CAAD 339/2015-T: VAT on Subsidies Under Article 16(5)(c) of the Portuguese VAT Code

ARBITRAL DECISION

I. REPORT

1. A..., LDA., taxpayer identification number..., with registered office at Street..., Building..., number..., ... floor, office..., in..., filed on 28 May 2015 a request for constitution of arbitral pronouncement, pursuant to the provisions of subparagraph a) of article 2, paragraph 1 and article 10, paragraphs 1 and 2, both of Decree Law no. 10/2011, of 20 January, hereinafter referred to as RJAT, and articles 1 and 2 of Ordinance no. 112-A/2011, of 2 March, in which the Tax and Customs Authority is the Respondent (hereinafter referred to as AT or Respondent), with a view to declaring the illegality and consequent annulment of the VAT assessment referring to the period of September 2010 no..., in the amount of 1,647.21 € and respective compensatory interest, embodied in the respective assessment note..., in the amount of 262.47 €.

2. The request for constitution of the Tax Arbitral Court was accepted by the Honourable President of CAAD and notified to the Respondent in accordance with legal requirements on 12 June following.

3. The Claimant did not appoint an arbitrator, and therefore, pursuant to the terms and for the purposes of the provisions of subparagraph a) of article 6, paragraph 2 of RJAT, by decision of the Honourable President of the Deontological Council of CAAD, duly notified to the parties within the prescribed periods, the undersigned was appointed as arbitrator, who communicated to the Deontological Council and to the Centre for Administrative Arbitration the acceptance of the appointment within the period stipulated in article 4 of the Deontological Code of the Centre for Administrative Arbitration.

4. The Singular Arbitral Court was constituted on 07 September 2015, in accordance with the prescription of subparagraph c) of article 11 of RJAT.

5. By order issued on 2015-10-20, duly notified to the parties, the holding of the meeting referred to in article 18 of RJAT was dispensed with, as was the examination of witnesses and statement of the representative of the Claimant.

6. The parties did not submit written pleadings.

7. By order issued on 2016-01-07, duly notified to the parties, and for the reasons contained therein, the period for delivery of the decision was extended, with 15 February 2016 as the final date.

PRELIMINARY NOTE

The Claimant, contemporaneously with the date resulting from the present case file, submitted to CAAD a request for arbitral pronouncement, which had as its basis the same work order that originated the tax inspection, the same report, the same total assessment (144,242.55 €, relating to the twelve months of the year 2010), the same facts and request, with the only difference relative to the present case being that there it concerned the assessment relating to the month of April 2010 and in the present proceedings it concerns that relating to the month of September 2010.

In the arbitral process referred to, to which number 337/2015-T was assigned, a decision has already been rendered, published in accordance with the provisions of subparagraph g) of article 16 of RJAT.

Relying on what was set forth there, and the decision-making sense, which are subscribed without any reservations, the positions defended there will be closely followed in the present process, with only the slightest alterations of detail.

1. To support its request, the Claimant alleged, in summary and with relevance, the following:

i. The Claimant carries out professional training activity, and particularly in the years 2010, 2011 and 2012, carried out various professional training activities, inserted in the Human Potential Operational Programme (POPH), which frames the application of the Community policy of economic and social cohesion in Portugal in the period 2007-2010. (cfr. article 4 of the request for arbitral pronouncement).

ii. On 12/11/2014, it was notified of the tax inspection report, referring to the fiscal year 2010, pursuant to which the Claimant should have assessed VAT for the receipt of subsidies granted by the European Social Fund (ESF), insofar as these constituted "subsidies to the price". (cfr. article 5 of the request for arbitral pronouncement).

iii. The Claimant does not agree with such tax treatment, alleging it to be manifestly illegal (cfr. article 10 of the request for arbitral pronouncement).

iv. Alleging that POPH aims to stimulate the potential for sustained growth of the Portuguese economy, as follows from the Resolution of the Council of Ministers no. 86/2007 (cfr. article 11 of the request for arbitral pronouncement).

v. In the development of its professional training activity within the scope of POPH, it executed various professional training projects financed by the European Social Fund (ESF). (cfr. article 12 of the request for arbitral pronouncement).

vi. The Claimant also alleges that within the scope of the projects at issue in the present proceedings, the following expenses were considered eligible:

• expenses with trainees
• expenses with trainers
• expenses with other personnel assigned to the project
• rents, leases and amortisations
• direct expenses with the preparation, development, monitoring and evaluation of projects
• general expenses of the project
• expenses with the promotion of thematic meetings and seminars
• expenses with the promotion and coordination of the integrated training application candidacy. (cfr. article 14 of the request for arbitral pronouncement).

vii. The Claimant paid the trainees various expenses for remuneration, scholarships, meals, transport and accommodation, as well as other expenses namely insurance and expenses with the reception of dependents in charge thereof. (cfr. article 15 of the request for arbitral pronouncement).

viii. The Claimant also alleges that in these circumstances the trainees did not have, nor did they have, any cost with the training, regardless of its typology. (cfr. article 21 of the request for arbitral pronouncement).

ix. That is to say, neither the trainees, nor the ESF, nor any other entity paid to the Claimant any sum that could be considered as a price, namely for VAT purposes. (cfr. article 22 of the request for arbitral pronouncement).

x. On the contrary, as is evident, it was the Claimant itself who paid the trainees. (cfr. article 23 of the request for arbitral pronouncement).

xi. The Claimant further contends that the subsidies attributed to it thus constitute subsidies to production and to the structure of costs, but not to the price. (cfr. article 30 of the request for arbitral pronouncement).

xii. Which is evident from the fact that these training activities not only are not a counterpart to the payment of any price, but also provide for the existence of payments to the trainees themselves. (cfr. article 31 of the request for arbitral pronouncement).

xiii. All this because, bearing in mind the above-mentioned objectives of POPH, these training activities carried out are not aimed at the provision of any service to third parties on behalf of private entities, but rather the pursuit of the social and employment policies intended by the State and the European Union which, for this purpose, avails itself of private entities. (cfr. article 32 of the request for arbitral pronouncement).

xiv. The Claimant further refers that the specific legislation of POPH, in Normative Order no. 4-A/2008, of 24 January, expressly differentiates "public financing" from any potential "revenues" of the projects. (cfr. articles 33, 34, 35 and 36 of the request for arbitral pronouncement).

xv. In the cases concretely at issue, however, considering the typologies of training involved, the Claimant was absolutely prohibited from charging the trainees anything whatsoever. (cfr., article 37 of the request for arbitral pronouncement).

xvi. In particular, the Claimant could not charge, nor did it in fact charge the trainees any sum related to attendance of the training courses or to the pedagogical materials necessary for them. (cfr. article 38 of the request for arbitral pronouncement).

xvii. The Claimant also alleges that it is evident that the subsidies attributed take into account the number of participants and the hours of training actually provided, insofar as the execution of the projects depends immediately on the existence of trainees, but that does not mean, in any way, that the subsidies attributed were subsidies to the price. (cfr. articles 39 and 40 of the request for arbitral pronouncement).

xviii. The attribution of the subsidies does not derive from the availability of the Claimant to provide the training activities, but rather from the concrete execution of the training activities determined, with determined characteristics and determined beneficiaries. (cfr. article 42 of the request for arbitral pronouncement);

xix. The subsidies attributed do not have as their objective to participate in the payment of the "price" owed for the services provided by the Claimant, so that it remains at a value considered accessible for the beneficiaries, but aim to subsidise the concrete realisation of the projects, causing private parties to substitute the State and the European Union in the execution of social and employment policies. (cfr. article 43 of the request for arbitral pronouncement);

xx. On the question of the exigibility of costs, it should also be noted that it was POPH that defined the maximum value that could be paid by the Claimant to the trainers. (cfr., article 45 of the request for arbitral pronouncement);

xxi. It being certain that, if the Claimant paid the trainers a value lower than the maximum established, then the subsidy would be only that corresponding to the value actually paid. (cfr. article 46 of the request for arbitral pronouncement);

xxii. From which it follows, once again, clearly that, effectively, the subsidies in question constitute subsidies to production and to the structure of costs. (cfr. article 47 of the request for arbitral pronouncement);

The Claimant further contends, in support of its request and following on from what has been set forth above, that;

xxiii. In the case concretely at issue, as we have seen, not only is it not the price that is subsidised, but rather the costs, but also the subsidies attributed are calculated exclusively based on expenses actually incurred within the scope of the project, whether with its execution or with payments to the trainees. (cfr. article 52 of the request for arbitral pronouncement);

xxiv. The Claimant did not assess any VAT on the subsidies received (cfr. article 73 of the request for arbitral pronouncement and document no. 9 attached thereto).

In summary, the position of the Claimant comes down to the understanding that the subsidies in question are "to production and to the structure of costs" and, accordingly, outside the scope of VAT taxation provided for in article 16, paragraph 5, subparagraph c) of the respective code.

• The Claimant further invokes, in support of its position, the lack of substantiation of the underlying assessment, as well as the non-existence of the taxable fact.

1. The AT, in its response, having previously delimited the subject matter of the present request for arbitral pronouncement to the additional VAT assessment and compensatory interest, for the period of September 2010, sustains a position contrary to that presented by the Claimant, in accordance with the position already taken by it in the Tax Inspection Report, which is translated, fundamentally, into the consideration that the subsidies received by the Claimant are attributed with reference to the volume of services provided, pursuant to article 16, paragraph 5, subparagraph c) of the CIVA.

It aligns itself for this purpose, and in brief summary, as follows as regards the segment it designated "ON THE MERITS", presented under articles 39 to 128 of its response;

i. Although the service provisions related to the Claimant's training activity were exempt from VAT in accordance with paragraph 10 of article 9 of the CIVA, the Claimant waived the exemption, covered by the provision of article 12, paragraph 1, subparagraph a) of the same legal instrument;

ii. The waiver of VAT exemption gives rise to the obligation to assess the tax on all taxable operations and the right to a general deduction of the tax borne on the acquisition of goods and services assigned to its operations;

iii. The tax inspection services ascertained that the Claimant, in the year 2010, and within the scope of its training activity received from the European Social Fund, within the framework of the Human Potential Operational Programme (POPH) the subsidies contained in the table described on page 6 of the respective report;

iv. From the analysis of the application files in question, the following was verified:

Certified modular training: in the approval decisions of these projects are contained all the information relating to the structure of costs of the training, equally detailed by headings, as well as the amount requested by the beneficiary entity and the respective approved amount: the financing entity proceeded to the control and verification of the purpose for which the attributed subsidy is intended, namely the training activities and the number of trainees involved:

Adult Education and Training Courses: the approval decisions present a summary of projects, with their respective start and end dates, aimed at a determined number of unemployed trainees: the granting of financing implies the full compliance with the approved project by the beneficiary entity, in addition to other ancillary obligations intended, namely for accounting and pedagogical-technical control of the execution of the subsidised training activities.

v. Concluding, the Respondent states that "it is verified that the approved financing is determined with reference to the training activities that the beneficiary entity is going to carry out, taking into account the number of participants and hours of training, that is, the subsidies are attributed unequivocally with reference to the volume of services provided, pursuant to article 16, paragraph 5, subparagraph c) of the CIVA",

vi. From which it results, in the understanding it subscribes, that "taking into account the tax treatment under VAT and the type of subsidies received within the scope of the POPH programme, it is concluded that the taxable person was obliged to proceed with the assessment of VAT upon the receipt of the respective amounts";

vii. There is no merit to the Claimant's argument in defending that the subsidies attributed constitute subsidies to production and to the structure of costs and not subsidies to the price,

viii. The Respondent further elaborates on this segment that, given the provision in subparagraph c) of paragraph 5 of article 16 of the CIVA, the taxable value of transmissions of goods and service provisions subject to tax includes, "the subsidies directly connected to the price of each operation, considered as such those that are established on the basis of the number of units transmitted or the volume of services provided and are fixed prior to the realisation of the operations".

ix. To conclude on this segment, the Respondent further argues that, based on the analysis conducted by the tax inspection services on the subsidies received by the Claimant, it is concluded that they "are determined with reference to the training activities that the beneficiary entity carries out, taking into account the number of participants and hours of training, that is, the subsidies are attributed unequivocally with reference to the volume of services provided, pursuant to article 16, paragraph 5, subparagraph c) of the VAT Code".

x. An equal conclusion, the Respondent reaffirms, is drawn from the documentary evidence submitted by the Claimant, in particular documents nos. 10, 15 and 17, to conclude that;

xi. "One can only conclude, as in the inspection proceeding, that is, the approved financing is determined with reference to the training activities that the beneficiary entity carries out, taking into account the number of participants and hours of training, that is, the subsidy is attributed unequivocally to the volume of services provided"

xii. With consequent taxation of such subsidies under VAT, pursuant to article 16, paragraph 5, subparagraph c) of the CIVA.

xiii. In support of the position it sustains, which is translated into the fact that one is faced with a "subsidy to the price", it refers to CAAD process no. 111/2014-T.

1. The Arbitral Court is materially competent and is regularly constituted, pursuant to article 2, paragraph 1, subparagraph a), article 5 and article 6, paragraph 1 of RJAT.

2. The parties have legal personality and capacity, are parties with standing and are legally represented, pursuant to articles 4 and 10 of RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

3. The proceedings do not suffer from any defects and no exceptions were invoked.

4. There is thus no obstacle to the examination of the merits of the case.

II - DECISION

A. MATTER OF FACT

A.1. Facts Established as Proven

1. The Claimant is a commercial company operating under the name of "A..., LDA.", with the TIN... and tax domicile at Street..., Building..., number..., ...Floor, Office..., ... in the municipality of ...,

2. Which has as its main activity "other management consulting activities" to which the CAE... corresponds, and as secondary activity "professional training", with the CAE....

3. For tax purposes it is covered under the IRC in the general taxation scheme, and under VAT in the normal monthly periodicity scheme.

4. The Claimant has been accredited in the field of training since 06/08/2008, with the General Directorate of Employment and Labour Relations (DGERT).

5. Notwithstanding the service provisions related to the Claimant's training activity were exempt from VAT, in conformity with the provision of paragraph 10 of article 9 of the CIVA, it chose to waive the exemption, in conformity with the provision of article 12, paragraph 1, subparagraph a) of the aforementioned legal code.

6. In compliance with work order no. 0I 2014..., of the Finance Directorate of... the Claimant was subject to an external inspection procedure, of a general character, with respect to the year 2010.

7. As a result of which the AT made additional adjustments under VAT, relating to the entirety of the year 2010, in the amount of 144,242.55€.

8. Having, in consequence, issued the VAT assessment statement no..., with relevance in the present proceedings, concerning the month of September 2010, as well as that concerning the compensatory interest in the amount of 262.47 €.

9. From the tax inspection report, it is stated, among other things, that:

"(...) it is verified that the approved financing is determined with reference to the training activities that the beneficiary entity is going to carry out, taking into account the number of participants and hours of training, that is, the subsidies are attributed, unequivocally, with reference to the volume of services provided, pursuant to article 16, paragraph 5, subparagraph c) of the CIVA.

In conclusion, taking into account the tax treatment under VAT and the type of subsidies received within the scope of the POPH programme, it is concluded that the taxable person was obliged to proceed with the assessment of VAT upon the receipt of the respective amounts".

"In the determination of the amounts of VAT owed, it shall be considered that these are included in the amounts received.

A.2. Facts Established as Not Proven

With relevance for the decision, there are no facts that should be considered as not proven.

A.3. Substantiation of the Matter of Fact Established as Proven and Not Proven

With respect to the matter of fact, the Court does not have to pronounce itself on everything that was alleged by the parties, rather it is its duty to select the facts that matter to the decision and distinguish the proven matter from the unproven matter [(cfr. article 123, paragraph 2 of the CPPT and articles 607 of the Civil Procedure Code, applicable ex vi of article 29, paragraph 1, subparagraphs a) and e) of RJAT)].

Thus, the facts relevant to the judgment of the case are chosen and selected based on their legal relevance, which is established in view of the various plausible solutions to the question(s) of law. (cfr. article 596 of the CPC, applicable ex vi of article 29, paragraph 1, e) of RJAT).

Thus, taking into account the positions taken by the parties, the documentary evidence submitted to the proceedings and the PA annexed, the facts listed above are considered proven, with relevance for the decision, recognised and accepted by the parties.

B. ON THE LAW

The central question to be resolved placed before this court consists in determining (i) whether the operations carried out by the Claimant fall within the exemption provided for in article 9, paragraph 10 of the CIVA, and whether it has the right to said exemption in accordance with article 12, paragraph 1, subparagraph c) of the CIVA, and (ii) what is the modality/nature of the subsidies received by the Claimant.

Before, however, addressing the thema decidendum that underlies the present proceedings, it is necessary to note that:

• service provisions that have professional training as their object are exempt from tax, given the provision of paragraph 10 of article 9 of the Value Added Tax Code: [are exempt from tax] "service provisions that have professional training as their object, as well as the transmissions of goods and service provisions connected thereto, such as the provision of accommodation, meals and teaching materials, effected by public law organisms or by entities recognised as having competence in the fields of professional training and rehabilitation by the competent ministries",

• it is lawful for the taxable person to waive the exemption, given the provision of article 12 of the CIVA: "may waive the exemption, opting for the application of the tax to their operations: a) taxable persons who effect the service provisions referred to in paragraphs 10) and 36) of article 9".

The waiver of exemption, in accordance with the provisions of paragraphs 2 and 3 of article 12 of the aforementioned legal code, is "exercised by the delivery in any finance service or other legally authorised location, of the declaration of commencement of activity or of alterations, as the case may be, producing effects from the date of its presentation, for a minimum period of 5 years"

The parties do not dissent as to the fact that the operations practised by the Claimant are subsumed under the provision of article 9, paragraph 10 of the CIVA (exemption in internal operations), notwithstanding and as mentioned, it has waived such exemption, determining, in consequence, the obligation to assess the tax on all taxable operations and the right to a general deduction of the tax borne on the acquisition of goods and services assigned to its operations.

As regards the modality/nature of the subsidies, the position of the parties assumes antagonism, with the Claimant considering itself faced with a "subsidy to production and to the structure of costs" and not subject to VAT, whereas the AT argues for a "subsidy to the price"

From article 16, paragraph 5, subparagraph c) of the CIVA the following results:

"c) The subsidies directly connected to the price of each operation, considered as such those that are established on the basis of the number of units transmitted or the volume of services provided and are fixed prior to the realisation of the operations"

For its part, the VAT Directive provides in Chapter 2 (deliveries of goods and service provisions), Title VII, "Taxable Value", article 73 the following:

"In the deliveries of goods and to the service provisions, which are not those referred to in articles 74 to 77, the taxable value comprises everything that constitutes the consideration that the supplier or the service provider has received or should receive in relation to these operations, from the acquirer, the recipient or a third party, including the subsidies related to the price of such operations".

Given the normative framework established by the domestic and community legislation, it is established that the taxable value shall only include the subsidies that are connected to the price of the operations of the beneficiary subject of the subsidy.

The VAT code, in face of the Directive, introduces two conditions: that the subsidies are established on the basis of the number of units transmitted or the volume of services provided, and that they are fixed prior to the realisation of the operations.

On this subject, the Arbitral Decision in process no. 111/2014-T has already pronounced itself in the following sense:

"The European Commission, in its first report on the functioning of the common VAT system (contained in document COM (83) 426 final, of 14 September 1983), understands that there are certain types of subsidies with respect to which it is easy to decide for their inclusion in the taxable value, enumerating the cases in which the amounts of the subsidies (i) are determined with reference to the selling prices of the goods or services provided; (ii) or on the basis of the quantities provided; (iii) or are intended to cover the costs of goods or services that are provided free of charge to the public.

However, with respect to several other types of subsidies – namely those intended to cover deficits and operational subsidies – the Commission considers it extremely difficult to decide on the direction of their inclusion (or not) in the taxable value of operations covered by VAT (as highlighted by RUI LAIRES and ISABEL VEGA MOCOROA cited above).

These latter are normally attributed to strengthen the economic situation of the subsidised entities, and are not specifically reported to the prices practised, although, adds the Commission, no substantial difference is found between these two types of subsidies. This finding, coupled with the circumstance that one can with relative ease convert a subsidy directly reported to prices into another type of subsidy illustrates, according to the Commission, the fragility of a distinction based on a formal criterion and the inadequacy of the provisions of the Directive (at the time the Sixth Directive, 77/388/CEE).

In the Commission's second report on the functioning of the common VAT system (contained in document COM (88) 799 final, of 20 December 1988), a strict and literal interpretation is advocated, according to which the inclusion of the subsidy in the taxable value depends on the concurrence of three cumulative conditions: (i) the subsidy constitutes the consideration or part of the consideration; (ii) the subsidy is paid to the supplier of the goods or service provider; and, finally, (iii) the subsidy is paid by a third party.

For XAVIER DE BASTO "One may question the logic of the inclusion of these subsidies in the taxable value of the VAT. The inclusion or not of subsidies linked to operations relates to two ways of conceiving or rationalising the value added tax – the two faces of the tax: as a tax on transactions (tax on enterprises) or as a general consumption tax (...) In fact, the inclusion of subsidies in the taxable value only makes sense when the VAT is seen as a tax on enterprises, a "business tax" – intended, ultimately, to tax the respective value added. If the subsidies are not included, the tax would not reach the value added, the value of production at cost of factors – the subsidised enterprise would be favoured in relation to the non-subsidised enterprise. However, this is not how the problem should be posed when faced with a "consumption-type VAT" (...) In this logic, what should matter is the effective price, the consumer expenditure" – cfr. "The Taxation of Consumption and its International Coordination", in Notebooks of Science and Fiscal Technique (164), 1991, p. 210.

Also according to this distinguished Professor, the solution of the Directive is far from easy to apply. "It implies the distinction between subsidies 'directly linked to the price' of operations, to be included in the taxable base, and those of other natures, which do not count for the determination of that base. Given the diversity of situations that can occur, the distinction is not always easy. When the amount of the subsidies is determined either by reference to the selling prices or to the quantities sold ('compensatory payments'), it is clear that these are subsidies directly linked to prices. Also capital subsidies will not raise doubts regarding their non-inclusion. However, it may prove difficult to decide the question as regards other types of operating subsidies, which are paid to improve the economic position of enterprises, but which are not calculated with reference to prices or quantities sold. Such would be the case, for example, of the so-called 'equilibrium subsidies', calculated a posteriori, to cover operating deficits, and 'operating subsidies', which constitute supplements to revenues determined a priori, independently of operating results" . cfr. work cited, p. 212.

CLOTILDE CELORICO PALMA notes that subsidies constitute "one of the grey zones of this tax" and that the community legislation does not contain a definition of subsidy, "limiting itself to providing the rule on their inclusion in the taxable value of operations and the possibility of their inclusion in the pro-rata calculation". She adds that the "treatment of subsidies in VAT is not a matter fully harmonised at the level of the various member states, calling into question a uniform application of the common system and respect for the neutrality of the tax" – in The Public Entities and the Value Added Tax – A Break in the Principle of Neutrality, Almedina, 2011, pp 561 and 565.

In this framework of some indeterminacy, it is the case law construction of the CJEU that provides us the (valid) interpretation of the VAT Directive and the criteria for decision for the taxation of subsidies".

• Within the scope of community case law, on subsidies, pronounced themselves the Decisions Jurgen Mohr (C-215/94, of 29 February 1996) and Landboden-Agrardienste (C-384/95, of 18 December 1997 and, especially in the OPW process).

The Court of Justice, within the scope of the OPW process, proceeded to delimit the necessary presuppositions for the consideration of a subsidy in the taxable value for VAT purposes, understanding that the taxation of the subsidy implies the fulfilment of certain presuppositions.

These presuppositions already highlighted in the cited and partially transcribed process no. 111/2014-T of CAAD, in the following sense:

"First presupposition – that it is a subsidy granted by an authority in the context of a triangular relationship, i.e., that involves three parties (point 10 of the OPW Decision);

a) The authority that grants the subsidy;

b) The organism/taxable person that benefits from it; and

c) The buyer of the good or the recipient of the service respectively delivered or provided by the subsidised operator, clarifying that the operations targeted are not those carried out for the benefit of the authority that grants the subsidy.

Second presupposition – that the subsidy is directly related to the price of the operations to be carried out by the subsidised operator (point 12 of the OPW Decision). For this it is necessary that such subsidy is specifically paid to the operator so that it supplies a good or provides a determined service.

Third presupposition – the price of the good or of the service must be determined, as a matter of principle, at the latest, at the moment in which the taxable event occurs (point 13 of the OPW Decision).

Fourth presupposition – the commitment to pay the subsidy undertaken by the one who grants it has as its corollary the right to receive it recognised to the beneficiary when the taxable operation has been carried out by this (point 13 of the OPW Decision).

It is important to emphasise that the CJ expressly returns to the national court the burden of proving the existence of a direct nexus between the subsidy and the good or service in question (point 14 of the OPW Decision).

This relationship between the subsidy and the price must result in an unequivocal manner and after an analysis, case by case, of the circumstances at the origin of the payment of the consideration and requires that it be verified, in a first phase, that the buyers of the good or the recipients of the service benefit from the subsidy granted to the beneficiary thereof. In effect, it is necessary that the price to be paid by the buyer or by the recipient (in this case the three municipalities) be fixed in such a way as to decrease in proportion to the subsidy granted to the seller of the good or to the service provider. On the other hand, it is not necessary that the price of the good or of the service – or a part of the price – be determined. It suffices that it be determinable.

It is the national court that must assess whether, objectively, the fact that a subsidy is paid to the service provider enables it to supply a service at a price lower than it would require in the absence of such subsidy. It is not necessary that the amount of the subsidy correspond exactly to the decrease in the price of the good delivered, it sufficing that the relationship between this and the said subsidy, which may be fixed, be significant. However, it must be stressed that the mere fact that a subsidy may have an influence on the prices of goods delivered or services provided by the subsidised organism is not enough to make it taxable (points 12, 14, and 17 of the OPW Decision)".

It will be necessary, for what is relevant in the present proceedings, to assess the existence/verification of the above-mentioned presuppositions.

With respect to the first of them, the existence of a direct nexus between the subsidy and the services, in which results a triangular relationship, the same is verified insofar as the underlying subsidy is granted by an authority in the context of a triangular relationship between the European Social Fund, within the scope of the Human Potential Operational Project (POPH), the Claimant, as a taxable person beneficiary, and the user/recipient of the service provided by it.

With the additional verification of the negative requirement, embodied in the fact that the operations in course are not carried out for the benefit of the authority that grants the subsidy.

With respect to the remaining presuppositions, the same are equally fulfilled, as shall now be clarified:

• The subsidy is specifically paid by the European Social Fund to the Claimant so that it provides a determined service, being the same directly related to the price of the operations to be carried out.

An application was submitted to the European Social Fund, within the scope of the designated Human Potential Operational Project (POPH), through the submission of a project with the necessary detail of the number of training activities and trainees involved, the respective costs calculated and itemised.

In conformity with the provisions of Regulatory Decree 84-A/2007, of 10 December and in Normative Orders numbers …/2008 and …/2008, which regulate the general regime of application of the European Social Fund results that:

"The acceptance of the decision approving the application by the beneficiary grants it the right to receive financing for the realisation of the respective projects, pursuant to article 40 of the Regulatory Decree 84-A/2007, of 10 December" [2]

The subsidy in question was intended for the realisation of the projects presented by the Claimant, with the third of the mentioned presuppositions being thus verified, to which is added the fact that, in the event of its not having realised them, it would have no right to receive the amounts attributed to it, since these were so in the assumption of the realisation of the projects presented.

With respect to the "commitment to pay the subsidy undertaken by the one who grants it having as its corollary the right to receive it recognised to the beneficiary when the taxable operation has been carried out by this" – fourth presupposition – it will always be said that the execution of the training service provisions has as reference the concrete number of trainee beneficiaries of these training activities.

In conformity with what is provided for in article 15, paragraph 1 of Normative Orders nos. …/2008 and …/2008, the "beneficiary entity is obliged to present, by 15 February of each year, annual information on execution, relating to 31 December of the previous year, on the physical and financial execution of the application, in accordance with the stipulated in paragraph 6 of article 40 of Regulatory Decree 84-A/2007, of 10 December".

It further prescribes in paragraph 6 of article 40 of the same instrument that "the beneficiary entities of multi-year applications are obliged to provide to the management authorities, in the manner and with the periodicity defined by these, the information necessary for the preparation of the annual report of the PO, namely information on the physical and financial execution of the project, the payment of expenses being conditioned to the provision of the same, save for justifiable reason and accepted by the management authority".

Concluding in view of what has been stated:

• the attribution of the subsidy is made, with reference to the training activities that the beneficiary entity is going to carry out taking into account the number of participants and hours of training,

• the subsidy is made with reference to the volume of services actually provided,

• the subsidy here in question, attributed to the Claimant by the European Social Fund, appears as a "subsidy to the price", being subsumed, consequently, under the provision of article 16, paragraph 5, subparagraph c) of the CIVA.

LACK OF SUBSTANTIATION OF THE ASSESSMENT

The Claimant alleges in this segment that the assessment subject matter of the present request for arbitral pronouncement "suffers from absolute lack of substantiation", summoning for this purpose, in essence, the violation of the provisions of article 77, paragraph 1 of the LGT, article 268, paragraph 3, of the Constitution and article 152 of the Administrative Procedure Code.

Both parties recognise in their pleadings that substantiation is a requirement of tax acts in general, constituting a constitutional requirement (article 268 CRP) and a legal requirement (article 77 of the LGT).

In very brief summary, it can today be taken as accepted in doctrine and case law that the required substantiation must have the following characteristics;

• officiousness in the sense that it should emanate from the initiative of the administration,

• contemporaneity in the sense that it should be contemporaneous with the performance of the act, no deferred substantiation being admitted,

• clarity, translated into the fact of being understandable by an average recipient,

• completeness, a characteristic translated into the fact that the substantiation should contain all essential elements and that were determinative of the decision taken, to which is associated the duty of justification and motivation.

On the other hand, and subscribing to the position expressed by the AT, article 77, paragraph 1 of the LGT "permits the substantiation to consist of a mere declaration of agreement with the grounds of previous opinions, information or proposals, including those forming part of prior procedures, as would be the case of tax inspection reports", further adding that "pursuant to article 63, paragraph 1 of the RCPIT, tax acts or matters of a tax nature that result from the report may be substantiated in its conclusions, through adhesion or agreement with these, and in all cases the entity competent for its performance must substantiate its disagreement with the conclusions of the report."

Now, it results from the file that the Claimant was duly notified of the tax inspection report, endorsed by order, which report contains the grounds of the assessment discussed here.

Additionally, this arbitral court subscribes to the doctrine extracted from the Decision of the Supreme Administrative Court of 08/06/2011 (within the scope of process 068/11)[3] in the sense that; "despite the non-express indication of the applicable legal precept, the required substantiation of law of the tax act will be sufficient with the reference to the pertinent legal principles, the applicable legal regime or a determined normative framework, provided that, in any case, it can be concluded that those were known or cognoscible by a normal recipient placed in the concrete position of the actual recipient ", to conclude in this segment, there being no merit to the Claimant's argument as regards the alleged defect of lack of substantiation.

NON-EXISTENCE OF THE TAXABLE FACT

The Claimant alleges, in this respect, that pursuant to the provision of article 16, paragraph 5, subparagraph c) of the CIVA, the taxable value of service provisions subject to tax includes: "The subsidies directly connected to the price of each operation, considered as such those that are established on the basis of the number of units transmitted or the volume of services provided and are fixed prior to the realisation of the operations", arguing that it appears to it that such provision refers "exclusively to operations practised by VAT taxable persons, which have as their counterpart the payment of a price, which is not the case in the situation of the present proceedings.

The central question underlying the present proceedings is whether the subsidies received by the Claimant were so, as it defends, on the basis of "subsidies to production and to the structure of costs", or on the contrary took on the nature of "subsidies to the price".

Now,

On this question the arbitral court has already pronounced itself in the sense of understanding that one is faced with "subsidies to the price" and therefore it appears unnecessary any other considerations in this respect, referring to the decisive segment, concluding that there is no merit to the Claimant's argument for the alleged non-existence of the taxable fact which, in practice, merely constitutes the logical corollary of the position manifested by the Claimant regarding the modality/nature of the subsidies/subsidies in question in the present proceedings.

C. DECISION

Therefore, it is decided in this Arbitral Court:

a. to judge entirely without merit the request for annulment of assessment no..., in the amount of 1,647.21 € and respective compensatory interest, embodied in the respective assessment note..., in the amount of 262.47 €, relating to the VAT of the month of September 2010,

b. to condemn the Claimant to pay the costs of the proceedings.

D. VALUE OF THE PROCEEDINGS

In accordance with the provision of article 306 of the Civil Procedure Code, approved by Law no. 41/2013, of 26 June, 97 A), paragraph 1, subparagraph a) of the Tax and Procedural Process Code, and article 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at 1,909.68 €.

E. COSTS

Pursuant to articles 12, paragraph 2, 22, paragraph 4 of RJAT, articles 2 and 4 of the Regulation of Costs in Tax Arbitration Proceedings, and Table I attached hereto, the amount of costs is fixed at 306.00 €, to be borne by the Claimant, in accordance with the provided in article 536 of the Civil Procedure Code, ex vi of subparagraph e) of article 29, paragraph 1 of the Regime of Judicial Arbitration.

NOTIFY

Text prepared on computer, pursuant to the provision of article 131 of the Civil Procedure Code, applicable by referral of article 29, paragraph 1, subparagraph e) of the Legal Regime of Arbitration, with blank verses, and reviewed by the arbitrator.

The drafting of this decision is governed by the spelling prior to the Orthographic Agreement of 1990.

Lisbon, fifteenth of February of two thousand and sixteen

The Arbitrator

(José Coutinho Pires)

[1] Case C – 180/00, dealt with a case in which the regional administration of Wallonia attributed an annual amount to a private association without profit-making purposes, intended to promote agricultural, horticultural and agro-food products of that region. At issue was the question whether the operating subsidies that cover a diverse part of the operating expenses, namely the remuneration of personnel, the cost of facilities, the cost of acquisition of equipment and supplies necessary and all other direct and indirect expenses related to the activity, should be understood as included in the taxable base of the VAT.

[2] As provided for in paragraph 1 of article 14 of Normative Orders nos. …/2008 and …/2008.

[3] Available at www.dgsi.pt