Process: 331/2017-T

Date: February 7, 2018

Tax Type: IVA

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 331/2017-T) addresses the legality of additional VAT assessments totaling over €200,000 imposed on a Portuguese football club for 2011 and early 2012. The case involves two core tax issues: (1) the deductibility of VAT on intermediation services provided by third-party companies in player recruitment, and (2) the deductibility of VAT on image rights acquisitions from players. The claimant football club challenges the Tax Authority's rejection of these deductions under articles 6, 19, and 20 of the Portuguese VAT Code. Critically, the claimant invokes res judicata (caso julgado material), arguing that a previous CAAD arbitral decision (345/2016T) already ruled favorably on identical transactions involving the same players and contracts, differing only in the payment periods. The claimant contends that the earlier decision, which annulled similar VAT assessments, creates binding precedent under article 619 of the Code of Civil Procedure and Ordinance 112-A/2011, which grants arbitral decisions the legal value of judicial sentences. Beyond res judicata, the claimant alleges substantive violations including erroneous fact assessment, misapplication of VAT law, illegality of Tax Authority circulars 17/2011 and 15/2011, and breach of legitimate expectations under article 55 of the General Tax Law. The case exemplifies fundamental tensions in Portuguese tax law between administrative consistency, judicial precedent in arbitration proceedings, and the Tax Authority's assessment powers over complex commercial transactions in professional sports, particularly regarding the VAT treatment of intermediation fees and image rights—areas where Portuguese tax practice has evolved significantly through CAAD jurisprudence.

Full Decision

ARBITRAL DECISION

REPORT

A…, Tax Identification Number…, with registered office at…,…,…,…,… (hereinafter the Claimant) requested the constitution of an arbitral tribunal with the nomination of an arbitrator, under paragraph a) of section 1 of article 2, in paragraph b) of section 2 of article 6, and in paragraph a) of section 1 and section 2 of article 10, all of Decree-Law no. 10/2011, of 20 January – Legal Framework for Arbitration in Tax Matters (RJAT).

The request aims at assessing the legality – and consequent declaration of illegality – of the following additional VAT assessments and corresponding compensatory interest:

  • VAT relating to 2012/2 (Assessment no. 2015…) in the amount payable of €9,200.00;

  • Default interest relating to the preceding assessment (Assessment 2015…), of €1,832.16;

  • VAT relating to 2011/01 (Assessment no. 2015…), in the amount payable of €7,216.77;

  • Compensatory interest for 2011/01 (Assessment no. 2015…), in the amount payable of €7,255.12;

  • VAT relating to 2011/02 (Assessment no. 2015…), in the amount payable of €7,216.77;

  • Compensatory interest for 2011/02 (Assessment no. 2015…), in the amount payable of €1,229.82;

  • VAT relating to 2011/03 (Assessment no. 2015…), in the amount payable of €18,216.77;

  • Compensatory interest for 2011/03 (Assessment no. 2015…), in the amount payable of €3,046.44;

  • VAT relating to 2011/04 (Assessment no. 2015…), in the amount payable of €7,216.77;

  • Compensatory interest for 2011/04 (Assessment no. 2015…), in the amount payable of €1,179.99;

  • VAT relating to 2011/05 (Assessment no. 2015…), in the amount payable of €7,716.77;

  • Compensatory interest for 2011/05 (Assessment no. 2015…), in the amount payable of €1,238.07;

  • VAT relating to 2011/06 (Assessment no. 2015…), in the amount payable of €7,216.77;

  • Compensatory interest for 2011/06 (Assessment no. 2015…), in the amount payable of €1,134.12;

  • VAT relating to 2011/07 (Assessment no. 2015…), in the amount payable of €11,500.00;

  • Compensatory interest for 2011/07 (Assessment no. 2015…), in the amount payable of €1,765.64;

  • VAT relating to 2011/08 (Assessment no. 2015…), in the amount payable of €67,850.00;

  • Compensatory interest for 2011/08 (Assessment no. 2015…), in the amount payable of €10,209.10;

  • VAT relating to 2011/09 (Assessment no. 2015…), in the amount payable of €21,850.00;

  • Compensatory interest for 2011/09 (Assessment no. 2015…), in the amount payable of €3,213.45;

  • VAT relating to 2011/10 (Assessment no. 2015…), in the amount payable of €12,650.00;

  • Compensatory interest for 2011/10 (Assessment no. 2015…), in the amount payable of €1,616.05.

The Claimant nominated as arbitrator Prof. Dr. Rui Duarte Morais.

The Respondent (also AT hereinafter), on 11 July 2017, nominated as arbitrator Dr. Jorge Carita.

On 13 July 2017, the arbitrators appointed by the parties agreed to nominate Court of Appeal Judge Manuel Luís Macaísta Malheiros for the chairmanship of the arbitral tribunal.

The Arbitral Tribunal was constituted by order of 4 August 2017.

The Respondent submitted its reply on 29 September 2017 and attached the procedural file.

The meeting referred to in article 18 of the RJAT took place on 10 November 2017, following which witness evidence was produced.

The Claimant submitted arguments on 23 November 2017.

The AT submitted its arguments on 23 December 2017.

Summary of Prior Proceedings

The present request resulted from a tax inspection of the Claimant's activity relating to the year 2011 and January and February 2012, which culminated in a final inspection report that, in turn, gave rise to the VAT assessments and compensatory interest identified above;

The Claimant filed two administrative appeals, one against the VAT and interest assessment of 2012 to which paragraphs a) and b) refer and another against the remaining VAT and interest assessments relating to the year 2011;

The two administrative appeals were dismissed by the AT;

The Claimant, dissatisfied, filed two hierarchical appeals;

In mid-March 2017, the two hierarchical appeals (no. …2016… and …2016…) were subject to total express dismissal.

POSITION OF THE PARTIES

POSITION OF THE CLAIMANT

The Claimant argues that the impugned acts are invalid, due to the following cumulative illegalities:

a) Violation of res judicata (art. 100 General Tax Law, art. 581 and 619 of the Code of Civil Procedure);

b) Erroneous apprehension of the facts and incorrect subsumption to applicable law;

c) Violation of articles 6, 19 and 20, all of the VAT Code;

d) Violation of articles 35 of the General Tax Law and art. 100 of the Code of Tax Procedure;

e) Illegality of Circulars 17/2011 and 15/2011;

f) Violation of art. 22 and 24 of Decree-Law no. 28/98.

Beyond the preliminary issue (violation of material res judicata), the Claimant identifies two issues to be decided in the present proceedings:

First: non-acceptance of the VAT deduction in relation to the acquisition of intermediation services (of companies) in the contracting of various players), based on art. 19 and 20 of the VAT Code - (hierarchical appeal no. …2016…);

Second: non-acceptance of the VAT deduction in relation to the acquisition of image rights of various players, based on art. 6 and 20 of the VAT Code: player B… (hierarchical appeal no. …2016…) and C… and B… (hierarchical appeal no. …2016…).

Regarding the violation of res judicata, the Claimant alleges that:

  • the exact object of this proceeding, for the same Claimant and almost the same players and with similar arguments from the AT, was already subject to an arbitral decision – relating to various other months of 2012 – in proceedings 345/2016T, and the arbitral sentence, already having become final, ordered the total annulment of the additional VAT assessments;

  • under Ordinance no. 112-A/2011, of 22 March, arbitral decisions have the legal value of judicial sentences, and therefore the AT is bound by their compliance;

  • the present proceedings address the VAT deduction, for other temporal periods (VAT is monthly) but in relation to the same subject matter and same players and contracts (only in the present proceedings is player D… present, who did not appear in the earlier proceedings), as the payments were made in various tranches;

  • in a merits sentence (as in the case of the arbitral decision in question), both formal res judicata (with effects within the proceeding) and material res judicata (with effects outside the proceeding) are formed – art. 619, section 1 of the Code of Civil Procedure;

  • In this case, the arbitral tribunal's sentence constitutes material res judicata as to the present proceedings, because the cause now under analysis is identical as to subjects, contracts under analysis (economic and image rights), request and cause of action – which is only divided into various proceedings because the payments were made in various tranches over months and the AT did not join all the matter in the same inspective proceeding (art. 581 of the Code of Civil Procedure);

  • material res judicata has binding force within and outside the proceeding, preventing the same or another tribunal, or any other authority from defining in different terms the concrete law applicable to the material relation that is the subject of the dispute;

  • even if the present matter were not covered by material res judicata, the truth is that the present arbitral proceeding would always have to grant such a claim, in compliance with the principles of legality, justice, impartiality and protection of legitimate expectations, pursuant to art. 55 of the General Tax Law and art. 2 of the Constitution: the taxpayer would not understand that a final sentence would permit him the VAT deduction of the same operation and then in an administrative decision deny him that deduction in another tranche of the same transaction;

  • substantive sentences from the courts create legitimate expectations in taxpayers that fiscal law provides what is stated there (legality), as a means of uniformizing decisions on the same case (impartiality) and pursuit of Justice (conveying the understandings of final judicial decisions);

  • the exception of res judicata presented should, consequently, determine the annulment of the assessments in question.

Regarding the compensatory interest assessments, the Claimant further argues that:

  • the illegality of the assessments entails, as a consequence, the annulment of the corresponding compensatory interest;

  • compensatory interest is only exigible if to the omission or delay in payment of the tax due there is associated a judgment of censure or fault on the part of the taxpayer in such conduct (Supreme Administrative Court Decision of 16/12/2012, proc. 0587/10 and Supreme Administrative Court Decision of 0325/08, of 19/11/2008). Now, the Claimant acted within the letter of the law, based on a legal interpretation of the law, but later deemed as violating its spirit – based on incorrect but plausible interpretations of fiscal law;

  • for this reason, no intentional and culpable conduct in the erroneous interpretation and application of fiscal law can be attributed to it (and failure or delay in payment of the tax). One of the requirements for the existence of compensatory interest is thus not satisfied, by the proper interpretation of art. 35 of the General Tax Law, as followed by the case law of the superior courts identified above;

The Claimant further asserts that it constituted adequate security, so as to suspend the present enforcement proceeding and that

  • the success of this arbitral request also implies the extinction of that security and compensation for security that proved to be undue, due to the existence of error attributable to the services in initiating the assessment and enforcement proceeding (art. 53, section 2 of the General Tax Law);

  • which should consist of the maximum legally possible (guaranteed amount X compensatory interest rate provided by law, for the period during which the security remains "in force"), given the damage (material and reputational) caused by the initiation and publicity of this tax debt proceeding (art. 52, section 4 of the General Tax Law).

POSITION OF THE RESPONDENT

The essential argument of the AT to reject the deductions is as follows: the services (paid by the Claimant) of intermediation in the contracting of players would not have been rendered in representation of the Claimant, but of the players. That is, according to the AT, the Claimant accepted to bear intermediation/representation charges effected in the name of the players, the services not having been acquired by the taxable person, but rather by the players who imposed the presence of their representative in negotiations with the Claimant. Thus, the VAT deduction finds no provision in the terms of section 1 of article 19 of the VAT Code;

The AT refers to the Final Inspection Report to conclude that:

– there it was confirmed that, in the professional sports work contracts concluded with the players who signed the contract (E…, F…, G… and D…), the agent acted in representation of the players and not of the Claimant, resulting thus from the "agreements" that the Claimant accepted to bear the intermediation/representation charges effected in the name of the players;

  • the services rendered by the agent were in representation of the player, whereby it would be this player who could carry out taxable active operations which, under article 20 of the VAT Code, could permit the deduction of this tax;

  • the services not having been acquired by A…, it is concluded that neither were taxable active operations associated with the "inputs" or passive operations, here in dispute, realized;

  • pursuant to the law, the person exercising the activity of sports businessman can only act in the name and on behalf of one of the parties to the contractual relationship (section 2 of art. 22 of Law no. 28/98, of 26/06, which establishes the legal framework for the Professional Sports Work Contract (RJCTD) and can only be remunerated by the party it represents (section 1 of art. 24 of the RJCTD);

  • in FIFA's Regulations relating to Player Agents, approved by FIFA's Executive Committee on 29 October 2007, the prohibition of "dual representation is imposed, determining that a player agent may only represent or manage the interests of one of the parties involved in the operation and stipulates that the agent's remuneration be effected exclusively by its client (section 4 and section 8 of art. 19 of the Regulations),

  • as to what is argued by the Claimant in its arguments, it understands that the Claimant did not prove that the AT incurred in an erroneous perception of the facts in the manner argued and impugned.

  • the AT followed the understanding of Circular 15/2011 (point 4): where there is dual representation, the businessman cannot be remunerated by the club, as it is assumed that he only represents the player (and never the club);

Regarding the exception invoked by the Claimant (material res judicata), the AT contests the request by considering that there is no identity of request and cause of action.

According to the Respondent:

  • material res judicata aims at the material relationship that was already subject to litigation, which is not the case in the present proceedings, inasmuch as the assessments now in dispute are others, relating to different periods of tax assessment and originating from an inspective action that proceeded under a different service order;

  • the AT was not obliged, by virtue of article 100 of the General Tax Law, with the execution of the judgment in proceeding no. 345/2016-T, to restore the situation that would exist if the assessments now in dispute did not exist, as the res judicata of that arbitral decision does not contain within its limits the concrete situations now under examination;

  • even if this were not understood, the exception of material res judicata could not prevail regarding the situation of player D…, since the contracting of this player is not aimed at by the arbitral proceeding no. 345/2016-T;

With respect to the illegality of compensatory interest that the Claimant invokes, the AT understands that the same cannot prevail;

The AT further considers that there can be no condemnation to compensation for undue security within the scope of the arbitral decision;

According to the Respondent, should the present request for arbitral decision come to be judged well-founded, compensation for undue security should be processed within the scope of the execution of the arbitral judgment. This presupposes the annulment of the assessment in the impugned part with the consequent reflection in the tax enforcement proceeding and the proper proof of the charges incurred with the security that should be indemnified, always in accordance with the applicable legal provisions;

As to the damage that the Claimant refers to in art. 259 of its arguments, and which is impugned as not proven, in this case what the Claimant terms "reputational" damage, "caused by the initiation and publicity of this tax debt proceeding (art. 52, section 4 of the General Tax Law)", it should be noted that this type of damage, in addition to not being minimally proven, has no whatsoever fitting within the norms of tax procedure that specifically provide for the duty to indemnify the taxable person, in this case art. 53 of the General Tax Law,

Constituting, therefore, a matter that is not susceptible of examination by the Arbitral Tribunal given its competences specifically provided in the RJAT.

III – ARBITRAL DECISION NO. 345/2016

The arbitral sentence already identified (rendered in proc. no. 345/2016-T) regarding 3 of the four players involved in that proceeding, annulled the assessments there impugned having found proven the facts below reproduced in e) to o) "proven facts", common to both proceedings.

The arbitral tribunal based its decision as follows:

The Tax and Customs Authority did not accept the deduction by the Claimant of the VAT that it bore in the payments made to agents who had intervention in the contracting of the players.

In accordance with article 2 of Directive no. 2006/112/EC, of the Council, of 28-11-2006, are subject to VAT, among others, supplies of goods effected for consideration in the territory of a Member State by a taxable person acting in that capacity, intra-Community acquisitions of goods effected for consideration in the territory of a Member State, supplies of services effected for consideration in the territory of a Member State by a taxable person acting in that capacity and importations of goods.

In the same line, the Value Added Tax Code (VAT Code) establishes in its article 1 that this tax is subject to supplies of goods and supplies of services effected in national territory, for consideration, by a taxable person acting as such, importations of goods and intra-Community operations effected in national territory, as are defined and regulated in the Framework of VAT in Intra-Community Transactions.

Under article 9 of the Directive "any person who carries out, independently and in any place, an economic activity, whatever its purpose or result, is considered a 'taxable person'" and "is considered an 'economic activity' any activity of production, commercialization or supply of services, including extractive, agricultural and liberal professions or equivalent activities. In particular, the exploitation of a tangible or intangible asset for the purpose of generating income of a permanent character is considered an economic activity".

The VAT Code establishes that taxable persons are, among others, "natural or legal persons who, independently and with the character of regularity, carry out activities of production, commerce or supply of services, including extractive, agricultural and liberal professions, and also those who, in the same independent manner, carry out a single taxable operation, provided that such operation is connected with the exercise of the referred activities, wherever it occurs, or when, independently of such connection, such operation satisfies the requirements of the actual incidence of personal income tax (IRS) or corporate income tax (IRC)".

The right to deduction arises at the moment when the tax becomes due (article 167 of Directive no. 2006/112/EC and article 22 section 1 of the VAT Code) and, as a rule, only the tax that has been levied on goods or services acquired, imported or used by the taxable person for the realization of taxed operations can be deducted (articles 168 of Directive no. 2006/112/EC and 20, section 1 of the VAT Code).

The Claimant deducted the VAT that it assessed in relation to the payments made as acquisition of intermediation agency services in the contracting of players.

The Tax and Customs Authority understood, in sum, that

– the Claimant accepted to bear intermediation/representation charges effected in the name of the players, the services not having been acquired by the taxable person, but rather by the players who imposed the presence of their representative in negotiations with the A…, whereby the VAT deduction finds no provision in the terms of section 1 of article 19 of the VAT Code;

– under art. 20 of the VAT Code "only tax that is levied on goods or services acquired for the realization of taxable operations (supply of goods or supply of services) that are subject and not exempt from tax can be deducted";

– the services rendered by the agents, are rendered in the capacity of representatives of the players - and not of the Claimant - whereby it would be the players who could permit the deduction of the VAT, under article 20 of the VAT Code, if they happened to meet the other requirements;

– such deductions could never be effected by the Claimant: "wherefrom, the services not having been acquired by A…, it is also concluded that no taxable operations associated with the controversial inputs were realized".

The evidence produced contradicts the factual assumptions on which this correction effected by the Tax and Customs Authority was based.

In fact, it was proven that the Claimant does not possess its own means for surveying the football player market, whereby it contacted various agents aiming to achieve the contracting of players with the characteristics it desired, which is its habitual procedure, the formal writing of contracts with the agents and payment for the services rendered being dependent on the realization of the players' contracts.

It was not proven that, in any of the cases in which the Tax and Customs Authority understood that the services had not been acquired by the Claimant, it was the players who imposed the presence of the agents as their representatives in negotiations, nor that the Claimant had concluded any contract or made any payment related to the representation of the players.

Thus, it results from the evidence produced that there were indeed services rendered to the Claimant by the agents, connected with the activity of the Claimant, whereby the obstacle to the deduction of the VAT that the Claimant bore in making the payments for those services does not exist.

By the foregoing, the impugned assessments suffer from a defect of violation of law, due to error as to the factual assumptions, in the parts in which they were based on the non-acceptance of the VAT deduction borne in relation to payments made to agents in connection with the contracting of the players (the identification of the players follows, which are the same as those at issue in the present proceeding, with the exception of player D… and the respective agent].

IV - PRELIMINARY DETERMINATION

The parties have legal personality and capacity, are entitled to participate and are duly represented (art. 4 and 10, section 2 of the RJAT and 1 of Ordinance no. 112-A/2011, of 22 March).

The Arbitral Tribunal is regularly constituted and is materially competent to know the request (art. 2, section 1, a) of the RJAT).

The proceeding does not suffer from any nullity.

The Claimant in the request for decision raised an exception with respect to which a determination must be made.

PROVEN FACTS

Based on the administrative proceeding, on the documents attached to the file and on the declarations of the witnesses, the following facts with relevance to the file are considered proven:

a) The Claimant is a sports company whose corporate purpose is "participation in the sport of football and professional sports participations, the promotion and organization of sports events and the encouragement and development of activities related to the practice of professionalized sports of that sport";

b) The Claimant is a sports company governed by the special legal framework established in Decree-Law no. 67/97, of 3 April, in accordance with the amendments introduced thereto by Law no. 107/97, of 16 September;

c) With respect to VAT, the Claimant is a taxable person and not exempt from it, under article 2 of the VAT Code, falling within the normal taxation regime with monthly frequency.

d) The Claimant was subject to an inspective procedure for the tax period of the year 2011 and the months of January and February 2012.

e) The Claimant, aiming to access football players in good quality/price relation, normally contracts services of professionals specialized in this (football agents), with indication of their profile and characteristics;

f) The Claimant understands that, because H… is a club of considerable sports success, if it were to go directly to the market to contract players, addressing itself to them or their respective clubs, it would make contracts with prices higher than those it is able to obtain through agents, as the interest in contracting inflates the price;

g) The Claimant orally contacts various agents, sometimes five or six, aiming at the contracting of each player, only formalizing an intermediation contract with the agent that indicates to it the player that comes to be contracted;

h) The services of the agent are, in general, contacted orally, by telephone, by the club president, a written contract being concluded, with indication of the agent's remuneration, only when the contracting of a certain player is already practically settled;

i) The agents do not limit themselves to presenting for contracting players with whom they have some relationship;

j) The Claimant does not know, when it contacts the agents, whether the companies have or do not have representation contracts with players with the desired characteristics, only ascertaining whether the players have representatives when the formalization of contracts with the players occurs;

k) The Claimant does not have its own means of prospecting for players that satisfy its needs and considers that it would be too onerous to have these means, namely scouts (spotters) scattered throughout the world;

l) Once each transaction of contracting players is completed, with the intervention of the agent, the Claimant pays the respective commission and indicates its intervention in the written contract of the player's contracting;

m) There are agents who do not represent players, providing only prospecting services;

n) It has happened that two agents have presented the same player;

o) Payments to agents only occur when there is consideration for services rendered;

p) It was also in these terms that the agent intervened and payments were made by the Claimant regarding the contracting of the players in question, including player D….

q) The Claimant proceeded to constitute adequate security, so as to suspend the enforcement proceeding.

VI - MOOTNESS (PARTIAL) OF THE DISPUTE

The AT in its reply alleged the mootness of the dispute regarding the additional VAT assessments relating to contracts for the acquisition of image rights, by virtue of, by order of agreement of 14/07/2017, of the Deputy Director-General in substitution, having been sanctioned the proposal contained in information no. 1611, of 13/07/2017, of the VAT Management Services Directorate – Administration Division, revoking "the tax acts of additional VAT assessment impugned, in the part that relates to the matter of the tax borne with the acquisition of image rights.";

The Claimant, in the session referred to in art. 18 of the RJAT, explicitly accepted such mootness, whereby it does not behoove to further examine such question.

VII – EXCEPTION OF "RES JUDICATA"

The Claimant alleges that the decision rendered in the context of Proc. no. 345/2016T, already having become final, constitutes res judicata regarding the present proceedings, under the terms established in art. 581 of the Code of Civil Procedure, since there is identity of subjects (A… and the Tax Authority), of request (annulment of VAT assessment) and of cause of action. According to the Claimant, between the decision rendered in Proc. 345/2016T and the present proceedings, the only difference is in the temporal periods on which distinct inspective procedures of the AT were carried out and in the circumstance that in the present proceedings the case of player D…'s contract is examined which was not examined in that proceeding, precisely because of the referred temporal questions.

According to the Respondent, material res judicata aims at the material relationship that was already subject to litigation, which is not the case in the present proceedings, inasmuch as the assessments now in dispute are others, relating to different periods of tax assessment and originating from an inspective action that proceeded under a different service order.

From the analysis of the file, there is no doubt as to the existence of material res judicata, as all the prerequisites on which art. 581 of the Code of Civil Procedure makes its existence depend are verified: identity of subjects, of request and of cause of action. In fact, the subjects are the same (A… and the Tax Authority), the requests are the same (annulment of the non-deduction of VAT and annulment of the assessment of compensatory interest) and the cause of action is the same, as the contracts are the same. That identity also extends to the case of player D…'s contract, as its contract is, in all respects, similar to those examined in Proc. no. 345/2016T.

The acceptance of the existence of the exception of "res judicata" in situations with these features is unanimous in the case law, as results from the decisions that are transcribed:

Decision of the Supreme Administrative Court of 7-12-2011, rendered in Proc. no. 0419/11: I - The objective limits of res judicata are defined by reference to the object of the proceeding. II - In the proceeding for annulment of tax acts the object of the proceeding is necessarily defined by reference to an invalid act: the immediate request of the challenger corresponds to the elimination of the impugned act from the legal order, and with it, the cessation of the harmful situation caused by it; and the cause of action, to the specific reasons for invalidity invoked. III - But the fact that the act is an essential element of the impugnatory action does not permit the conclusion that the object of the proceeding identifies itself with it, as, underlying the annulment claim there is always a material relationship constituted by the definition introduced by the act in the legal order and by the injury it causes to the subjective legal position of the challenger. IV - Material res judicata thus extends to the judgment that the court makes as to the prerequisites on which depends the exercise of the power embodied in the act or as to the occurrence of facts that are impeditive or extinctive that hinder such exercise. V - Therefore, there is identity of object if there already exists a final sentence that examined the concrete facts and law foundations on which the annulment claim of the impugned act is based.

Decision of the Supreme Court of Justice of 21-03-2013, rendered in the context of Proc. no. 3210/07.6TCLRS.L1S1 "I - Res judicata has as limits those that arise from the very terms of the decision, as article 673 of the Code of Civil Procedure establishes, «the sentence constitutes res judicata in the precise limits and terms in which it judges». This is a corollary of the well-known principle of the practitioners enunciated in the Latin formula «tantum judicatum quantum disputatum vel disputari debebat». II - Even for those who understand that as to the authority of res judicata the coexistence of the triple identity is not required, as seems to be the case of the majority jurisprudential and a broad doctrinal sector, it will always be as a function of the tenor of the decision that the objective extent of res judicata is measured and, consequently, the authority thereof. III - Even if the concurrence of the requirements or prerequisites for the exception of res judicata (exceptio rei judicatae) does not exist, the prestige of the courts or the certainty or legal security of judicial decisions may be at issue if a decision, even if rendered in another proceeding, with other parties, were to dispose in a different sense as to the same object of the decision.

Decision of the Court of Appeal of Coimbra of 22-09-2015, rendered in the context of Proc. no. 101/14.8TBMGL.C1: I – When the object of the previous proceeding is partially identical or connected with that of the subsequent, even if complete identity of the objective scope does not occur, the effects of material res judicata project themselves, between the same parties, in the latter, as authority of material res judicata, in which the content of the previous decision constitutes a binding force upon the decision of a different object in the subsequent proceeding, so as to prevent the material legal relationship already defined from being able to be examined differently, with violation of legal security. II - The efficacy of res judicata excludes every situation contradictory or incompatible with that which became defined in the final decision and bears on the decision as conclusion of certain foundations and reaches those foundations or the preliminary questions, while prerequisites, premises or logical antecedents of that decision. III - For such, it is important to fix the sense and scope of the decision rendered in the prior action, interpreting it, and, by that route, also exclude from the efficacy of res judicata the judgments on questions of fact and of law that are not comprised therein, even if they integrate the grounds of such decision. IV - The principle of legal security, which has res judicata as its most prominent postulate, assumes itself as foundational of the Democratic State of Law, whereby the understanding set forth does not constitute an arbitrary or disproportionate obstacle to the right of access to the courts and to effective judicial protection.

The argument raised by the Respondent that the taxation periods are diverse must yield in the face of the identity of request and cause of action, as well as the argument that the inspective procedures were based on different service orders. For these two facts derive exclusively from the circumstance that the contracts that gave rise to the present proceedings extend over time through various taxation periods.

It remains to add that on this same matter other arbitral decisions were rendered within the scope of the CAAD, namely the following: 346/2016T and 347/2016T. All followed the understanding expressed in the decision rendered in the context of proc. no. 345/2016T.

VIII - COMPENSATORY INTEREST

The Tribunal considered material res judicata to exist, which renders illegal the VAT assessments and avoids and consequently the assessments of the corresponding indemnificatory interest.

IX - INDEMNIFICATION FOR UNDUELY PROVIDED SECURITY

The right to indemnification for the provision of undue security is enshrined in art. 53 of the General Tax Law, the arbitral tribunal recognizing that the Claimant, in the abstract, enjoys that right, under the terms of sections 2 and 3 of that same article.

However, the Claimant did not prove the verification of all the prerequisites to which the law conditions such indemnificatory obligation, whereby the question will have to be deferred to the execution of sentence.

The tribunal does not recognize to the Claimant the right to indemnification for "material and reputational damage", due to the lack of legal basis for the success of the request.

DECISION

By these terms, the tribunal decides:

  • Judge as well-founded and proven the request for arbitral decision;

  • Annul the following VAT assessments and corresponding compensatory interest:

  • VAT relating to 2012/2 (Assessment no. 2015…) in the amount of €9,200.00;

  • Default interest relating to the preceding assessment (Assessment 2015…), of €1,832.16;

  • VAT relating to 2011/01 (Assessment no. 2015…), in the amount of €7,216.77;

  • Compensatory interest for 2011/01 (Assessment no. 2015…), in the amount of €7,255.12;

  • VAT relating to 2011/02 (Assessment no. 2015…), in the amount of €7,216.77;

  • Compensatory interest for 2011/02 (Assessment no. 2015…), in the amount of €1,229.82;

  • VAT relating to 2011/03 (Assessment no. 2015…), in the amount of €18,216.77;

  • Compensatory interest for 2011/03 (Assessment no. 2015…), in the amount of €3,046.44;

  • VAT relating to 2011/04 (Assessment no. 2015…), in the amount of €7,216.77;

  • Compensatory interest for 2011/04 (Assessment no. 2015…), in the amount of €1,179.99;

  • VAT relating to 2011/05 (Assessment no. 2015…), in the amount of €7,716.77;

  • Compensatory interest for 2011/05 (Assessment no. 2015…), in the amount of €1,238.07;

  • VAT relating to 2011/06 (Assessment no. 2015…), in the amount of €7,216.77;

  • Compensatory interest for 2011/06 (Assessment no. 2015…), in the amount of €1,134.12;

  • VAT relating to 2011/07 (Assessment no. 2015…), in the amount of €11,500.00;

  • Compensatory interest for 2011/07 (Assessment no. 2015…), in the amount of €1,765.64;

  • VAT relating to 2011/08 (Assessment no. 2015…), in the amount of €67,850.00;

  • Compensatory interest for 2011/08 (Assessment no. 2015…), in the amount of €10,209.10;

  • VAT relating to 2011/09 (Assessment no. 2015…), in the amount of €21,850.00;

  • Compensatory interest for 2011/09 (Assessment no. 2015…), in the amount of €3,213.45;

  • VAT relating to 2011/10 (Assessment no. 2015…), in the amount of €12,650.00;

  • Compensatory interest for 2011/10 (Assessment no. 2015…), in the amount of €1,616.05.

  • Defer to a separate proceeding the question of payment by the Respondent to the Claimant of indemnification for undue security provided.

Amount: €205,570.58 (two hundred five thousand, five hundred seventy euros and fifty-eight cents).

Costs as per the law.

Lisbon, 8 February 2018

The arbitrators

Court of Appeal Judge ref. Manuel Luís Macaísta Malheiros (President)

Prof. Dr. Rui Duarte Morais

Dr. Jorge Carita

(dissenting as per attached declaration)

Dissenting Opinion

I concur with the decision of this Arbitral Tribunal regarding the verification of material res judicata raised by the Claimant, given notably the decision of the CAAD rendered in the context of Proc. no. 345/2016-T, which, however, does not encompass the tax relating to expenses incurred by the Claimant with the contracting of one of the players (D…), whose contract is not referenced in that decision already rendered by the CAAD. Considering, however, that the appeal to the similarity realized in this decision has a case law basis, which leads me, also in this seat, to concur with the decision rendered in this proceeding.

What I cannot concur with the decision of this Tribunal is what concerns the matter referenced therein as "dual representation".

First, because having the Tribunal decided:

"Judge as well-founded the verification of material res judicata raised by the Claimant and, in consequence, annul the additional VAT assessments and the corresponding compensatory interest relating to the acquisition of intermediation services in the acquisition of players", and consequently, having judged well-founded and proven the request for arbitral decision, it no longer had to pronounce on any one of the other remaining illegalities that the Claimant understands to affect the assessment act in question.

The Tribunal concludes that, even if material res judicata did not exist, the Claimant would still be right in its claim for annulment of the assessments in question, given the non-existence of dual representation in the process of contracting players and agents.

For, if one wished to pronounce on this matter, I understand that the Tribunal should have made a more thorough deepening of the analysis of the confronting positions, better analyzed the case law decisions already taken on the subject, taken care of the analysis with more detail of the witness evidence rendered, etc., etc., etc. – which was not done, with all due respect which is great, with the extent that a merits decision would deserve.

The following facts were given as proven:

  • For the acquisition of players the Claimant contacts specialized businessmen for the purpose (in individual name or in corporate form) to whom it indicates the profile or even the name of the desired players;

  • For the acquisition of F… the Claimant requested the services of company I…, Ltd., of which J… is a partner;

  • J… was the agent of F…;

  • J… represented I…, Ltd. in the contract for the acquisition of player F…, the same J… having represented the player;

  • For the acquisition of player E… the Claimant requested the services of company K…, Ltd., of which L… is a partner;

  • L… was the agent of player E…;

  • In the contract for the acquisition of player E… the company was represented by M… and the player by its agent L…;

  • For the acquisition of player D… the Claimant requested the services of N…, Ltd., of which sports agent O… is a partner;

  • O… was the agent of player D…;

  • O… represented N…, Ltd. in the contract for the acquisition of player D…, the same O… having represented the player;" (underlined by us)

Whether or not dual representation exists cannot be determined from a merely formal analysis of the various interventions of the parties.

Therefore, it would be important to ask:

In the case of player F…, will the Claimant not have contracted J…?

In the case of player L…, will the Claimant not have contracted L…?

In the case of player D…, will the Claimant not have contracted O…?

To all this the Tribunal should have given an unequivocal answer, if it wished to pronounce on the existence or non-existence of dual representation.

Nor does it appear to us that the possibility, always recognized, of conducting "business with oneself" helps the Tribunal's thesis, because that is not what is at issue here.

Let us see other aspects of the Decision that we transcribe:

"In fact, a sports businessman acting in individual name develops his activity as a natural person, and cannot be confused with any eventual company or companies of which he is a partner, which are persons with legal personality of a collective nature."

It is important to take into account that this thesis, saving due respect, is not valid for cases in which the representative of the player is the manager of the company that represents the club and not merely its partner.

As is confirmed by the Claimant itself in its arguments (point 48), the companies bound themselves through their representatives, that is, a manager (partner or not) or an attorney-in-fact with powers for the act. It cannot be otherwise.

Only in the case of E…, in which company K… Ltd. is represented by M…, and the player is represented by L…, partner of K… Ltd., does the thesis defended here seem to make more sense.

In all the other cases, the representation of both parties is effected by the same person, because the representative of the player is the manager (in addition to partner) of the company representing the Club (which appears in the documentation taken from the Justice Portal, with identification of the management mandates perfectly valid).

It is curious that the Claimant always speaks of the contracting of an agent, necessarily a natural person, but then a company always appears claiming that status and signing the contract. It makes sense!!! Because if it were the natural person who signed as representative of the Club, there could not be another natural person, who would be the same, signing for the player.

It is to avoid such a state of affairs that the companies appear….

On the other hand, it also appears in this decision that:

"In the cases of this proceeding the AT did not manage to prove the imposition by any of the players of the presence of their respective agents."

I consider that such proof by the AT was not necessary, inasmuch as their presence is indisputable…. And it is itself imposed by the contracts of exclusivity that these players have with that particular agent.

There must be very rare cases where there are truly two agents – one for the club and another for the player – it is the logic of the market!!!

The agent contracted by the club has every interest that the transaction not go outside his sphere of intervention, for if that happened, for example, with the player being represented by another agent, that would imply for him a significant reduction in profits, given the commission that the player agent would always collect, knowing how substantial such commissions are, whose discussion sometimes makes certain transactions unworkable. Such a situation is often avoided, being imposed by the agent contracted by the club, that the targeted player, even having his own representative, change representatives, becoming part of the "portfolio" of the one who is going to arrange a club for him and has a new contract to offer him.

I conclude that the arguments in favor of the non-existence of dual representation seem to me more formal than substantive, for which reason I cannot concur with what appears in this decision, although only in the case that the existence of material res judicata had not prevailed.

Lisbon, 7 February 2018.

Jorge Carita

Frequently Asked Questions

Automatically Created

What VAT obligations apply to intermediation services for hiring football players in Portugal?
In Portugal, intermediation services for hiring football players are generally subject to VAT at the standard rate (23%). When a football club engages intermediary companies to facilitate player recruitment, the VAT paid on these services is typically deductible under article 19 of the Portuguese VAT Code (Código do IVA), provided the services are used for the club's taxable activities. However, the Tax Authority may challenge deductions if it considers the intermediation services lack proper documentation, economic substance, or direct connection to the club's VAT-taxable operations. The deductibility depends on demonstrating that the intermediation services are genuinely incurred for business purposes and properly invoiced by legitimate service providers, in accordance with articles 19 and 20 of the VAT Code and applicable EU VAT Directive provisions.
How does the CAAD arbitral tribunal assess the legality of additional VAT assessments on image rights contracts?
The CAAD arbitral tribunal assesses the legality of additional VAT assessments on image rights contracts by examining whether the Tax Authority correctly applied articles 6 and 20 of the Portuguese VAT Code. The tribunal analyzes whether image rights payments constitute taxable services subject to VAT, whether proper invoicing occurred, and whether the taxpayer legitimately deducted input VAT. Key considerations include: (1) whether image rights contracts represent genuine commercial transactions distinct from employment relationships; (2) whether the service provider (often a player-owned company) is properly established for VAT purposes; (3) whether the services are used for the football club's taxable activities; and (4) compliance with formal VAT requirements. The tribunal reviews the factual matrix, contractual documentation, and applicable VAT law principles, while also considering relevant CAAD precedents and EU VAT jurisprudence on similar arrangements in professional sports.
What is the role of res judicata (caso julgado material) in Portuguese tax arbitration proceedings?
Res judicata (caso julgado material) plays a significant role in Portuguese tax arbitration proceedings under the RJAT framework. According to article 100 of the General Tax Law (Lei Geral Tributária) and articles 581 and 619 of the Code of Civil Procedure, a final arbitral decision creates material res judicata when subsequent proceedings involve identical parties, subject matter (pedido), and cause of action (causa de pedir). Under Ordinance 112-A/2011, CAAD arbitral decisions have the legal value of judicial sentences, binding both parties and preventing re-litigation of settled matters. In tax disputes, res judicata prevents the Tax Authority from imposing assessments on transactions already definitively judged in the taxpayer's favor, even if the assessments relate to different tax periods but involve the same underlying transactions. This principle protects legitimate expectations and ensures legal certainty, preventing contradictory decisions on identical legal and factual situations merely because payments were made in different installments or tax periods.
Can a taxpayer challenge additional VAT liquidations and compensatory interest through RJAT arbitration?
Yes, Portuguese taxpayers can challenge additional VAT liquidations (liquidações adicionais) and compensatory interest (juros compensatórios) through RJAT (Regime Jurídico da Arbitragem em Matéria Tributária) arbitration under Decree-Law 10/2011. Under article 2(1)(a) and article 10 of the RJAT, taxpayers may request arbitral tribunal constitution to challenge the legality of tax assessments after exhausting mandatory administrative appeals (reclamação graciosa and recurso hierárquico). The arbitration route provides an alternative to judicial courts, offering faster resolution and specialized tax expertise. Taxpayers must file their arbitration request within 90 days after the final administrative decision. The arbitral tribunal has full jurisdiction to assess the legality of both the principal VAT assessment and associated compensatory interest, examining substantive tax law compliance, procedural regularity, and constitutional principles. CAAD arbitral decisions have the same legal value as court judgments and are binding on the Tax Authority.
What are the legal grounds for contesting VAT assessments on intermediation services provided by third-party companies?
Taxpayers can contest VAT assessments on intermediation services provided by third-party companies on several legal grounds under Portuguese law: (1) Violation of articles 19 and 20 of the VAT Code if the Tax Authority improperly denied deduction of input VAT on genuine business expenses; (2) Erroneous fact assessment (erro sobre os pressupostos de facto) if the Tax Authority mischaracterized the nature or purpose of the intermediation services; (3) Incorrect legal subsumption if the Tax Authority misapplied VAT rules to the established facts; (4) Violation of article 35 of the General Tax Law and article 100 of the Tax Procedure Code concerning legitimate expectations and consistency; (5) Illegality of Tax Authority circulars or administrative guidance that contradict statutory VAT provisions; (6) Breach of res judicata if a prior final decision addressed identical transactions favorably; and (7) Violation of EU VAT Directive principles if Portuguese authorities applied rules inconsistent with European Union VAT law on deductibility rights.