations.

For its part, the Applicant, in Sweden, (with tax identification number SE …) reported in its Swedish recapitulative declarations intra-Community supplies from Sweden to Portugal, identifying as purchasers the clients of projects in national territory, the invoices corresponding to these operations being issued with its Swedish NIF [Tax Identification Number].

The intra-Community supplies of goods from Sweden to Portugal identified as purchasers the clients of projects in national territory.

Following an internal review of procedures, the Applicant proceeded to submit replacement periodic declarations relating to the 2nd and 3rd quarter of 2007 and, as well, the 1st, 2nd, 3rd and 4th quarter of 2008, and declared the said active operations in field 8 of table 06 - exempt or non-taxed operations that confer the right to deduction.

The invoices opportunely issued to its clients were not, at that time, corrected so as to mention the Portuguese NIF [Tax Identification Number] of the now Applicant.

The Applicant requested, in the periodic VAT declaration for August 2010, the refund of the deductible VAT credit in its favor, in the amount of € 107,807.74.

Following this request, and in accordance with service orders OI2010…, OI2011… and OI2011…, the Applicant was subject to an inspection action by the Tax Inspection Services ("SIT") of the Finance Directorate of Lisbon, in the matter of VAT and with reference to the years 2008, 2009 and 2010.

From the Tax Inspection Report ("RIT") resulting from said inspection action, the following appears, among other things:

"III. Preliminary Considerations

1. In a letter dated 15/11/2010, sent via e-mail on the same date, by the spokesperson P… (belonging to the company G…, SA), the taxpayer under examination described its activity with the following arguments:

'...A… is an entity based in Sweden, which belongs to the international Group H… of Finnish origin, one of the largest economic groups in the world, with various activities in the industrial sector, notably in paper and pulp production sectors...'

'...In this context, in Portugal A… proceeds to the installation and assembly of equipment for the cellulose industry in the facilities of B…, SA, for which it resorts to suppliers such as I..., J..., K..., L...'

1. A second request for clarifications was justified, sent to the taxpayer via notification under Office No. … of 25/01/2011, transcribing the question placed as point 1:

'1. Present the activity developed by the VAT registration under examination, A… (NIF…), in national territory since 2007, clarifying the commercial circuit developed, with the main fiscally identified participants (suppliers/clients), projects already developed and those in progress/their location/period of execution/forecast of completion of those in progress, if it involved the conclusion of contracts, specifying temporally/contracting entities, and the various places of exercise of activity. Do not forget to indicate what the course of activity of the taxpayer is after the VAT refund request submitted in 2010-08.'

1. In a letter dated 11/02/2011, with the entry record in this Finance Directorate No. … of the same date, the taxpayer sent us the following information as a response to what was questioned in point 1 of the 2nd notification (point 2 of this report), transcribing some excerpts:

'...in Portugal the activity of A… consists of ensuring the proper implementation of the projects that it developed at the request of Portuguese companies in this sector, such as C…, D… and B…, for the various stations of the production lines in the factories of these clients. These projects involve the selection of potential and main suppliers of materials or services according to the specifications at the engineering level....'

'...the projects (of A…) as well as any equipment installed have warranty periods that normally do not exceed 4 years...'

'...since the refund request, August 2010, A… has 3 projects still ongoing..., having received no recent communications from its clients for any additional interventions, whether within the warranty of existing projects, or for any new projects...'

1. Additionally, the taxpayer sent us a copy of the only declaration of changes filed on 25/02/2009, in which it changes its corporate name from M… to A…, ceasing to have its registered office in national territory at …, …, …º, … Lisbon (fiscal address of the company G…, SA), to assume a fiscal domicile in Sweden.

2. Regarding the clarifications provided by the taxpayer on 11/02/2011, in point 2 of its letter it states that '...A… has not developed nor intends to initiate its commercial activity in Portugal...'.

3. Having analyzed the VAT periodic declarations submitted by the taxpayer (NIF…) since its establishment in national territory (02/12/1997), we verified that from 2004 to 2007 the taxpayer appears to have been practically inactive.

4. The VAT credit requested by the taxpayer A… (NIF…) in the tax period 2010-08, in the amount of 107,870.74 €, originates from the tax period 2009-06T, being justified by the VAT deductions associated with the invoicing issued to it by national suppliers, with VAT settlement, relating to the acquisition of services for pipe insulation and mechanical equipment repair, mostly referring to the work of B… ('B…'). It is noteworthy that the invoicing presents a description in English language, which may or may not include some translation into Portuguese.

5. Mention is made below of some of the national suppliers associated with the invoicing issued to A… (NIF…): I…, SA (…), N…, Lda (…), K…, Lda (…). It is stressed that the invoicing in question was issued from 2008 until 24/02/2009 with VAT settled by the acquirer, and from 25/02/2009 with VAT settled by the supplier, the date from which the taxpayer under examination ceases to have its registered office in national territory, to assume a fiscal domicile in Sweden.

6. It is also noteworthy that the taxpayer justified its situation of permanent VAT credit from 2009, in the clarifications contained in paragraph b) of its letter dated 15/11/2010, with the following argument, which we transcribe in full:

'...For the purposes of Value Added Tax ('VAT'), the installation and assembly of the equipment supplied to B… configures itself as a provision of civil construction services and, as such, falls within the mechanism of inversion of the VAT subject person, whereby this tax has been self-assessed by B…, under Decree-Law No. 21/2007, of 29 January, and corresponding Offices of the Ministry of Finance and Public Administration....'

1. Faced with the very unsatisfactory responses of the taxpayer under examination (A…, NIF…), coupled with the fact that its VAT periodic declarations do not reproduce in any way the activity claimed, with the inconsistencies found in points A) and B) of this report, it was justified to circulate information to its main national suppliers (I…, SA – office no. … of 17/11/2010; K…, Lda – office no. … of 17/11/2010) and assumed clients (B… – email of 14/01/2011 and office no. … of 17/11/2010; C… – email of 14/01/2011). The national taxpayers circularized responded promptly with account statements, copies of invoices and other documents issued both to the taxpayer under analysis (A… …), and by the taxpayer A… with Swedish NIF (SE…), including some contracts concluded/purchase orders/inspection reports.

IV. Description of Facts and Grounds for Arithmetic Corrections in VAT

Based on the steps taken and the explanations obtained, with all the documentary support collected, we conclude that there is a major inconsistency of procedures both in terms of active operations and in terms of passive operations, which we shall present:

A) Inconsistency of procedures regarding active operations

1. After a period marked by some inactivity, the VAT periodic declarations of the taxpayer under examination with NIF…, began to report in 2007 only active operations in the total amount of 2,475,000 € (field 8), without any activity declared in terms of passive operations. In 2008, also in field 8 of its VAT periodic declarations, the global value of 6,810,575 € was declared, no value having been declared in this same field since then. On the other hand, the values declared in fields 3 and 4 of its VAT periodic declarations, only between 2008 until the tax period 2009-03T, are not associated with any invoicing issued with VAT settled by the taxpayer under examination (NIF…), but are instead associated with the self-assessment of VAT on invoicing issued by national suppliers to this same taxpayer number.

2. Despite being notified to define the economic activity developed by the VAT registration under examination (NIF…), in our territory since 2007, the taxpayer presented to us an activity very poorly clarified, without making an objective presentation of the commercial circuit developed, without fiscally defining its participants, which investment projects developed/period of execution/contracts concluded/contracting entities, as we transcribe in points 1 to 3 of point III – Preliminary Considerations of this report.

3. In fact, the activity declared in the VAT periodic declarations filed from 2007 to date does not include any active operations belonging to the sphere of NIF…, since the values declared in field 8 of its VAT periodic declarations from 2007 to 2008 concern invoicing issued by the Swedish taxpayer A… (SE…) to the national client B… (…), SA (…), which we verified in its entirety.

4. It is important to note that all invoicing issued by the Swedish taxpayer to B… was sent to us by this company when circularized, making it possible to confirm the values declared by the national VAT registration with NIF … . On the other hand, the national client B… assumed in the clarifications provided in a letter dated 30/11/2010 (entry record in this Finance Directorate No. … of 02/12/2010) that '...the entity A…, taxpayer no.…, is not a supplier of B… (B…), SA...', maintaining a continued commercial relationship with A…, with Swedish taxpayer number (SE…), as we determined in subsequently developed contacts.

5. The debits issued by the Swedish taxpayer, A… with Swedish NIF (SE…), both to B… and to C… (circularized national clients), constitute intra-Community supplies of goods (equipment for the cellulose industry) that were dispatched to another Member State (Portugal), destined for the acquirer (B… and other national taxpayers in the cellulose and paper pulp sector), constituting Intra-Community Supplies Exempt from VAT for the Swedish taxpayer (SE…). In fact, these supplies invoiced to national taxpayers in the sector were duly declared for VAT purposes by the Swedish taxpayer in its fiscal declarations and confirmed in VIES – System of Information on Intra-Community Transactions. Inconsistently, the transactions invoiced by the Swedish taxpayer to B…, in 2007 and 2008, in the total value of 9,285,575.10 € (2,475,000 € in 2007; 6,810,575.10 in 2008) were also reported in the sphere of the VAT registration of A… in national territory, declaring them in field 8 of its VAT periodic declarations of 2007 (2007-06T and 2007-09T) and 2008 (2008-06T to 2008-12T).

6. In these terms, we have a VAT taxpayer in Portugal, non-resident, who does not practice any active operation in our territory, living up to what was stated in a letter dated 11/02/2011 by the taxpayer, in the response included in point 2 '...A… has not developed nor intends to initiate its commercial activity in Portugal...'.

7. Notified to clarify what are the revenues of A… with NIF…, with the acquisitions whose VAT it supported and declared in its VAT periodic declarations since 2008 and to whom they are debited, having to prove this with the documentation issued (all revenue invoices issued by the national taxpayer … since 2007), the taxpayer opted not to respond to what was questioned, annexing the invoicing issued by A… with Swedish NIF (SE…).

8. In view of all the inconsistencies pointed out in the previous points (1 to 7):

• It was not minimally clarified what activity was effectively exercised since 2007 by the taxpayer under examination (NIF…) in national territory;

• Nor was it proven that the realization of active operations was carried out on the part of A… (NIF…) as declared in field 8 of the VAT periodic declarations of 2007 and 2008, in the total value of 9,285,575.10 €.

B) Inconsistency of procedures regarding passive operations

1. All of the deductions declared by the taxpayer under examination in the period under analysis, reported in field 24 of the VAT periodic declarations from 2008 to 2010, relate to VAT supported and deducted with the acquisition of services from various national suppliers already mentioned, relating to assembly and repair works carried out in production lines, mostly of B…, and with less expression from C…, and D…, companies linked to the cellulose and paper pulp industry sector.

2. It is noteworthy that this invoicing issued by national suppliers until 24/02/2009 and declared for VAT purposes until the tax period 2009-03T, did not generate VAT credit for the taxpayer under examination, since it was issued with VAT due by the acquirer, with the VAT settlement reflected in field 4 of its VAT periodic declarations. From 25/02/2009 onwards, the said invoicing began to be issued with VAT settlement in the sphere of the provider/supplier, because the acquiring taxpayer (NIF…) changed its registered office in national territory to a domicile in Sweden, although it continues to appear in the invoicing issued by national suppliers until December 2010 the address Av. ..., …, … Lisbon (fiscal address of the company G…, SA, registered office of the taxpayer under examination until 24/02/2009).

3. Within the scope of the clarifications provided by the circularized suppliers, it was possible to verify contracts concluded, purchase orders and inspection reports associated with the invoicing issued, where the fiscally identified acquiring entity is A… with Swedish NIF (SE …). It is noteworthy the particularity that in the purchase orders verified and relating to acquisitions of 2010, the address for invoicing assumed is an address in Finland (A…, O…, …, …, Finland), with the fact that the corresponding invoice continues to mention the national address referred to in the previous point.

C) Improper VAT Deduction (€ 448,899.64)

1. In view of the above, faced with a clear inconsistency of procedures both in terms of active operations and passive operations declared by the taxpayer under analysis, A… (NIF…), we emphasize that it was not minimally clarified what activity was effectively exercised in national territory, nor was it proven that any active operation was carried out in national territory by this taxpayer.

2. Article 20 of the VAT Code provides that "Only the tax that has been levied on goods or services acquired, imported or used by the taxpayer for the realization of the following operations can be deducted:

a) Supplies of goods and provisions of services subject to tax and not exempt therefrom,

b) Supplies of goods and provisions of services which consist of:

I) Exports and exempt operations under Article 14;

II) Operations carried out abroad that would be taxable if carried out in national territory;

III) Provisions of services whose value is included in the tax base of imported goods, in accordance with Article 17(2)(b);

IV) Supplies of goods and provisions of services covered by Article 15(1)(b), (c), (d) and (e) and by Article 15(8) and (10);

V) Exempt operations under Article 9(27) and (28), when the recipient is established or domiciled outside the European Community or which are directly linked to goods, which are intended to be exported to countries not belonging to the same Community;

VI) Exempt operations under Article 7 of Decree-Law No. 394-B/84, of 26 December."

1. Considering that the taxpayer did not proceed to carry out any operation mentioned in Article 20(1) of the VAT Code, the VAT deductions declared by the taxpayer in field 24 of the VAT periodic declarations in the period under analysis (2008 to 2010) cannot be accepted as legitimate, in the total amount of 448,899.64 €, itemized by tax periods in the summary table below.

[Table with breakdown by period]

In view of the above, it is proposed:

1. Technical correction for VAT purposes in the total amount of 448,899.64 €, itemized by tax periods in the table above;

2. The consequent dismissal of the VAT refund requested in the VAT periodic declaration of the tax period 2010-08, in the total amount of 107,870.74 €.

In these terms, the taxpayer will be notified to exercise the Right to Hearing in accordance with the provisions of Article 60 of the General Tax Law and Article 60 of the Complementary Tax Inspection Procedure Regulations.

V) Right to Hearing

The taxpayer was notified to exercise the Right to Hearing in accordance with the provisions of Article 60 of the General Tax Law and Article 60 of the Complementary Tax Inspection Procedure Regulations via office no. …of 04/03/2011. For the information of G…, in the person of Mrs. P…, spokesperson assumed in the clarifications provided by the taxpayer, a copy of the Draft Corrections of the Inspection Report, with the opinions given thereon by the Team Head and the Division Head, was sent to her care, via mail, under office no. … of 10/03/2011, including the office no. … of 04/03/2011 relating to the sending of this same Draft to the fiscal domicile in Sweden of the taxpayer, with successful delivery on 10/03/2011.

The Right to Hearing was exercised in writing, received in our Tax Inspection Services on 25/03/2011, with entry record no.…, presenting the argument that we shall now present and comment on:

1. In the 1st paragraph, the taxpayer qualifies the report inherent to the Draft Corrections as being a '...report that proposes corrections based on the argument that the information obtained as to the activity exercised will have been in accordance with what we transcribe as 'very poorly clarified', 'not at all elucidating' or even 'in no way' corresponds to what was declared for VAT purposes...', constituting an argument that merits the following comments:

a) The Inspection Report inherent to the Draft Corrections sent to the taxpayer was prepared after a set of steps were taken, exhaustively presented in point III) Preliminary Considerations of the same report, with two notifications sent to the taxpayer under examination, which, in view of its very unsatisfactory responses, justified that its main national suppliers and assumed clients be equally notified to provide clarifications;

b) It should also be stressed that we placed ourselves at the disposal of the taxpayer to overcome any doubt related to the inspection process underway, where obviously was included the nature of the questions posed to it when notified. However, in addition to the two clarifications they sent us, already identified in the Draft Corrections, we received only two telephone calls in which the taxpayer's spokespersons (Q… and P…, both from G…) posed questions related to the deadline for submitting the response to the notification or to the exercise of the Right to Hearing;

c) From this it follows that the inspection work developed was carried out under the auspice of availability, of high sense of responsibility and knowledge of the applicable legal norms in VAT matters to assess the legitimacy of the refund under examination.

1. In paragraphs 2, 3 and 4, the taxpayer continues to follow the line it already demonstrated previously in the responses it sent us, revealing an inability to present and document what economic operations of an entrepreneurial nature were developed by the taxpayer under examination, A… (NIF…). To this end, it suggests visits to the facilities of the '...few clients, who long ago, the company has in Portugal....' and included an annex as 'Document 1', under the title 'Presentation of A…', composed of 174 pages in English language.

2. It proceeds in the following paragraphs without defining the economic activity developed by the VAT registration under examination (NIF…), in our territory since 2007, without making an objective presentation of the commercial circuit developed, without fiscally defining its participants, without presenting the investment projects developed/period of execution/contracts concluded/contracting entities.

3. The documentary reality collected confirms the direct exercise of activity in Portugal by the Swedish parent company, A… with Swedish NIF (SE …), when it debits to national clients in the cellulose and paper pulp sector the supplies of equipment for Portuguese cellulose industry, constituting Intra-Community Supplies Exempt from VAT for the Swedish taxpayer (SE…) and intra-Community acquisitions of VAT for the national taxpayer clients. In the circulation of information carried out to the national clients already mentioned and in the consultation carried out to VIES – System of Information on Intra-Community Transactions, we verified that this is a continued commercial relationship that has been maintained for a long time, as confirmed by the taxpayer in paragraphs 2 and 28 of the exercise of the Right to Hearing.

4. Inconsistently, we see the taxpayer arguing in paragraphs 29 to 32 '...that the active operations advocated by A… underwent obligatory changes...' with the entry into force of DL 21/2007. In no way can the invoicing issued by the Swedish taxpayer to national clients be presented as a supporting document of invoicing issued by the taxpayer under examination A… (NIF…) and accepted as proof that this VAT registration practices active operations that confer the right to full or partial VAT deduction. Moreover, the invoicing issued by the Swedish taxpayer to national clients cannot serve to conclude that A… (NIF…) is applying the rule of inversion of the subject person while 'provider of civil construction services', where the tax would be self-assessed by the national clients. The tax was effectively self-assessed by the national clients of A… with Swedish NIF (SE…), but by virtue of the associated intra-Community acquisition, constituting transactions duly declared in their respective fiscal declarations.

5. There is a clear lack of knowledge of the provision of Circular Office No. 30101 of 24/05/2007 as to the treatment given to mere VAT registrations, both as provider and as acquirer of civil construction services, or even when they justified the situation of tax credit under examination.

6. The taxpayer included in the Right to Hearing as 'Document 2' and 'Document 3' invoicing issued by A… with Swedish NIF (SE…) to national clients C… and D… duly declared in the sphere of these entities, it being noteworthy that some of this invoicing was already in the inspection file, having been collected within the scope of the circulation carried out to the circularized national taxpayer clients. In fact, they constitute active operations belonging to the sphere of A… with Swedish NIF (SE…), which cannot be declared in the sphere of A… (NIF …), a fact which should be accepted by the taxpayer, since it makes impossible the intention stated in paragraph 35 of the exercise of the Right to Hearing.

7. Our last comments to the Right to Hearing submitted by the taxpayer are the following:

a) We have a VAT registration in national territory that is an entity covered by the definition of taxpayer of the tax, subject to the fulfillment of obligations deriving from the applicability of the VAT Code, notably obligations of declaration, invoicing, payment and bookkeeping;

b) On the other hand, it claims a credit from the Portuguese State relating to tax supported in national territory, a right which obviously derives from the fulfillment of the obligations established in the said Code;

c) The inconsistencies raised within the scope of the Correction Draft are maintained, concluding that the taxpayer under examination is a VAT taxpayer in Portugal, non-resident, who does not practice any active operation in our territory, similarly to what was stated in its clarifications provided in a letter dated 11/02/2011, which we again transcribe '...A… has not developed nor intends to initiate its commercial activity in Portugal...'.

VI) Conclusion of Final Report on Corrections

Therefore, since the elements and arguments brought to the proceeding by the taxpayer have not contradicted the grounds for the corrections proposed based on the VAT Code legislation, the same are to be maintained.

In view of the above, it is proposed technical correction for VAT purposes, in the total amount of 448,899.64 €, based on the legislation infringed already mentioned, with the consequent dismissal of the VAT refund requested in the VAT periodic declaration of the tax period 2010-08, in the total amount of 107,870.74 €.

For this purpose, correction documents were prepared for the tax periods listed in the summary table contained in this report, as well as the corresponding notice of offense was drawn up, and the Notification of the Result of the Inspection Action was prepared."

From the abovementioned inspection action resulted corrections in the global value of € 485,590.25, with the Tax Inspection Services having considered that the Applicant had improperly deducted VAT.

Subsequently, the Finance Service of Lisbon … proceeded to issue additional assessments of VAT and corresponding compensatory interest, subject matter of the present arbitral action, which were duly paid by the Applicant.

The aforementioned invoices in 17 were corrected in 2011, with the Applicant having proceeded to issue credit notes to the three national clients, canceling the invoicing issued with the Swedish identification number and issuing corrected invoices on the same date with the indication of its Portuguese tax identification number, in accordance with the following table:

[Table with correction details]

On 27 October 2011, the Applicant filed a Gracious Complaint against the additional assessments of VAT and compensatory interest relating to the years 2008, 2009 and 2010, which was dismissed.

On 30 July 2012, the Applicant presented a Hierarchical Appeal against that dismissal decision, which was equally dismissed by order notified to the Applicant on 20 February 2017.

A.2. Facts Established as Not Proven

1- That the goods sold by the Applicant to Portugal were fixed, as a permanent matter, in immovable property of the respective acquirers.

2- That the procedures described in points 13 to 15 of the facts established as proven resulted from oversight.

3- That the intra-Community operations declared in the recapitulative declarations reported in Sweden (and reflected in VIES) for the three national clients – B…, C…, SA, and D…, SA have been annulled.

A.3. Grounds of the Proven and Not Proven Factual Matter

Regarding the factual matter, the Tribunal does not have to rule on everything that was alleged by the parties, rather it has the duty to select the facts that matter for the decision and to discriminate the proven from the not proven matter (see Article 123(2) of the Code of Tax Procedure and Process and Article 607(3) of the Code of Civil Procedure, applicable ex vi Article 29(1)(a) and (e) of the RJAT).

Thus, the facts relevant to the judgment of the case are chosen and defined in accordance with their legal relevance, which is established in attention to the various plausible solutions of the legal question(s) (see former Article 511(1) of the Code of Civil Procedure, corresponding to the current Article 596, applicable ex vi Article 29(1)(e) of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of Article 110/7 of the Code of Tax Procedure and Process, and the documentary evidence attached to the record, the facts listed above were considered proven, with relevance to the decision, having in mind that, as was written in the Decision of the Southern Tax Court of 26-06-2014, delivered in case 07148/13[1], "the probative value of the tax inspection report (...) may have probative force if the assertions contained therein are not challenged".

The facts established as not proven result from the absence or insufficiency of proof concerning them.

Allegations made by the parties and presented as facts, consisting of strictly conclusive statements, incapable of proof and whose veracity must be assessed in relation to the specific factual matter above established, were not given as proven or not proven, nor facts incompatible with those proven or not proven.

B. LAW

The question that arises for this tribunal to decide essentially comes down to ascertaining whether the Applicant, an entity domiciled in another Member State of the European Community, has the right to deduct the VAT supported with passive operations (provisions of services), related to the supply and installation of goods sold to national taxpayers.

Indeed, and as results from the factual matter, the Applicant, resident in Sweden, proceeded to acquire equipment with a view to its subsequent supply to clients in Portugal, and whenever such equipment required installation or assembly, subcontracted national taxpayers to carry out this installation or assembly service, and possible maintenance, of equipment in national territory.

As the Applicant incurred VAT in the acquisitions of services from national providers, it carried out the corresponding deduction in replacement of the periodic VAT declarations duly presented.

The Applicant supports its claim, in summary, on the provision of Article 6(8)(a) of the VAT Code, in the applicable wording, whose content is as follows:

"Notwithstanding the provision of paragraph 6, the following operations are taxable:

a) Services related to an immovable property situated in national territory, including services provided by architects, by building supervision companies, by experts and real estate agents, and those aimed at preparing or coordinating the execution of immovable works, as well as the granting of rights of use of immovable property and the provision of accommodation services carried out within hotel activity or other activities with similar functions, such as camping parks;".

This wording came into force from 1 January 2010, by virtue of the entry into force of Decree-Law 186/2009, of 12 August, and in the matter in question, until that date, Article 6(6)(a) of the same article governed, with the following wording:

"They are, however, taxable, wherever the seat, the permanent establishment or the domicile of the provider is located:

a) The services related to an immovable property situated in national territory, including the services aimed at preparing or coordinating the execution of immovable works and the services of experts and real estate agents acting in their own name and on behalf of others;".

For the Applicant, its activity consisted of supply of goods with installation and assembly in immovable property located in this territory, considering that the said installation and assembly constitute autonomous provisions of services, in accordance with Article 4(1) of the VAT Code, locatable in Portugal, in view of the abovementioned Article 6(6)(a) (until 31-12-2009) and Article 6(8)(a) (after that date) of the VAT Code.

The Tax Authority, for its part, considered that we are faced with "intra-Community supplies of goods (equipment for the cellulose industry) which were dispatched to another Member State (Portugal), destined for the acquirer (B… and other national taxpayers in the cellulose and paper pulp sector), constituting Intra-Community Supplies Exempt from VAT for the Swedish taxpayer (SE…)", noting that "these supplies invoiced to national taxpayers in the sector were duly declared for VAT purposes by the Swedish taxpayer in its fiscal declarations and confirmed in VIES – System of Information on Intra-Community Transactions" and that "The documentary reality collected confirms the direct exercise of activity in Portugal by the Swedish parent company, A… with Swedish NIF (SE …), when it debits to national clients in the cellulose and paper pulp sector the supplies of equipment for Portuguese cellulose industry, constituting Intra-Community Supplies Exempt from VAT for the Swedish taxpayer (SE…) and intra-Community acquisitions of VAT for the national taxpayer clients".

Furthermore, the Tax Authority judged that there was not "proven the realization of any active operation in national territory on the part of this taxpayer.", concluding that "Considering that the taxpayer did not proceed to carry out any operation mentioned in Article 20(1) of the VAT Code, the VAT deductions declared by the taxpayer cannot be accepted as legitimate", since "it is a VAT taxpayer in Portugal, non-resident, who does not practice any active operation in our territory, similarly to what was stated in its clarifications provided in a letter dated 11/02/2011, which we again transcribe '...A… has not developed nor intends to initiate its commercial activity in Portugal...'.".

As is easily apparent from what has been set forth, the fundamental dispute between the taxpayer and the Tax Authority does not lie in the relevance or legal status of the duality of registrations for VAT purposes, in Portugal and Sweden, a question to which the Applicant devotes most of its argument, nor even in the realization or non-realization of economic operations by the Applicant involving national territory, but in the effective existence, or not, of active operations by the Applicant locatable in Portugal, corresponding to the passive operations with which it seeks to substantiate its right to deduction, and, of the requirements of Article 20(1) of the VAT Code, which provides that only the tax that has been levied on goods or services acquired, imported or used by the taxpayer for the realization of supplies of goods and/or provisions of services subject to tax and therein discriminated can be deducted.

Connected with this question, is that of ascertaining whether, in the concrete case, the operations of installation and assembly constitute autonomous operations of provisions of services, subject to specific rules of location, or whether, rather, they are merely auxiliary or accessory operations of the provision of supply (transmission) of goods, subject to the rules of location and taxation specific to such operations.

The Applicant submits in this regard that the assembly and installation of the goods it supplied to national taxpayers constitutes an autonomous provision of services, locatable in Portugal because it has immovable property as its subject matter.

For the Tax Authority, the Applicant carried out, in terms of active operations, exclusively intra-Community supplies of goods (sales), not taxable in Portugal, and, as such, has no right to deduct any tax before the Portuguese State.

Examining the factual matter, it is verified that the Applicant proceeded to acquire equipment with a view to its subsequent supply to clients in Portugal, and whenever such equipment required installation or assembly, subcontracted national taxpayers to carry out this installation or assembly service, and possible maintenance, of equipment in national territory.

It is thus verified, which is confirmed by all the documentation, including that made available by the Applicant, such as contracts ("Delivery Contract") and invoicing (with mentions such as "supply") that the operations carried out by the Applicant, in question in the present arbitral proceedings, were essentially operations of supply of goods (equipment and machinery), that is, intra-Community supplies of goods (sales), as the Tax Authority understood.

This is, moreover, particularly evident from the document attached by the Applicant with no. 9, where it is read (point 2.), without any doubt, that the subject matter is the purchase, by the Applicant's client, and the sale, by the Applicant, of machinery and equipment, with the Applicant agreeing, moreover, to deliver and install the goods sold, with delivery ("Delivery") being considered complete only with the execution of such additional services assumed by the Applicant, and the agreed price being fixed and global ("not indexed"; see point 4.).

Now, it has been recurring jurisprudence of the CJEU that the taxation regime of ancillary services follows the taxation regime of the main service.

In this sense, that high Court ruled, among others, in the following cases, with community jurisprudence in the matter being relevant to the present proceedings being perfectly clear, continued and enlightening, with no need for any preliminary ruling in order to resolve the present case[2]:

Case C‑273/16[3]:

"37 In this regard, it is important to recall that, for the purposes of VAT, each operation must normally be considered distinct and independent, as results from Article 1(2), second paragraph, of the VAT Directive (see, in this sense, the decision of 17 January 2013, BGŻ Leasing, C‑224/11, EU:C.2013:15, no. 29).

38 Nevertheless, it also results from the jurisprudence of the Court of Justice that, in certain circumstances, several formally distinct provisions, susceptible of being supplied separately and, thus, of giving rise, separately, to taxation or exemption, must be considered one single operation, when they are not independent. It is a single operation, in particular, when two or several elements or acts supplied by the taxpayer are so closely linked that they form, objectively, a single indivisible economic provision, whose decomposition would be artificial in nature (decision of 16 July 2015, Mapfre asistencia and Mapfre warranty, C‑584/13, EU:C:2015:488, no. 50).

39 In this regard, it should be noted that Article 86(1)(b) of the VAT Directive ensures that the taxation of the ancillary provision follows the taxation of the main provision."

Case C-208/15[4]:

"26 In this regard, it is important to recall that, for the purposes of VAT, each provision must normally be considered distinct and independent, as results from Article 1(2), second paragraph, of the VAT Directive (decision of 16 April 2015, Wojskowa Agencja Mieszkaniowa w Warszawie, C‑42/14, EU:C:2015:229, no. 30 and jurisprudence referred to).

27 Nevertheless, in certain circumstances, several formally distinct provisions, susceptible of being supplied separately and, thus, of giving rise, separately, to taxation or exemption, must be considered one single operation when they are not independent. It is a single operation, in particular, when two or several elements or acts supplied by the taxpayer to the client are so closely linked that they form, objectively, a single indivisible economic provision, whose decomposition would be artificial in character. This also happens when one or several provisions constitute a main provision and the other provision(s) constitute one or several ancillary provisions that share the tax status of the main provision. A provision must be considered ancillary in relation to a main provision when it does not constitute an end in itself for the clientele, but a means of benefiting, under the best conditions, from the main service of the provider (decision of 16 April 2015, Wojskowa Agencja Mieszkaniowa w Warszawie, C‑42/14, EU:C:2015:229, no. 31 and jurisprudence referred to). (...)

29 In this regard, it should be noted, on the one hand, that to determine whether an operation involving several provisions constitutes a single operation for the purposes of VAT, the Court of Justice has taken into consideration the economic objective of that operation (see, in this sense, decisions of 19 November 2009, Don Bosco Onroerend Goed, C‑461/08, EU:C:2009:722, no. 39; of 28 October 2010, Axa UK, C‑175/09, EU:C:2010:646, no. 23; and of 27 September 2012, Field Fisher Waterhouse, C‑392/11, EU:C:2012:597, no. 23). In its analysis, the Court of Justice has also taken into account the interest of the recipients of the provisions (see, in this sense, decision of 16 April 2015, Wojskowa Agencja Mieszkaniowa w Warszawie, C‑42/14, EU:C:2015:229, no. 35)."

Case C-276/09[5]:

"21 It follows from Article 2 of the Sixth Directive that each operation must normally be considered distinct and independent (see, in particular, the CPP decision, already referred to, no. 29; and decisions of 29 March 2007, Aktiebolaget NN, C‑111/05, Collected, p. I‑2697, no. 22, and of 19 November 2009, Don Bosco Onroerend Goed, C‑461/08, Collected, p. I‑11079, no. 35).

22 However, an operation constituted by a single provision on the economic level should not be artificially decomposed, so as not to alter the functionality of the VAT system (see, in particular, the CPP decisions, already referred to, no. 29, and Aktiebolaget NN, no. 22; and decision of 22 October 2009, Swiss Re Germany Holding, C‑242/08, Collected, p. I‑10099, no. 51).

23 Furthermore, in certain circumstances, several formally distinct operations, susceptible of being carried out separately and thus giving rise, in each case, to taxation or exemption, must be considered a single operation when they are not independent (see decisions of 21 February 2008, Part Service, C‑425/06, Collected, p. I‑897, no. 51; of 11 June 2009, RLRE Tellmer Property, C‑572/07, Collected, p. I‑4983, no. 18; and Don Bosco Onroerend Goed, already referred to, no. 36).

24 Such occurs, for example, when it is verified that one or several provisions constitute a main provision and that, on the other hand, other elements must be considered one or several ancillary provisions that share the tax status of the main provision (see, in particular, the CPP decision, already referred to, no. 30; decision of 15 May 2001, Primback, C‑34/99, Collected, p. I‑3833, no. 45; decision RLRE Tellmer Property, already referred to, no. 18; and order of 14 May 2008, Tiercé Ladbroke and Derby, C‑231/07 and C‑232/07, no. 21).

25 In particular, a provision must be considered ancillary to a main provision, when it does not constitute an end in itself for the clientele, but a means of benefiting, under the best conditions, from the main service of the provider (see, in particular, the CPP decisions, already referred to, no. 30, Primback, no. 45, and RLRE Tellmer Property, no. 18; and the Tiercé Ladbroke and Derby order, already referred to, no. 21).

26 To determine whether the taxpayer supplies to the consumer – understood as an average consumer – several distinct main provisions or a single provision, it is important to seek the characteristic elements of the operation in question and to take into account all the circumstances in which it is carried out (see, in this sense, the CPP decisions, already referred to, nos. 28 and 29, Aktiebolaget NN, nos. 21 and 22, and Ludwig, no. 17; and the Tiercé Ladbroke and Derby order, already referred to, nos. 19 and 20)."

In the case, in view of the proven facts and all the elements available, it is judged to be precisely in a situation in which the several elements or acts supplied by the taxpayer are so closely linked that they form, objectively, a single indivisible economic provision, whose decomposition would be artificial in nature.

Indeed, first and foremost, this is evidenced by the contractual context ascertained, and discriminated above, with it being verified from the start that the agreed price is fixed and global, and, as the CJEU itself stated "when a provider supplies to its clients a provision of services composed of several elements against payment of a single price, the latter can be considered an important element in favor of the existence of a single provision"[6].

Furthermore, as was seen, the contractual subject matter is the purchase, by the Applicant's client, and the sale, by the Applicant, of machinery and equipment, with the Applicant agreeing, moreover, to deliver and install the goods sold, with the delivery of goods being considered complete only with the execution of such additional services assumed by the Applicant, the operation of transmission of goods thus not being severable, which constitutes, indisputably, the main and essential subject matter of the contract, from the other provisions of services that are ancillary to it.

Added to all this is the circumstance that initially the Applicant itself treated the operations in question as intra-Community supplies of goods and informed the Portuguese tax authorities that it "has not developed nor intends to initiate its commercial activity in Portugal...", only proceeding in the direction of altering the tax framework attributed by it, after a legislative change in the Portuguese legal order, which, perhaps, appeared to it as offering tax advantages in the separation of provisions (installation and/or assembly), which it did not initially carry out.

It is also noted that, notwithstanding the contract presented by the Applicant as doc. 9 mentioning other provisions of services (in addition to installation/assembly) of the equipment and machinery sold by it, such as transport, operational tests ("test runs"), and training ("training") in the use of those, services which the Applicant no longer singles out, as well as, as is proven, that in 2008, 2009 and 2010, in Portugal, (with tax identification number PT…) the Applicant filed periodic VAT declarations, in which it reported no active operations.

Moreover, it is also significant that the Applicant does not mention that the framework of the operations in question that it operated initially at the fiscal level – as intra-Community supply of goods – caused it any prejudice, especially in terms of VAT, nor does it mention that the review of the framework it operated and seeks to enforce, resulted from any intervention by the tax authorities of its country of origin, to its prejudice.

Thus, everything points to the fact that the separation of the installation and assembly provisions from the supply of goods that is not contested, based essentially on the attempt to obtain tax advantages, resulting from such separation and the subsequent qualification of the same as relating to immovable property (a question which will be addressed below), thereby being of a nature susceptible of being considered artificial.

On the other hand, nothing is ascertained to the effect that the (highlighted by the Applicant) installation and assembly provisions constitute an end in themselves for the concrete clients of the Applicant.

On the contrary: what the contract evidences is that the interest of the Applicant's clientele lies in the global provision of the operations globally envisaged in the contract, whose essence and dominant economic weight is, clearly, a supply of goods, being, clearly evidently, the economic objective of the operation and the interest of the recipients of the provisions, the acquisition in finished and functional state (ready to operate) of the machinery and equipment sold by the Applicant.

Thus, taking into account the characteristic elements of the operations in question and all the circumstances in which they are carried out, it is concluded that the active operations carried out by the Applicant, in question in the present arbitral action, are configured, integrally, as intra-Community supplies of goods.

In any event, and without prejudice to what has been concluded, even if it were concluded in favor of the separation of the installation and assembly operations, as the Applicant contends, it would still have to be concluded that they were not demonstrated to have had immovable property as their object.

Indeed, all the documentation made available, in particular the contract attached as doc. 9 and the invoicing presented, points to the fact that the direct and immediate object of the installation and assembly services are the equipment and machinery sold by the Applicant, and not the immovable property where they were installed, it not being known, for example, whether the same were even property of the Applicant's clients.

That is, contrary to what the Applicant asserts, nothing evidences that it has provided "civil construction services" (see Article 82 of the Initial Request), nor that "the material requirements of the right to deduction are clearly met", and that "the services provided by the Applicant constituted operations taxed for VAT purposes in Portugal" (Article 79 of the Initial Request), since what is ascertained, as was seen, is that the Applicant carried out intra-Community supplies of goods (sales), including ancillary provisions of services (transport, installation or assembly, operational functionality tests ("Test runs"), training ("training")), which were taxed as such (and not as civil construction services) in Portugal.

On the other hand, nothing also suggests that the equipment and machinery sold by the Applicant to Portugal were fixed with permanence to immovable property, in terms of being able to recognize, as the Applicant intends, the execution of civil construction works, as is presupposed in the normative provision of "services related to an immovable property", since not only does such have no correspondence in the contractual documentation (the immovable property assumes no evidence in the same, appearing merely as a place of delivery and installation of the goods supplied), but it will not be any installation of goods, even if fixed to the immovable property, which can be considered as services related to an immovable property, being necessary, evidently, in the application of the concepts previously highlighted, to center on it the essential part of the economic operation in question, that is, that the improvement of the immovable property, as such, by the installation of certain goods, constitutes an end in itself for the concrete economic operators, that it roots there the main interest and objective of the economic operation, which in the case, as has already been seen, is not demonstrated to occur.

In view of all the above, verifying that, as the Tax Authority considered in the contested assessments, the active operations carried out by the Applicant, in question in the present arbitral action, are configured, integrally, as intra-Community supplies of goods not locatable in Portugal, with no active operations locatable in national territory being ascertained, correlative to the right to deduction sought to be exercised by the Applicant, and corrected, in the said assessments, nor, consequently, the verification of the requirements of Article 20 of the VAT Code, such corrections should be deemed well-founded in fact and in law, with the arbitral claim therefore being without merit.

C. DECISION

It is therefore decided in this Arbitral Tribunal to uphold the dismissal of the arbitral claim formulated and, in consequence:

• To absolve the Respondent from the claim; and

• To condemn the Applicant to pay the costs of the proceeding, in the amount of € 7,650.00.

D. Case Value

The case value is set at € 485,590.25, in accordance with Article 97-A(1)(a) of the Code of Tax Procedure and Process, applicable by virtue of Article 29(1)(a) and (b) of the RJAT and Article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is set at € 7,650.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, payable by the Applicant, since the claim was entirely without merit, in accordance with Articles 12(2) and 22(4), both of the RJAT, and Article 4(4) of the cited Regulation.

Notification hereby ordered.

Lisbon, 22 January 2018

The Presiding Arbitrator

(José Pedro Carvalho)

The Arbitrator Vogal

(Diogo Leite de Campos)

The Arbitrator Vogal

(Artur Maria da Silva)

[1] Available at www.dgsi.pt, as with the remaining jurisprudence cited without indication of source.

[2] Emphasis ours.

[3] http://curia.europa.eu/juris/document/document.jsf?docid=195229&mode=req&pageIndex=1&dir=&occ=first&part=1&text=&doclang=PT&cid=961828

[4] http://eur-lex.europa.eu/legal-content/PT/ALL/?uri=CELEX%3A62015CJ0208.

[5] http://eur-lex.europa.eu/legal-content/PT/TXT/?uri=CELEX%3A62009CJ0276.

[6] See Case C-349/96 at: http://curia.europa.eu/juris/document/document.jsf?text=&docid=44443&pageIndex=0&doclang=PT&mode=lst&dir=&occ=first&part=1&cid=961993.