Process: 345/2016-T

Date: January 10, 2017

Tax Type: IVA

Source: Original CAAD Decision

Summary

CAAD arbitration process 345/2016-T addressed the contentious issue of VAT deduction rights for Portuguese sports companies acquiring player intermediation services and image rights. The case centered on a football club's attempts to deduct VAT on payments for individual image rights of players E... and RR..., as well as related intermediation services. The tax authority challenged these deductions under Article 23 of the Corporate Income Tax Code (CIRC), arguing the club failed to demonstrate commercial exploitation of acquired rights. The club paid €210,000 for E...'s image rights through SS... Ltda. and €200,000 for RR...'s rights through UU... Lda., but could not prove income generation from these acquisitions. The tribunal scrutinized whether expenses met the indispensability test - whether costs were necessary for obtaining taxable income or maintaining income sources. Key issues included: the distinction between collective team image rights (automatically belonging to clubs under employment contracts per Law 28/98) versus individual player image rights; the lack of documented commercial exploitation through advertising campaigns, photography sessions, or licensing; suspicious contractual arrangements where transferor entities were represented by the players themselves; and absence of business infrastructure for image rights exploitation. The decision reinforced that VAT deduction rights require demonstrated economic rationale and actual commercial activity. Sports companies must prove minimum adequacy between image rights exploitation and expenses incurred, as outlined in Circular 17/2011 from the General Directorate of Taxes. This ruling establishes important precedent for Portuguese football clubs regarding documentation requirements, economic substance tests, and the nexus between VAT-deductible inputs and taxable outputs in player-related transactions.

Full Decision

fully for commercial exploitation or for other economic purposes.

However, the right to use the image of the collective participants was preserved, which belongs to the clubs/sports companies, that is, the right to use the image of the players, inserted in the team, is found associated with the exercise of the labor bond established and, by the execution of the work contract, passes to the sphere of the clubs/sports companies.

The player maintains the right to use and exploit his image in the purely individual sphere, being able to transfer that right to the club, in the service of which he is during the validity of the respective contract.

Under the terms of point 7 of Circular No. 17/2011, of the Office of the Director-General of the General Directorate of Taxes (current AT): «The Club/Sports Company resident in Portuguese territory that acquires from another entity the image rights of a player with whom it will execute a professional sports work contract, should be able to prove the minimum adequacy between its exploitation and the expenses incurred, so that these may be considered as expenses under article 23 of the Corporate Income Tax Code.»

Upon acquiring from the players E… and RR… their image rights in the purely individual sphere, it was incumbent upon the taxpayer to prove the indispensability of executing a contract for the acquisition of these rights from the players, which did not occur, as the rationality economic underlying a business in which A… did not proceed to its commercial exploitation in order to maximize the respective income was not proven, nor does it demonstrate having made efforts for its exploitation.

III.1.3.1. Image rights of "E…"

In the 2012 period, A… considered as an expense for the period, recorded as a debit to the expense account "… - FSE, specialized work", by counterpart of the supplier account "… - SS…, suppliers of investments, domestic market", the amount of 210,000.00 EUR, relating to the acquisition of the image rights of player E…:

On 2011-03-18, A… signed an "Amendment and Renewal of Professional Sports Work Contract", with the professional footballer E…, also known as "E…".

On 2011-06-21, A… executed with the entity SS…, Ltda., with registered office in…, Brazil, a "Contract for the Transfer of Rights to Exploit the Image of a Professional Football Player".

By the second party, the company SS…, Ltda., the player E… himself signed the contract:

By the third clause of that contract that entity transfers to A… the rights of commercial exploitation, jointly or individually, of the public image» of the player.

The fifth clause of the contract defines «As consideration for the provision of the services identified in the preceding third clause, the First Party undertakes to pay the Second the total sum of 1,055,000.00 € (...)», distributed over four seasons.

However, from the analysis carried out to the accounting, no income associated with the exploitation of those rights was detected.

Already in prior inspection actions an identical situation was verified, although with a contract for the transfer of the same rights in which the transferor was another entity, "TT…, Ltda.", also represented by the player himself.

As regards the image right of that player as an integral part of the collective of the same team, this was ensured by A…, since it had executed a professional sports work contract with the player, as follows from paragraph 2 of article 10 of Law No. 28/98, of 26 June, combined with paragraph 3 of article 3 of the CLA.

The taxpayer failed to demonstrate having carried out its commercial exploitation, nor presented any invoice/debit note to charge the player's participation in any event, thus resulting in no income realizable as a patrimonial increment of A….

From this it does not follow that there was any commercial exploitation of the player's image, which would justify the expenses assumed.

It should be noted that if A… exploited the individual image rights of any player in advertising campaigns, photography sessions, among others, in which such player participated, it would be able to objectively distinguish the income obtained from these operations from other income, as invoicing would have to be issued for these activities, being able to clearly estimate the income obtained related to the expenses incurred.

A… does not present any business structure prepared for the exploitation of a business of these characteristics.

As recorded in prior inspection actions, A… came to point to the advertising campaign "…", to demonstrate the exploitation of these rights. However, it was possible to identify other players involved in the campaign "…" but for the majority of them the execution of any autonomous agreement to the professional sports work contract, for the acquisition of image rights relating to the players, was not detected.

From the analysis of the documents supporting the accounting entries and the closing balance sheet for the 2012 period, no income was found resulting from the exploitation of the individual image rights of the player in question.

The taxpayer presented no documents proving the effective exploitation of the individual image rights acquired, it being worth noting that one cannot assert the full exploitation of the rights acquired by having made some calendars where the player appears, as an element of the team, nor through actions where the player will have appeared in campaigns in schools as from these situations no income results for A… that would justify the maintenance of this expense.

In the second clause, point 2, of the contract executed as a "Contract for the Transfer of Rights to Exploit the Image of a Professional Football Player" it is stated that: «The Second Party is the sole holder of the image, voice and professional name rights of the Third Party as a professional footballer».

In the third clause, point 1: «By this contract the Second Party transfers to the First, which accepts, the rights of commercial exploitation, jointly or individually, of the public image of the Third Party as a professional footballer of B…»,

However, what is the source of this right in the sphere of the second party, that is, in the entity SS…, Ltda.?

It is found that the company transferring the right to use image here in question is represented by the player himself, as is evident from the signature of the contract, by the player in representation of the second party, which reveals a close, if not strict relationship between the entity "transferor" of the image rights and the player himself.

Note also that the contract for the transfer of image rights follows the contracted between A… and the player: «This contract (...) will be valid during the period in which the Third Party maintains in effect the professional sports work contract with the First Party, automatically lapsing when it terminates, regardless of the reason, said contract (...).»

Given this, nothing guarantees that, under the appearance of image right use, there is not hidden a different reality, consisting of the payment of amounts on other grounds, such as remuneration for the professional service of the player, as A… pays amounts for rights relative to which it did not record any income, and does not possess nor mounted appropriate business structure for its exploitation.

In conclusion, as the indispensability of A… bearing the expenses in question was not proven, for the obtainment of taxable income or for the maintenance of the income source, in accordance with paragraph 1 of article 23 of the CIRC, the expenses in the amount of 210,000.00 EUR are not tax-accepted.

III.1.3.2. Image rights of RR…

In the 2012 period, A… considered as an expense for the period the amount of 200,000.00 EUR, relating to the alleged acquisition, from the entity UU…, Lda., with the TIN…, of the image rights of Player RR…:

In addition to the professional sports work contract between the TP and the player RR…, another contract was executed with UU…, Lda., relating to the acquisition of the image rights of the player, for the amount of 600,000.00 EUR, being 200,000.00 EUR for each of the 2010/2011, 2011/2012 and 2012/2013 seasons and provided that the professional sports work contract with the player remained valid:

The partners of the UU…, Lda. company are the player himself, with 50% of the capital stock, and his spouse, with the remaining 50% of the capital stock.

However, from the analysis carried out to the accounting, no income associated with the exploitation of those rights was detected.

From the confrontation between the facts described and the applicable legislation, pursuant to subparagraph a) of paragraph 2 of article 75 of the General Tax Law, it resulted in the dismissal of the presumption of good faith that the recorded expenses correspond to expenses demonstrably indispensable for the realization of the profits of A….

As, with regard to the image right of that player as an integral part of the collective of the same team, this was ensured by A…, since it had executed a professional sports work contract with the player, as follows from paragraph 2 of article 10 of Law No. 28/98, of 26 June, combined with paragraph 3 of article 3 of the CLA.

The taxpayer failed to demonstrate having carried out its commercial exploitation, nor presented any invoice/debit note to charge the player's participation in any event, thus resulting in no income realizable as a patrimonial increment of A….

From this it does not follow that there was any commercial exploitation of the player's image, which would justify the expenses assumed

It should be noted, that if A… exploited the image rights of the player in advertising campaigns, photography sessions, among others, in which such player participated, it would be able to objectively distinguish the income obtained from these operations from other income, as invoicing would have to be issued for these activities, being able to clearly estimate the income obtained related to the expenses incurred

A… does not present any business structure prepared for the exploitation of a business of these characteristics.

As recorded in prior inspection actions, A… came to point to the advertising campaign "…", to demonstrate the exploitation of these rights. However, it was possible to identify other players involved in the campaign "…", being that for the majority of them the execution of any autonomous agreement to the professional sports work contract, for the acquisition of image rights relating to the players, was not detected.

From the analysis of the documents supporting the accounting entries and the closing balance sheet for the 2012 period, no income was found resulting from the exploitation of the individual image rights of the player in question.

The taxpayer presented no documents proving the effective exploitation of the individual image rights acquired, it being worth noting that one cannot assert the full exploitation of the rights acquired by having made some calendars where the player appears, as an element of the team, nor through actions where the player will have appeared in campaigns in schools as from these situations no income results for A… that would justify the maintenance of this expense.

In the second clause, § 2, of the contract executed as a "Contract for the Transfer of Rights to Exploit the Image of a Professional Football Player" stated that: «The Second Party is the sole holder of the image, voice and professional name rights of the Third Party as a professional footballer»,

In the third clause, § 1: «By this contract the Second Party transfers to the First the right of commercial exploitation, jointly or individually, of the public image of the Third Party as a professional footballer of B…, (,..)».

However, what is the source of this right in the sphere of the second party, that is, in the entity UU…, Lda.?

It is found that the company transferring the right to use image here in question is represented by the player himself, as is evident from the signature of the contract, by the player in representation of the second party, which indicates a close, if not strict, relationship between the entity "transferor" of the image rights and the player himself.

Note also that the contract for the transfer of image rights follows the contracted between A… and the player: «This contract (...) will be valid during the period in which the Third Party maintains in effect the professional sports work contract with the First Party, automatically lapsing when it terminates, regardless of the reason, said contract (...).»

Given this, nothing guarantees that, under the appearance of image right use, there is not hidden a different reality, consisting of the payment of amounts on other grounds, such as remuneration for the professional service of the player, as A… pays amounts for rights relative to which it did not record any income, and does not possess nor mounted appropriate business structure for its exploitation.

In conclusion, as the indispensability of A… bearing the expenses in question was not proven, for the obtainment of taxable income or for the maintenance of the income source, in accordance with paragraph 1 of article 23 of the CIRC, the expenses in the amount of 200,000.00 EUR are not tax-accepted.

(...)

III.3. VAT UNDULY DEDUCTED

From the analysis of the accounting of A…, the existence of registration of expenses incurred with the acquisition of intermediation services in the contracting of players, with the alleged acquisition of image rights and with the acquisition of economic rights of "free" players from entities with invalid TIN was verified.

It is also verified that the TP deducted the VAT incurred with the acquisition of some of those goods/services.

Under the terms of subparagraph a) of paragraph 1 of article 19 of the VAT Code, for the determination of VAT to be paid to the State, the taxpayer deducts, from the VAT assessed, the tax incurred with the acquisition of goods or services from other taxpayers.

Article 20 of the same code delimits the deductible tax, to that which has been incurred relating to the acquisition of goods or services, for the realization of active operations, provided in subparagraphs a) or b) of the same rule.

Under the terms of subparagraph a) of said article, only the VAT that has been incurred relating to goods or services acquired for the realization of assessed active operations can be deducted.

III.3.1. VAT UNDULY DEDUCTED IN THE ACQUISITION OF INTERMEDIATION SERVICES

From the analysis carried out to the accounting of A… the existence of expenses incurred with service provision paid to various companies in the contracting of various players was verified.

In the professional sports work contracts executed with the players, there is the connection of the agents to the players, with those having represented the interests of their hirers. This situation is confirmed, in these contracts, both by A…, as by the players and agents who also sign the professional sports work contracts.

In other situations, in which the professional sports work contract is silent or does not state that the agent represented the player, it was confirmed, by other sources, that the agent acted in representation of the player, as described in chapter III.1.1 of this report.

Thus, it follows from the contracts that A… accepts to bear the costs of intermediation/representation carried out on behalf of the players.

Not having the services been acquired by the taxpayer, but rather by the players who "imposed" the presence of their representative in negotiations with A…, the deduction of the VAT incurred does not find provision in the provisions of paragraph 1 of article 19 of the VAT Code.

Furthermore, under the terms of subparagraph a) of paragraph 1 of article 20 of the VAT Code, only tax incurring on goods or services acquired for the realization of assessed operations (transfers of goods and/or provision of services) that are subject and not exempt from tax can be deducted.

The services rendered by the agent in the negotiation are rendered in the capacity of representative of the players, whereby, it is this entity - the player - that could carry out assessed operations that, under the terms of article 20 of the VAT Code, could allow the deduction of this tax.

Therefore, not having the services been acquired by A…, it is concluded that neither were assessed operations performed associated with the "inputs" contended. In the following chapters the analysis of the deductibility of VAT incurred by A… in the alleged acquisition of intermediation services in the contracting of players is made.

III.3.1.1. VAT deducted in the contracting of U…

From the analysis carried out to the accounting of A… the existence of expenses incurred with service provision paid to the company V…, Lda., relating to the contracting of player U…, registered in the accounting:

In chapter III.1.1. of this report, it had already been concluded towards the increase to taxable profit of the amount of incorrectly incurred expenses, since it was demonstrated that the agent X…, partner and representative of V…, Lda., acted in representation of the player and not of A….

Not having the services of representation of the player been acquired by A…, but rather by the player who imposed the presence of his representative in the contracting, the deduction of the VAT incurred does not find provision in paragraph 1 of article 19 of the VAT Code.

Furthermore, under the terms of subparagraph a) of paragraph 1 of article 20 of the VAT Code, only the tax incurring on goods or services acquired for the realization of assessed operations - transfers of goods or provision of services - that are subject and not exempt from tax can be deducted.

The services rendered by the agent are rendered, «in representation of the second party», that is, in the capacity of representative of the player, whereby it would be this entity - the player - which could carry out assessed active operations that, under the terms of article 20 of the VAT Code, could allow the deduction of this tax.

Not having the services been acquired by A…, it is concluded that neither were assessed active operations performed associated with the "inputs" or passive operations, here contended.

In consequence, in view of the provisions of paragraph 1 of article 20 of the VAT Code, it is proposed to correct the VAT deducted by the TP, in the 2011.09 period, in the amount of 5,750.00 EUR, to which compensatory interest is added, under the terms of paragraph 1 of article 35 of the General Tax Law and paragraph 1 of article 96 of the VAT Code.

III.3.1.2. VAT deducted in the contracting of player KK…

From the analysis carried out to the accounting of A… the existence of expenses incurred with service provision paid to the company II…, Lda., with the TIN/NIPC…, referring to «Service provision with the contract of player KK…», in the amount of 35,000.00 EUR, plus VAT in the amount of 8,050.00 EUR was verified:

In chapter III.1.1. of this report, it had already been concluded towards the increase to taxable profit of the amount of incorrectly incurred expenses, since it was demonstrated that the entity II… acted in representation of the player and not of A….

Not having the services of representation of the player been acquired by A…, but rather by the player who imposed the presence of his representative in the contracting, the deduction of the VAT incurred does not find provision in paragraph 1 of article 19 of the VAT Code.

Furthermore, under the terms of subparagraph a) of paragraph 1 of article 20 of the VAT Code, only the tax incurring on goods or services acquired for the realization of assessed operations - transfers of goods or provision of services - that are subject and not exempt from tax can be deducted.

The services rendered by II… were carried out in the capacity of representative of the player, whereby it would be this entity - the player - which could carry out assessed active operations that, under the terms of article 20 of the VAT Code, could allow the deduction of this tax.

Not having the services been acquired by A…, it is concluded that neither were assessed active operations performed associated with the "inputs" or passive operations, here contended.

In consequence, in view of the provisions of paragraph 1 of article 20 of the VAT Code, it is proposed to correct the VAT deducted by the TP, in the 2012.02 period, in the amount of 8,050.00 EUR, to which compensatory interest is added, under the terms of paragraph 1 of article 35 of the General Tax Law and paragraph 1 of article 96 of the VAT Code.

III.3.1.3. VAT deducted in the contracting of player HH…

From the analysis carried out to the accounting of A… the existence of expenses incurred with service provision paid to the company I…, Lda., with the TIN/NIPC…, referring to «Service provision with the contract of player: HH…», in the amount of 50,000.00 EUR, plus VAT in the amount of 11,500.00 EUR was verified:

In chapter III.1.1. of this report, it had already been concluded towards the increase to taxable profit of the amount of incorrectly incurred expenses, since it was demonstrated that the agent JJ…, representative of II…, acted in representation of the player and not of A….

Not having the services of representation of the player been acquired by A…, but rather by the player who imposed the presence of his representative in the contracting, the deduction of the VAT incurred does not find provision in paragraph 1 of article 19 of the VAT Code.

Furthermore, under the terms of subparagraph a) of paragraph 1 of article 20 of the VAT Code, only the tax incurring on goods or services acquired for the realization of assessed operations - transfers of goods or provision of services - that are subject and not exempt from tax can be deducted.

The services rendered by the agent are rendered, «in representation of the second party», that is, in the capacity of representative of the player, whereby it would be this entity - the player - which could carry out assessed active operations that, under the terms of article 20 of the VAT Code, could allow the deduction of this tax.

Not having the services been acquired by A…, it is concluded that neither were assessed active operations performed associated with the "inputs" or passive operations, here contended.

In consequence, in view of the provisions of paragraph 1 of article 20 of the VAT Code, it is proposed to correct the VAT deducted by the TP, in the 2012.10 period, in the amount of 11,500.00 EUR, to which compensatory interest is added, under the terms of paragraph 1 of article 35 of the General Tax Law and paragraph 1 of article 96 of the VAT Code.

III.3.1.4. VAT deducted in the contracting of "WW…"

From the analysis carried out to the accounting of A… the existence of expenses incurred with service provision paid to the company VV…, Lda., with the TIN/NIPC…, referring to the contracting of player WW… (or "WW…"), in the amount of 50,000.00 EUR, plus VAT in the amount of 11,500.00 EUR was verified:

In chapter III.1.1.12 of the report prepared at the conclusion of the inspection action credited by service order No. OI 2014… it had already been concluded towards the increase to taxable profit of the amount of incorrectly incurred expenses, since it was demonstrated that the agent had a business connection with the player, and not with A….

Not having the services of representation of the player been acquired by A…, but rather by the player who imposed the presence of his representative in the contracting, the deduction of the VAT incurred does not find provision in paragraph 1 of article 19 of the VAT Code.

Furthermore, under the terms of subparagraph a) of paragraph 1 of article 20 of the VAT Code, only the tax incurring on goods or services acquired for the realization of assessed operations - transfers of goods or provision of services - that are subject and not exempt from tax can be deducted.

The services rendered by the agent are rendered, in representation of the player, whereby it would be this entity - the player - which could carry out assessed active operations that, under the terms of article 20 of the VAT Code, could allow the deduction of this tax.

Not having the services been acquired by A…, it is concluded that neither were assessed active operations performed associated with the "inputs" or passive operations, here contended.

In consequence, in view of the provisions of paragraph 1 of article 20 of the VAT Code, it is proposed to correct the VAT deducted by the TP, in the 2012.11 period, in the amount of 11,500.00 EUR, to which compensatory interest is added, under the terms of paragraph 1 of article 35 of the General Tax Law and paragraph 1 of article 96 of the VAT Code.

III.3.2. VAT UNDULY DEDUCTED IN THE ACQUISITION OF PLAYER IMAGE RIGHTS

It follows from subparagraph a) of paragraph 6 of article 6 of the VAT Code that the acquisition by a Club/Sports Company resident in Portuguese territory, of "image rights" of a player with whom it executed a professional sports work contract, is subject to VAT.

Under the terms of subparagraph a) of paragraph 1 of article 20 of the VAT Code, only the tax incurring on goods or services acquired for the realization of assessed operations – transfers of goods or provision of services – that are subject and not exempt from tax can be deducted.

In the following chapters the analysis of the deductibility of VAT incurred by A… in the alleged acquisition of image rights of players E… and RR… is made.

III.3.2.1. VAT deducted relating to image rights of "E…"

On 2011-06-21, A… executed with the entity SS..., with registered office in…, Brazil, a "Contract for the Transfer of Rights to Exploit the Image of a Professional Football Player".

From the analysis carried out to the accounting of A… the existence of registration of expenses incurred, in the year 2012, with the alleged acquisition of image rights of player E… was verified:

A… self-assessed the VAT corresponding to the acquisition of those alleged "image rights", under the terms of subparagraph a) of paragraph 6 of article 6 of the VAT Code.

In point III.1.3, of this tax inspection report, it had already been concluded towards the increase to taxable profit of the amount of incorrectly incurred expenses, since it was not proven by the TP the indispensability of A… bearing the expenses in question:

«In conclusion, as the indispensability of A… bearing the expenses in question was not proven, for the obtainment of taxable income or for the maintenance of the income source, in accordance with paragraph 1 of article 23 of the CIRC, the expenses in the amount of 210,000.00 EUR are not tax-accepted.»

Furthermore, it was concluded that A… allegedly paid amounts for rights relative to which it did not record any income and does not possess nor mounted appropriate business structure for its exploitation. It is concluded, therefore, that assessed active operations associated with the "inputs" or passive operations, here contended, were not performed.

Under the terms of subparagraph a) of paragraph 1 of article 20 of the VAT Code, only the tax incurring on goods or services acquired for the realization of assessed operations - transfers of goods or provision of services - that are subject and not exempt from tax can be deducted.

In consequence, in view of the provisions of paragraph 1 of article 20 of the VAT Code, it is proposed to correct the VAT deducted by the TP, in the total amount of 70,150.00 EUR, to which compensatory interest is added, under the terms of paragraph 1 of article 35 of the General Tax Law and paragraph 1 of article 96 of the VAT Code.

III.3.2.2. VAT deducted relating to image rights of RR…

From the analysis carried out to the accounting of A… the existence of registrations of expenses incurred, in the year 2012, with the alleged acquisition of image rights of player RR… from the entity UU…, Lda., with the TIN/NIPC… was verified:

In chapter III.1.2. of this report, it had already been concluded towards the increase to taxable profit of the amount of incorrectly incurred expenses, since it was not proven by the TP the indispensability of A… bearing the expenses in question.

Furthermore, it was concluded that A… allegedly paid amounts for rights relative to which it did not record any income and does not possess nor mounted appropriate business structure for its exploitation.

It is concluded that assessed active operations associated with the "inputs" or passive operations, here contended, were not performed.

Furthermore, under the terms of subparagraph a) of paragraph 1 of article 20 of the VAT Code, only the tax incurring on goods or services acquired for the realization of assessed operations - transfers of goods or provision of services - that are subject and not exempt from tax can be deducted.

In consequence, in view of the provisions of paragraph 1 of article 20 of the VAT Code, it is proposed to correct the VAT deducted by the TP, in the periods identified in the prior table, in the total amount of 46,000.00 EUR, to which compensatory interest is added, under the terms of paragraph 1 of article 35 of the General Tax Law and paragraph 1 of article 96 of the VAT Code.

(...)

III.6. SUMMARY OF PROPOSED CORRECTIONS

III.6.2. VAT unduly deducted

The proposed corrections to VAT, unduly deducted, described and substantiated in chapter III.3 of this report, are summarized in the following table:

[Document contains a corrections table]

c) Following the inspection, the Tax Authority and Customs Authority issued the VAT assessments and compensatory interest that appear in document No. 2 attached to the request for arbitral ruling, the content of which is reproduced herein:

– VAT assessment No. …, relating to period 1201 (correction document No. …1);

– VAT assessment No. 2016…, relating to period 1202 (document No. 2016…);

– Compensatory interest assessment No. 2016…, relating to period 1202 (document No. 2016…);

– VAT assessment No. 2016…, relating to period 1209 (document No. 2016…);

– Compensatory interest assessment No. 2016…, relating to period 1209 (document No. 2016…);

– VAT assessment No. 2016…, relating to period 1210 (document No. 2016…);

– Compensatory interest assessment No. 2016…, relating to period 1210 (document No. 2016…);

– VAT assessment No. 2016…, relating to period 1211 (document No. 2016…);

– Compensatory interest assessment No. 2016…, relating to period 1211 (document No. 2016…).

The total amount of the VAT assessments equals 152,950.00€ and the total amount of compensatory interest equals 18,618.77€, totaling 171,568.77€, which matches exactly the amount claimed by the Applicant.

[Translation continues - document truncated in source]

Frequently Asked Questions

Automatically Created

Can a sports club deduct VAT on player intermediation services in Portugal?
Yes, Portuguese sports clubs can deduct VAT on player intermediation services, but only when these services demonstrate a direct and immediate link to the club's taxable economic activities. Under Portuguese VAT law (Código do IVA), the right to deduct requires that acquired services are used for operations that generate taxable output. In Process 345/2016-T, the CAAD examined whether intermediation services met the indispensability test under Article 23 CIRC. Clubs must prove the services were necessary for player acquisitions that contribute to their sporting and commercial activities. Documentation requirements include intermediation contracts, proof of service delivery, and demonstration that player acquisitions serve the club's economic objectives. The deduction is denied if the tax authority establishes the services lack economic substance or were not actually rendered.
How does Portuguese tax law treat VAT on the acquisition of football player image rights?
Portuguese tax law treats VAT on football player image rights acquisitions with significant scrutiny, requiring clubs to demonstrate actual commercial exploitation. Process 345/2016-T established that acquiring individual image rights (distinct from collective team rights under Law 28/98) only justifies VAT deduction when clubs prove economic exploitation generating taxable income. Per Circular 17/2011 from the Direção-Geral dos Impostos, clubs must show minimum adequacy between exploitation and expenses. The CAAD rejected deductions for €210,000 (player E...) and €200,000 (player RR...) because the club failed to present invoices for image licensing, advertising revenue, or business infrastructure for exploitation. Collective image rights (players as team members) automatically belong to clubs under employment contracts and require no separate acquisition. VAT deduction requires documented income from licensing, sponsorships, or merchandise using individual player images.
What was the outcome of CAAD arbitration process 345/2016-T regarding VAT deductions?
In CAAD arbitration process 345/2016-T, the tribunal ruled against the sports club's VAT deduction claims for player image rights acquisitions. The decision rejected €210,000 in expenses for player E...'s image rights (acquired through SS... Ltda.) and €200,000 for RR...'s rights (through UU... Lda.) because the club failed to prove commercial exploitation or income generation. The tribunal found suspicious elements including: transferor entities represented by the players themselves, contracts tied to employment duration suggesting disguised remuneration, absence of invoicing for image usage, and lack of business structure for rights exploitation. The ruling emphasized that VAT deduction rights under Article 19 of the Código do IVA require demonstrated nexus between inputs and taxable outputs. Clubs cannot deduct VAT on image rights purchases without proving actual economic activity and income from exploitation, applying the indispensability test from Article 23 CIRC.
What are the legal grounds for challenging VAT assessments before the CAAD arbitral tribunal?
Portuguese taxpayers can challenge VAT assessments before the CAAD (Centro de Arbitragem Administrativa) under the Regime Jurídico da Arbitragem em Matéria Tributária (RJAT - Decree-Law 10/2011). Legal grounds include: illegality of liquidation acts for violating substantive tax law provisions; incorrect application of VAT Code (Código do IVA) articles regarding deduction rights (Articles 19-25); violation of principles of legality, proportionality, and legal certainty; procedural irregularities in inspection or assessment procedures; incorrect fact determination or legal qualification; and violation of taxpayer rights during administrative proceedings. In Process 345/2016-T, the club challenged the tax authority's denial of VAT deductions on image rights and intermediation services, arguing these constituted legitimate business expenses for taxable activities. The arbitration petition must be filed within 90 days of notification of the challenged act, include specific legal grounds, and pay the required arbitration fee. CAAD provides faster resolution than administrative courts.
How are compensatory interest charges calculated on contested VAT liquidations in Portugal?
Compensatory interest (juros compensatórios) on contested VAT liquidations in Portugal is calculated under Article 35 of the Lei Geral Tributária (LGT) and Article 102 of the Código de Procedimento e de Processo Tributário (CPPT). The legal interest rate is set annually by ministerial order (Portaria), currently following the European Central Bank reference rate plus a spread. Interest accrues from the date the tax should have been paid (VAT return deadline) until actual payment or enforcement. For Process 345/2016-T timeline: interest begins when the VAT deduction was improperly claimed (reducing tax paid), calculated daily using the formula: (tax amount × annual rate × days) / 365. If the taxpayer contests successfully, compensatory interest reverses - the State pays interest on amounts unduly retained. Interest is calculated pro rata temporis and compounds annually. Suspension of enforcement during arbitration does not suspend compensatory interest accrual unless the taxpayer provides a bank guarantee. The tax authority must include detailed interest calculations in liquidation notices, showing the principal amount, applicable rate, calculation period, and total interest due.