VAT Exemption for Non-Profit Sports Entities: Competition Distortion and Reasoning Defects (CAAD 339/2017-T)

ARBITRAL DECISION

I – Report

1.1. A…, public utility sports association, NIF…, with registered address in …, …, …, … (hereinafter referred to as the "Claimant"), having been the target of two VAT assessments and accrued interest, in the total amount of €24,833.88, relating specifically to VAT and compensatory interest for the third and fourth quarters of 2012, filed, on 24/5/2017, a request for constitution of an Arbitral Tribunal, pursuant to the provisions of articles 2, para. 1, lit. a), 6, para. 1, and 10, para. 1, lit. a), and para. 2 of Decree-Law no. 10/2011, of 20/1 (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as "LFATM"), wherein the Tax and Customs Authority (AT) is the Respondent, with a view to "granting the claim […] with the consequent annulment of the contested VAT assessments and interest (art. 1 of the PJ) and by consequence with the annulment of the acts denying the Hierarchical Appeal and Gracious Complaint described above with all legal consequences, notably regarding interest", on the grounds that the aforementioned assessments "are illegal due to erroneous perception of relevant facts, violation of law and defects in reasoning".

1.2. On 4/8/2017 the present Singular Arbitral Tribunal was constituted.

1.3. Pursuant to article 17, para. 1, of the LFATM, the AT was cited as Respondent party to present its answer. The AT presented its answer on 28/9/2017, having argued, in summary, towards the total lack of merit of the Claimant's request.

1.4. By order of 2/11/2017, the Tribunal considered, pursuant to articles 16, lits. c) and e), and 19 of the LFATM, that the production of the evidence requested and the hearing provided for in article 18 of the LFATM were dispensable, and that the case was ready for decision. Furthermore, the date of 10/11/2017 was fixed for the delivery of the arbitral decision.

1.5. The Arbitral Tribunal was properly constituted, is materially competent, the case does not suffer from defects that would render it invalid, and the Parties have legal personality and capacity, being legitimate.

II – Arguments of the Parties

2.1. The now Claimant argues, in its initial petition, that: a) "the claimant understands [that the outputs of swimming activities carried out by the claimant are exempt from VAT] and did not assess VAT on its clients' monthly payments for the use of swimming activities. The AT, by contrast, understands that this activity would be subject to and not exempt from VAT – by which it requests the tax corresponding to the periods in question"; b) "the point of contention is even more precise: the VAT exemption of art. 9, para. 8, of the VAT Code (for services provided by non-profit entities that operate activities of an artistic, sports, recreational or physical education character) requires, among other requirements, that this activity (swimming at A…) not 'enter into direct competition with taxable persons' (art. 10, lit. d), of the VAT Code). The Claimant understands that its swimming activity does not compete with anyone; by contrast, the Tax Authority understands that the swimming activity of A… enters into direct competition with the health clubs in the city of … – and therefore denies the tax exemption"; c) "the Tax Authority understands that the requirements inherent to the VAT exemption in the provision of swimming services provided by A… meet most of the legal requirements (namely, the claimant is a public utility institution without profit purpose, develops a sports, recreational and physical education activity for the benefit of its practitioners…) – and this matter is outside the scope of this case. However – and continuing to follow the reasoning – it argues that one of the requirements of VAT exemption in these services is not met, in that the swimming activity of A… enters into direct competition with other taxable persons – the health clubs in the city of …, identified in the reasoning: B…, C… and D… . And thus causing, in the Tax Authority's view, distortions of competition, because A… does not assess VAT on swimming monthly payments and the "competitors" assess VAT on these services"; d) "for there to be competition the provision of services would have to have such a degree of similarity that the same consumer, to satisfy their specific needs, could choose indifferently any of the entities under comparison. Gymnasiums or health clubs compete with each other – undeniably. But none of them, or all of them together, compete with the swimming at A…, due to the total diversity of the service provided"; e) "from the perspective of an average consumer the provision of swimming services provided by A… is totally different from the provision of gymnasium services. […]. The differences are so great and abysmal – not only in quantitative terms, but also and above all in the nature of the service – that the services do not meet the same need, whether in effective or even potential terms"; f) "A… provides a top-level swimming service, with a vocation for training for competition and competition, with federated athletes, in exclusive regime of this sport, mainly for young people and adults who only want to practice swimming and compete. […]. Gymnasiums, by contrast, provide a swimming service (together with other services unrelated to pools), for recreational purposes (free swimming and without lanes) and basic physical conditioning (in multi-sports) and for recreation (water aerobics and the like) and in learning to swim (in competition with the Municipality and national physical education service). In gymnasiums the pool is used for recreation and basic physical conditioning"; g) "between the swimming at A… and the swimming at gymnasiums there is no competition, neither real nor potential, since the service provided by both are totally disparate: in the eyes of an average consumer, the differences between both are so abysmal that they are not of alternative use"; h) "[as to] the ancillary activities of A…: use by third parties (in rental), water aerobics, swimming for babies and for adults. The use by third parties (rental) has negligible significance (1.5% of revenues) and does not compete with gymnasiums – but is intended solely for the execution of public service, without competition between operators, to allow access to and contact with swimming in the national physical education system of the ministry of education, health and social solidarity. […]. The swimming for adults at A… is in a single-sport – and aims at the advanced training of swimming for competition – there are now championships and meetings for adults, whether ex-athletes, adult athletes or general population wishing to specialize strongly in swimming. […]. Swimming for babies (with marginal weight at A… and in gymnasiums) has totally different objectives in both institutions. […]. [At A…, this service] Is the first window for recruiting swimmers for training, which begins shortly after, starting from age 4 (and competitions from age 6). […]. Water aerobics is a marginal activity for A…"; i) "in summary: the non-existence of competition confirms the VAT exemption, through compliance with the condition of art. 10, lit. a), of the VAT Code – with which the contested assessments are illegal, because the AT argues for the existence of competition where it does not exist, in real and potential terms"; j) "all swimming services operated by A… (essential and ancillary) do not enter into competition, even potential, with gymnasiums – and that is sufficient to cause the immediate and total annulment of the contested acts"; l) "there is no direct competition; there are no significant distortions of competition; the ancillary activities (babies, water aerobics and adults) are not intended essentially to provide supplementary revenues. […]. And the lack of direct competition implies that there are no significant distortions of competition"; m) "[as to the claimant's ancillary activities, these] are not intended essentially to generate supplementary revenues, but to serve public interests (rental of the pool to institutions, with residual revenues) and activities (of water aerobics, babies and adults) always essentially linked to the training and competition of students"; n) "the essential and primary objective for A… with these ancillary activities – which moreover follows from compliance with its bylaws – is still and always the promotion of competitive swimming and its training. It does not want to raise supplementary revenues in direct competition with gymnasiums. It only wants to promote training and competition, creating conditions for parents to facilitate transport, recruitment and motivation of children – in training and competition, and that is the purpose of the Club"; o) "the reasoning is totally omissive, insufficient and conclusory, constituting a clear defect in reasoning that determines the annulment of the contested assessments (as was always stated in the Gracious Complaint and Hierarchical Appeal). The reasoning (and all AT documents on the subject) is merely conclusory: it states that the swimming at A… competes with the gymnasiums of … B…, C… and D… – but without introducing any concrete and real facts on which such conclusion is based – except the inference, not even declared, that such gymnasiums will have a pool. But the AT does not prove the existence of distortion of competition because it does not present any fact that would prove it, even in summary form"; p) "the allegation of the existence of competition is merely conclusory because it is not based on concrete facts that could prove it. And the allegation of direct competition and in the essential activity – requirements of the law – is not alleged or proven by the AT"; q) "in summary: the AT's reasoning is insufficient and omissive as to the facts in which it would have to allege and prove so that it would be legitimate to apply the law – defects of violation of law and of reasoning which cannot be dispensed with."

2.2. The Claimant, in summary, requests from the Arbitral Tribunal: "a) granting of the claim […]"; "b) with the consequent annulment of the contested VAT assessments and interest (art. 1 of the PJ) and by consequence with the annulment of the acts denying the Hierarchical Appeal and Gracious Complaint described above"; "c) with all legal consequences, notably regarding interest".

2.3. For its part, the AT argues, in its response, that: a) "the Claimant defends, in summary, that in the development of its activities it does not act in a competitive manner, since for there to be competition the services would have to have a degree of similarity, alleging that its service provision is totally different from the provision of services by gymnasiums. However, the Claimant is mistaken"; b) "from the analysis carried out by the tax inspection services of the activities developed by the Claimant, as well as from its accounting, it was found that in the swimming area it uses and operates pools for the practice of swimming, which were ceded by the Municipality of …"; c) "article 9, sub-paragraph 8) of the VAT Code establishes that exempt from tax are 'the services provided by non-profit entities that operate establishments or installations intended for the practice of artistic, sports, recreational and physical education activities for persons who practice such activities.'"; d) "non-profit entities are those that meet the conditions set out in Article 10 of the VAT Code, which provides as follows: 'For purposes of exemption, only entities are considered as non-profit entities that, simultaneously: a) In no case distribute profits and their managing bodies have no, directly or indirectly through an intermediary, any direct or indirect interest in the results of operations; b) Have accounting records covering all their activities and make them available to tax services, namely for verification of the aforementioned in sub-paragraph a); c) Practice prices approved by public authorities or, for operations not susceptible of approval, prices lower than those required for analogous operations by commercial enterprises subject to tax; d) Do not enter into direct competition with taxable persons.'"; e) "through the analysis of the conditions of access, the prices and the swimming services offered, it was determined that, in the provision of these services, the Claimant enters into direct competition with other economic operators that develop, in the same geographical area, identical activity, since: • Access to the pools is not limited to federated athletes, nor is it restricted to members; • The pool is municipal, is operated by the Claimant through payment of the respective table price, being frequented by any and all citizens; • The services provided are, in all respects, similar to those offered by other taxable persons geographically close and any of them provides them, in the swimming valency, in the same way that they are made available by the Claimant; • The Claimant did not prove the practice of prices lower, for analogous services, than those practiced by other taxable persons in the area of the city of…; • Proving the existence of real and potential risks that the situation of exemption of the Claimant would cause distortions of competition, it could not, for this reason, benefit from the exemption provided for in para. 8 of Article 9 of the VAT Code"; f) "according to sub-paragraph 8) of Article 9 of the VAT Code, exempt from tax are the services provided by non-profit entities that operate establishments or installations intended for the practice of artistic, sports, recreational and physical education activities for persons who practice such activities, and the exemption arising from the operation of establishments or installations intended for the practice of sport or physical activity is based on sub-paragraph m) of para. 1 of Article 132 of the VAT Directive which provides that Member States exempt 'Certain services closely related to the practice of sport or physical education, provided by non-profit entities to persons who practice sport or physical education'"; g) "the main characteristic of non-profit entities should be, as the name indicates, the non-pursuit of profit: being able to develop profit-making activities, destining the profits to their social purposes, but they cannot be in direct competition with commercial enterprises [sub-paragraphs c) and d) of Article 10 of the VAT Code]. In the present case, not all the conditions listed in Article 10 of the VAT Code are met, namely those provided for in sub-paragraphs c) and d), concluding that the Claimant cannot be considered, for purposes of exemption, a non-profit entity and, therefore, cannot benefit from the exemption provided for in sub-paragraph 8) of Article 9 of the VAT Code"; h) "the Claimant's argument that it distinguishes itself from commercial enterprises, in that it is dedicated almost exclusively to the preparation of athletes for competition, finds no correspondence in its Bylaws nor in the information it discloses on its website, nor has it equally demonstrated that the recipients of the services provided enjoyed them under more advantageous economic conditions"; i) "the conditions and prices of access by users (members or non-members of the club) to the activities developed in the pools/swimming enters into direct competition with taxable persons, in that access to the pools is not prohibited to federated athletes, nor is it restricted to members, the services being provided in all respects similar to those provided by other VAT taxable persons (C…; B…, D… among others). Indeed, both in the cited gymnasiums and in the Claimant, it is possible to frequent them solely in the swimming valency, making no sense that, in light of the provision of the same service, a citizen of the municipality of … would be positively discriminated against, not paying VAT for the use of the pool operated by the Claimant. Whereby the corrections made by the Respondent are correct and in accordance with the law"; j) "alleges the Claimant that […] the reasoning is totally omissive, insufficient and conclusory, constituting a defect in reasoning that determines the annulment of the assessments in question. […]. However, it is not correct"; l) "the jurisprudence of the Supreme Administrative Court has uniformly understood that the reasoning of the act is a relative concept that varies according to the type of act and the circumstances of the specific case, being that the reasoning is sufficient when it allows a normal recipient to understand the cognitive and evaluative itinerary followed by the author of the act, that is, when the recipient can know the reasons that led the author of the act to decide that way and not another"; m) "it is not understood how the Claimant can consider that there was a lack of reasoning, because what is evident in its arbitral request is not incomprehension of the grounds, but rather disagreement with these"; n) "on the other hand, should there be a situation of lack or insufficiency of reasoning – a hypothesis which only in theory and without conceding is admitted – it was incumbent upon the Claimant to request the issuance of the certificate provided for in article 37 of the TCPPT […]. Not having the Claimant made use of that faculty granted by law, it is necessary to conclude that the acts sub judice contained, and contain, all the elements necessary for its full understanding and that the alleged defect from which it suffered was cured"; o) "it is not possible to state that a given act is unfounded when, in the specific case, the contextual reasoning allowed its recipient to know the reasons of fact and of law that led the Respondent to make the decision in question, with that meaning and content. […]. In the present case, the reasoning is sufficiently clear and unequivocal, all the more so that the Claimant through this request for arbitral pronouncement and in light of the arguments it has set forth throughout its pleadings, demonstrates to have fully understood the factual and legal framework on which the Respondent's decision was based, since it attempts to rebut, point by point, all of its action."

2.4. The AT concludes that "the present request for arbitral pronouncement must be judged without merit, as not proved, the contested tax assessment acts remaining in the legal order."

III – Proven Facts, Unproven Facts and Their Reasoning

3.1. The following facts are considered proved:

i) The Municipal Council of … has ownership and management of the swimming pool complex of … – composed of two covered pools, both 25 meters long, one for competition (8 lanes and deeper) and another for training (5 lanes and "with standing room", between 1 meter and 1.5 meters).

ii) According to information from the now Claimant (not contested by the Respondent), the Municipal Council of … operates the aforementioned pools directly; outside school hours, it cedes the facilities to the now Claimant so that this, in pursuit of its statutory purposes and public interest, ensures the training of students, with a view, primarily, to competition in federated events and championships; outside school hours and also outside "prime time" (the "late afternoon on weekends, from 17h to 21h"), the Claimant carries out, secondarily, other swimming valencies that are essentially aimed at retaining the families of the athletes who are in the service of the Claimant (or, in the case of classes for babies, to facilitate entry into training from age 4). Also according to information from the now Claimant (not contested by the Respondent), "in 26 years of swimming at A…, the Club trained 128 international athletes, with 302 international participations, and 3 athletes had presence at the Olympic Games (E…, in Barcelona 1992 and Atlanta 1996; F… in Sydney 2000 and G…, in Rio 2016)."

iii) The Claimant is a sports association, with public utility status, that promotes the practice of training and competitive sport in the most varied modalities (including swimming), in the area of …

iv) The Claimant, following a tax inspection, was the target of two VAT assessments and compensatory interest, in the global amount now contested of €24,833.88: i) Assessment 2015…, relating to VAT for the 3rd quarter of 2012, in the amount of €11,063.80; ii) Assessment 2015…, relating to compensatory interest for the 3rd quarter of 2012, in the amount of €1227.02; iii) Assessment 2015…, relating to VAT for the 4th quarter of 2012, in the amount of €11,394.27; and iv) Assessment 2015…, relating to compensatory interest for the 4th quarter of 2012, in the amount of €1148.79.

v) Aggrieved, the Claimant filed, on 24/3/2016, a gracious complaint, which was the subject of express denial. It also filed a hierarchical appeal, which was expressly denied (see Doc. 1 attached to the case file).

vi) In the reasoning of its decisions (see TIR and reasoning of the decisions on the gracious complaint and on the hierarchical appeal), the AT refrained from indicating to the Claimant the reasons why it considered that the condition for VAT exemption provided for in lit. d) of art. 10 of the VAT Code was not met (nor does it explain why it considers that the activity carried out by the Claimant should be treated as equal to that of the alleged named competitors). In fact, as can be read in Doc. 1, attached to the case file: "the TI ascertained, as mentioned, that the condition for VAT exemption provided for in article 10 of the VAT Code, sub-paragraph d), was not met, being that this exclusion of exemption does not imply that the TI proves that competition distortion occurs […]. In fact, the conditions of article 10 of the VAT Code are clear and they do not include that one has to assess or prove that a distortion of competition occurs. Despite the above, as the rules of common experience govern, if a taxable person is in direct competition with others and one (the complainant) has VAT exemption on the services it provides and the others do not have it, then, logically and inevitably, there would be a distortion of competition if VAT exemption were allowed to the now complainant." (Italics ours.)

vii) From the reading of the case file (notably from the reading of Doc. 1), it is verified that a technical and sufficiently detailed demonstration of the reasons given for the corrections in question was not produced. In fact, in the aforementioned Doc. 1 it can be verified: a) that the existence of "direct competition" is invoked without, however, explaining in what terms it is considered that it occurs (it being insufficient, there, the comparison of prices – which can be read in Doc. 1 – since this could only be relevant after a reasoned demonstration that the various entities in question were "disputing" the same market); b) that it is stated that the services provided "are, in all respects, similar" to those of the alleged competitors but without detailed reasons being given to support a judgment of similarity sufficient to allow the conclusion that they are "direct competitors" (i.e., analysis at the level of criteria for the equation between services provided, at the level of the nature of the various entities providing the services, or at the level of operating hours and objectives of the respective classes, or even on the requirements used for admission of users); c) that there is mention of a proven "existence of real and potential risks that the situation of exemption of the Claimant would cause distortions of competition" without, however, conclusive proofs of this assertion being listed and presented to the Claimant.

viii) On 24/5/2017, the now Claimant filed the present request for arbitral pronouncement.

3.2. The following facts are considered unproved: it was not proved that the Claimant had proceeded to pay the amounts stated in the VAT assessments and respective compensatory interest now in question (i.e., the Claimant did not present proof that payments had occurred in any form, nor did it allege when and how they occurred).

3.3. The facts considered pertinent and proved (v. 3.1) are grounded in the analysis of the positions set forth by the parties and the documentary evidence attached to the present case file.

IV – On the Law

In the present case, the essential questions that arise are whether: 1) as the Claimant invokes, the assessments in question are illegal due to lack of reasoning; 2) as the Claimant also alleges, the assessments in question are illegal because the claimant does not enter or did not enter "into direct competition with taxable persons" (see lit. d) of art. 10 of the VAT Code); and 3) whether the interest claimed by the Claimant is due.

Let us examine this then.

1. With regard to the first question, it is necessary to first ascertain whether the elements that support the assessments in question are sufficient to state that the duties of reasoning of the acts are duly fulfilled.

Generally, and as noted in the following Decision, "if the formal reasoning does not clearly explain the motivation of the act, through obscurity, contradiction or insufficiency, the act is considered unfounded […]. There will be obscurity when the statements made by the author of the decision do not make clear what the reasons are why it decided as it decided. In other words, the grounds of the act must be clear, so as to perfectly grasp the meaning of the reasons that determined the performance of the act, thus being impermissible the use of dubious, vague and generic expressions. […]. Finally, the reasoning is insufficient if its content is not sufficient to explain the reasons why the decision was made. In other words, the reasoning must be sufficient, in the sense that there are no reasons left unsaid that would suitably explain the final decision." (Decision of the Administrative Court of the South of 4/12/2012, case 6134/12).

Now, in this light, it is evident that there exists, in this case, insufficiency of reasoning, which leads, therefore, to the conclusion that the acts in question must be considered as unfounded. In the same sense, see, for example, in similar cases, the following arbitral decisions: "In accordance with the provisions of article 153, para. 2, of the Administrative Procedure Code, subsidiarily applicable pursuant to article 2, lit. c), of the GTL, 'equivalent to the lack of reasoning is the adoption of grounds which, through obscurity, contradiction or insufficiency, do not clearly explain the motivation of the act'. The reasoning of the administrative act through a conclusive judgment, of a vague and merely conclusive expression, is not true reasoning, since it does not clearly explain its motivation, as has been consistent jurisprudence of the Supreme Administrative Court. In the case at hand, the Claimant defends that: - both as to the pools, and as to the athletics track, and as to the other sports pavilions, the Tax Administration, in its report, does not reason or explain why the services by other market operators enter into competition with the services provided by the claimant; - and because it does not indicate what concrete services are provided in competition; - under what similar physical conditions such services are provided; […]. It is manifest that the Claimant is correct as to the insufficiency of the Tax Inspection Report, on which the contested VAT assessments are based, as to the points it refers to, on this matter of the possibility of competition distortion, which is essential to support the assessments. […]. […] the Tax and Customs Authority does not explain what are the characteristics of the services provided by each of the entities that it understood to be competitors nor what are the prices of the services provided, nor why it understood that there was a possibility that the exemption practiced by the Claimant could cause competition distortion. In order to be able to conclude for the existence of competition distortion it would be necessary to know the concrete services provided and prices practiced by the entities that the Tax and Customs Authority considers competitors, since they may be distinct services with distinct prices, intended for different types of public." (Arb. Dec. of 9/2/2017, rendered in case 274/2016-T); "In the case sub judice competition distortion is not revealed in that it is not demonstrated, on the one hand, the concrete existence of entities with supply of services comparable to those provided by the Claimant and, on the other, what are the prices practiced by the entities (and identification thereof) that allegedly make available the equipment suitable and identical to that of the Claimant and what are the concrete conditions of use and characteristics of the pools" (Arb. Dec. of 27/4/2016, rendered in case 209/2015-T).

Agreeing with the reasoning cited above, it is concluded, also in the present case, and in line with what appears in points vi) and vii) of the proven facts (and which are hereby reproduced), that there is a defect in reasoning in the assessments now contested, for which reason it is considered that the same are illegal.

However, the AT further argues that, "should there be a situation of lack or insufficiency of reasoning – a hypothesis which only in theory and without conceding is admitted – it was incumbent upon the Claimant to request the issuance of the certificate provided for in article 37 of the TCPPT. […]. Now, not having the Claimant made use of that faculty granted by law, it is necessary to conclude that the act sub judice contained, and contains, all the elements necessary for its full understanding and that the alleged defect from which it suffered was cured."

Note, however, that the non-request for the aforementioned certificate does not preclude the invocation of the defect of lack of reasoning. As the Decision of the Administrative Court of the South of 12/11/2002 (case 7002/02) rightly states, "the possibility granted by art. 22 of the CPT is aimed, exclusively, at obtaining the cure of the deficiency of notification, with deferment of the beginning of the period for use of the gracious or contentious means of challenge, not constituting a condition for access to these means. Thus, never shall the failure to use that faculty have as consequence the impossibility of invoking the defect of form due to lack of reasoning as a cause of the challenge deduced against the act whose reasoning was not communicated to the taxpayer. […]. In truth, in the CPT in force at the time, as now in the Code of Tax Procedure and Process, we know of no legal provision that imposes any condition for the complaint or for the judicial challenge deduced on the ground of a defect of form due to lack of reasoning. Thus, the fact that the Respondent did not use the faculty provided for in art. 22 of the CPT, contrary to what the Appellant sustains, does not prevent it from challenging the assessment of the tax act in question on the ground of lack of reasoning."

In the same sense, see, for example, the following Decision: "No consequences can be drawn from the non-use of the faculty provided for in para. 1 of article 37 of the TCPPT as to the validity or invalidity of the notified act, for art. 37 has only to do with the notification of acts, being intended to establish the consequences of deficiencies in notifications and not the regime of defects of notified acts, whereby within the scope of art. 37 the Administration can only supply the deficiencies of notification, but not those of the notified act." (Decision of the STA of 22/11/2012, case 736/12).

The argument respecting the alleged "automatic" cure of the defect invoked by the Claimant is thus without merit. And the same is to be said for the following argument, also invoked by the Respondent, according to which: "it is not possible to state that an act is unfounded when, in the specific case, the contextual reasoning allowed its recipient to know the reasons of fact and of law that led the Respondent to make the decision in question, with that meaning and content. […]. In the present case, the reasoning is sufficiently clear and unequivocal, all the more so that the Claimant through this request for arbitral pronouncement and in light of the arguments it has set forth throughout its pleadings, demonstrates to have fully understood the factual and legal framework on which the Respondent's decision was based, since it attempts to rebut, point by point, all of its action."

This argument, as presented, is without merit and, should it be admitted, could even lead, in theory, to the inadmissibility of the invocation (or to the irrelevance of the consideration) of the defect of lack of reasoning of the acts should the taxable person resort to the Courts (whether arbitral or judicial). The fact that the Claimant has filed a request for pronouncement does not, in itself, demonstrate that the acts in question were properly reasoned.

Indeed, as is emphasized, in this regard, in the following Decision: "[T]he obligation [of reasoning of acts] does not have as its sole objective the 'protection thereby of the rights and interests of the administered but includes, in the first place, the guarantee of a correct decision-making procedure' - José Carlos Vieira de Andrade, The Duty of Express Reasoning of Administrative Acts, p. 43. It is not aimed, therefore, and only, at the particular being aware of the reasons why the Administration decided in one way and not another; it is also intended to impose on the Administration, by this means, a necessary explicit reflection and weighing of the reasons and arguments in confrontation, which the reasoning of the act must display, thus making transparent the administrative activity. Hence it is not enough to say, in demonstration of the fulfillment of the duty to reason, that the administered reacted against the administrative act, revealing, with that reaction, to have grasped the scope and reasons of the act. On one hand, it is not certain that the administered has not merely 'guessed' the hidden grounds of the administrative act, which from the act itself must transpire. On the other hand, the legislator intended that the administration not decide inadvisedly, requiring it to embody in the reasoning the reasons for its choice, in such a way that the administration itself realizes, while reasoning, whether its choice is well or poorly founded, in time to amend its course, if that be necessary, and that the act is presented transparently. This to conclude that it is not decisive the argument, otherwise frequent, according to which the mere fact that the act was contentiously challenged, with the consequent imputation of defects, already demonstrates that it was properly reasoned." (Decision of the Administrative Court of the South of 28/2/2012, case 4893/11). (Italics ours).

1. Showing itself meritorious the understanding of the Claimant as to the previous question, it becomes unnecessary to verify here the merit of other defects imputed to the acts now contested.

In this regard, see, for example, the following Decisions: "There is omission of ruling when the court fails to appreciate and decide a question that it has been called to resolve, unless its knowledge has been compromised in light of the solution given to the dispute. By force of the provisions of para. 2 of art. 124 of the TCPPT one must first know of the defects of violation of law stricto sensu (except in cases where the content of the act cannot be grasped, namely in the case of lack of reasoning), thus ensuring more effective protection of the taxpayer's rights." (Decision of the STA of 7/9/2011, case 23/11); "the judge […] [has] the duty imposed on him – cf. art. 660, para. 2 of that first statute [CPC] – to resolve all questions that have been submitted to his appreciation, with the exception only of those whose decision is prejudiced by the solution given to others" (Decision of the STA of 22/3/2006, case 916/04).

1. In light of what is provided for in para. 5 of art. 24 of the LFATM – "the payment of interest, regardless of its nature, is due in the terms provided for in the general tax law and in the Code of Tax Procedure and Process" – it has been understood that this norm permits the recognition of the right to indemnity interest in arbitral proceedings. The analysis of the present request is thus justified.

However, and as results from the analysis made of the facts of these proceedings, it was not proved that the Claimant had proceeded to pay the amounts stated in the VAT assessments and respective compensatory interest in question. In fact, the Claimant did not present, in these proceedings, proof that payments had occurred in any form, nor did it allege when and how they occurred.

Thus, it not being proved that payments occurred in any form, the request of the now Claimant "in the matter of interest" is without merit, since, depending these on the occurrence of payment of undue tax (article 43, para. 1, of the GTL), the lack of proof of that payment implies, preliminarily, the lack of merit of such request.

V – DECISION

In light of the above, it is decided:

– To declare the illegality of the contested VAT assessments (2015 … and 2015 …), as well as of the contested compensatory interest assessments (2015 … and 2015 …), determining their annulment.

– To judge without merit the request insofar as it concerns the recognition of the right to indemnity interest in favor of the claimant.

The value of the case is fixed at €24,833.88 (twenty-four thousand eight hundred and thirty-three euros and eighty-eight cents), pursuant to article 32 of the ACPC and article 97-A of the TCPPT, applicable by force of the provisions of article 29, para. 1, lits. a) and b), of the LFATM, and article 3, para. 2, of the Regulation on Costs in Tax Arbitration Proceedings (RCPAT).

Costs against the respondent, in the amount of €1530.00, pursuant to Table I of the RCPAT, and in compliance with the provisions of articles 12, para. 2, and 22, para. 4, both of the LFATM, and the provision of art. 4, para. 4, of the aforementioned Regulation.

Notify.

Lisbon, 10 November 2017.

The Arbitrator,

(Miguel Patrício)

Text prepared on computer, pursuant to the provisions of art. 131, para. 5, of the CPC, applicable by remittal of art. 29, para. 1, lit. e), of the LFATM.

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