VAT Self-Assessment Regularization: Arbitral Tribunal Competence and Timeliness of Gracious Complaint (CAAD 348/2014-T)

ARBITRAL DECISION

Case No. 348/2014-T

Subject: VAT – Material jurisdiction of the arbitral tribunal; adjustment in favor of the taxable person of VAT deducted in self-assessment acts; administrative appeal; timeliness.

I. REPORT

1. On 22 April 2014, the commercial company "A..., Apartamentos Turísticos, S.A." (Tourist Apartments, S.A.), Tax ID Number..., with registered office in ..., Almancil (hereinafter, the Claimant), filed a request for the constitution of an arbitral tribunal, under the joint provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Framework of Arbitration in Tax Matters, with the wording introduced by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, briefly referred to as RJAT), seeking the declaration of illegality and partial annulment of the VAT self-assessment act for the month of March 2012, in the amount of €11,907.44, and also the declaration of illegality and annulment of the act dismissing the administrative appeal that it had filed with respect to that VAT self-assessment act, with the Defendant being the AT – Tax and Customs Authority (hereinafter, Defendant or AT). The Claimant attached 6 (six) documents, listed 2 (two) witnesses and requested that an inspection be carried out at the tourist establishment identified in the proceedings.

In essence and in brief summary, the Claimant alleged the following:

The Claimant is the owner of a four-star tourist accommodation establishment located in Quinta B..., denominated "Quinta B...", which incorporates all the typical elements that characterize any establishment intended for tourist accommodation, and the services provided therein are not distinguished from the services provided in an ordinary hotel.

That establishment has 36 accommodation units fully equipped and ready to use, support and leisure infrastructure (reception, bar, outdoor and indoor swimming pools, sauna, gymnasium, games room and common rest areas), providing daily cleaning services, replacement of towels, bed linen and personal hygiene consumables, personalized service, meals and other complementary services.

That same establishment is sought exclusively for non-residential purposes and its use by all its clients is restricted to short periods of time intended for rest and leisure.

The Claimant, in that establishment, provides all the aforementioned services to the general public, although offering more advantageous conditions to those designated as members of the Quinta B... Club.

Membership of the Club depends on an annual payment, which dispensed with the payment of any other consideration for accommodation, granting the right of use for temporary accommodation of a certain accommodation unit, during a certain annual period, at preferential prices. If a Club member fails to make the aforementioned annual payment, they will permanently lose their membership status and will be treated as any other client, being able to occupy an available accommodation unit only upon payment of the price charged to the general public.

The services provided in that tourist establishment are identical for all clients, whether or not members of the Club, which fall under the concept of accommodation in a hotel-type establishment, which is taxable at the reduced VAT rate.

The Claimant charged VAT at the reduced rate on hotel accommodation services provided to clients who are not Club members. However, it charged VAT at the normal rate on the value of the annual payment invoiced to Club member clients for accommodation in the same units.

Given the identity of services provided to all its clients, the Claimant understood that it should subject them to VAT uniformly, and therefore, on 11 September 2013, filed an administrative appeal against the VAT self-assessment act of March 2012, under the terms of Article 131 of the TCPT, for the difference between the VAT that it self-assessed at the normal rate on tourist accommodation services that it provided in March 2012 – the calculation of which was based on invoices issued in that period, which document accommodation services that enjoy the reduced VAT rate (item 2.17 of List I attached to the VAT Code) – and that which on the same services would be due at the reduced rate. That difference thus forms part of the tax relating to the period of March 2012, self-assessed in the respective periodic VAT declaration.

The aforementioned administrative appeal was dismissed by dispatch of 28 October 2013, issued by the substitute Director of Finances of Faro, on the grounds that its request was untimely and on the circumstance that the VAT claimed had not been borne by the Claimant, nor had it given rise to any adjustment in its favor under the terms of Article 78 of the VAT Code.

The price established by the Claimant with its clients who are Club members is, from the outset, a final price, with VAT included, and therefore any tax calculated is contained and incorporated in that price and is at the expense and risk of the Claimant.

Thus, if the Claimant charges tax higher than due, its margin will be reduced; if it charges tax lower than due, it will have to bear the additional portion without being able to demand it from its clients.

In other words, the price established by the Claimant with Club member clients does not fluctuate nor is it at the mercy of the VAT rate that, at any given time, is applied. For any tax calculated, whether or not legally due, is contained and incorporated in that price and is at the expense of the Claimant.

Club member clients have no right, therefore, to any reimbursement, since they did not pay the Claimant any sum in addition to the value of the annual charge to which they committed.

Subsequently, the Claimant filed a hierarchical appeal of the act dismissing the administrative appeal, which was not decided within the period laid down in Article 66, No. 5, of the TCPT, and is therefore presumed to have been tacitly dismissed.

The Claimant thus understands that the self-assessment act challenged is illegal, as is the act dismissing the administrative appeal filed in relation to it which confirmed it, in violation of the provision in item 2.17 of List I attached to the VAT Code in conjunction with paragraph (a) of No. 2 of Article 18 of the same instrument and with the EU principles of fiscal neutrality, objectivity and uniform VAT taxation rate.

The Claimant further alleges that the object of the administrative appeal consisted of the part of a levy of a tax committed by law to the taxable person itself, that is, in a self-assessment act, and that neither its basis was exclusively a matter of law nor the self-assessment appealed was effected in accordance with any generic guidance issued by the AT. Thus, it does not see any valid reasons why the request made in the administrative appeal should have been considered untimely when the legal period for its presentation is two years, as follows from Article 131 of the TCPT.

1. The request for the constitution of an arbitral tribunal was accepted and automatically notified to the AT on 24 April 2014.

2. The Claimant did not proceed with the appointment of an arbitrator, and therefore, under the provisions of paragraph (a) of No. 2 of Article 6 and paragraph (b) of No. 1 of Article 11 of the RJAT, the President of the Deontological Council of CAAD appointed the undersigned as arbitrator of the singular arbitral tribunal, who communicated acceptance of the office within the applicable period.

3. On 11 June 2014, the parties were duly notified of that appointment, and did not express their will to refuse the appointment of the arbitrator, under the joint terms of Article 11, No. 1, paragraphs (a) and (b) of the RJAT and Articles 6 and 7 of the CAAD Deontological Code.

4. Thus, in accordance with the provision in paragraph (c) of No. 1 of Article 11 of the RJAT, the singular Arbitral Tribunal was constituted on 27 June 2014.

5. On 17 September 2014, the Defendant, duly notified for this purpose, filed its Response in which, in addition to having raised the exception of material incompetence of the Arbitral Tribunal, with its consequent dismissal from the proceedings, and the exception of untimeliness of the administrative appeal previously filed, with its consequent dismissal of the claim, it specifically challenged the arguments adduced by the Claimant and concluded for the lack of merit of the present action, with its consequent dismissal of the claim. The Defendant did not attach any document, nor did it list witnesses. On the same occasion, the Defendant attached to the proceedings the respective administrative file (hereinafter, briefly referred to as AF).

In essence and also briefly, it is important to extract the most relevant arguments on which the Defendant based its defense:

The Defendant begins by invoking the exception of material incompetence of the Arbitral Tribunal on the grounds that, in its view, the Claimant formulates an express request for declaration of illegality of the VAT self-assessment of March 2012, but it is evident, given what it alleged in the request for arbitral pronouncement, that what it in fact seeks is the refund of the amount of tax that allegedly was charged incorrectly.

Thus, the (immediate) claim formulated by the Claimant aims at the condemnation of the AT to recognize the right to restitution of the VAT that allegedly it charged and paid in excess.

Now, according to the Defendant, the legislator did not contemplate, in particular in the RJAT, the possibility of reviewing requests aimed at the recognition of rights in tax matters.

Consequently, the Defendant advocates that the claim formulated aiming at the refund of the amount of €11,907.44 that the Claimant says it charged incorrectly constitutes the existence of a dilatory exception that determines the material incompetence of the arbitral tribunal, preventing the knowledge of the claim and which, therefore, should determine the dismissal of the Defendant from the proceedings.

On the other hand, the Defendant alleges that the request for arbitral pronouncement arises from the tacit dismissal of the hierarchical appeal filed by the Claimant following the decision to expressly dismiss the administrative appeal that it had filed against the VAT self-assessment relating to the tax period of March 2012, in the amount of €11,907.44.

Thus, both the decision to expressly dismiss the administrative appeal and the tacit dismissal of the hierarchical appeal constitute the immediate object of this action, with its remote object being the defects attributed to the VAT self-assessment relating to the period of March 2012.

It happens, however, that in a situation where we are faced with the alteration of the applicable VAT rate from 23% to 6%, regardless of whether the amount paid by the recipient is the same, the correction of the inaccuracy of the invoices issued as to the applicable VAT rate and, therefore, as to the taxable value of the provision of services, is effected through the issuance of credit notes and new invoices (with the fields of taxable value and tax due correct according to the new applicable rate), under the terms of Articles 29, Nos. 1 and 7, 44, 45 and 78 of the VAT Code, which should be reported in field 40 of the periodic declaration relating to the period to which the adjustment relates and never through the replacement or annulment of the periodic declaration relating to the period corresponding to the invoices that were annulled. That is, the self-assessment relating to the period corresponding to the invoices whose rate was later concluded to be incorrect does not suffer from any error, based on the accounting of those invoices at the 23% rate, and the procedure previously described should therefore be promoted by the taxable person.

Along those lines, the Defendant continues by stating that, regardless of the period for the exercise of the right provided for in Article 131 of the TCPT and the adjustment provided for in Article 78, No. 3, of the VAT Code being similar, the period for the correction of inaccurate invoices has its own special procedure, provided for in the aforementioned rules of the VAT Code. The Claimant should, therefore, instead of having filed an administrative appeal of the self-assessment, have promoted the corresponding adjustment.

Therefore, the matter claimed and now challenged does not fall within the scope of an error in self-assessment due to the non-existence of that same error, and is therefore the appeal filed untimely, and the Defendant should consequently be dismissed from the claim.

In challenge, the Defendant states that it is not irrelevant that the amount paid by the client, although it is the same, is formed by the application of VAT rates of 6% or 23%, as this has implications not only as regards VAT to be delivered to the State but also at the level of revenues.

Furthermore, to refund to the Claimant the amount of tax that it charged and received from its clients (final consumers), would result in an unjust enrichment, which the national law and EU law does not permit, as the Claimant does not prove that it did not pass on the amount of tax, resulting from the increase in the rate, to Club member clients. Thus, the Claimant seeks the refund of an amount of tax that it does not prove it actually bore and, consequently, is not owed to it.

Indeed, the fact that the Claimant admits that its margin was reduced is confirmation that it was the clients who bore the value of the 23% tax included in the price charged for the provision of services provided. Moreover, if the Claimant decreased its revenues, it certainly also paid less income tax, and therefore cannot now want to benefit from an extraordinary gain by refund of tax that it did not actually bear. Effectively, the Claimant does not demonstrate having promoted any appeal of the income tax self-assessment of the 2012 period, given its understanding that it had, in the respective month of March, an increase in its revenues.

1. On 19 September 2014, a dispatch was issued determining the notification of the Claimant to, if it so wished, within 10 (ten) days appear in the proceedings to pronounce itself on the matter of exception alleged by the Defendant.

The Claimant, duly notified, came to pronounce itself on the lack of merit of both exceptions invoked by the Defendant.

1. On 6 October 2014, the Claimant, duly notified for this purpose, came to indicate the proof topics – by reference to the specific points of fact alleged by it that it considered not proven documentarily – relating to which it intended the examination of the witnesses listed and their respective grounds of knowledge, in order for the Tribunal to decide on the admissibility or not of the production of witness testimony.

In that same request, the Claimant declared to waive the requested inspection of the tourist establishment identified in the proceedings.

1. On 28 October 2014, the meeting provided for in Article 18 of the RJAT took place, in which it was decided to allow the production of witness testimony, as it appeared useful for the discovery of truth and, therefore, for the proper decision of the case.

On the same date, the examination of the 2 (two) witnesses listed by the Claimant was carried out.

After the examination of those witnesses was completed, the respective oral submissions were produced successively by the Claimant and Defendant, maintaining, in essence, the positions previously stated, strengthened, in their perspective, by the witness testimony produced.

II. SCREENING

The Arbitral Tribunal was duly constituted.

The proceedings do not suffer from procedural defects.

The parties enjoy standing and capacity, are duly represented and are legitimate.

II.1. On the exception of material incompetence of the Arbitral Tribunal

The Defendant, in its response, raises the question of material incompetence of the Arbitral Tribunal on the grounds that it understands that the "immediate claim formulated by the Claimant is directed at the condemnation of the Tax Administration to recognize the right to restitution of VAT that allegedly it charged and paid in excess". Now, the Defendant continues, given the provision in Article 2 of the RJAT, the list of competencies of arbitral tribunals does not contemplate the possibility of reviewing requests aimed at the recognition of rights in tax matters.

Consequently, the Defendant advocates that "the claim formulated in these proceedings aimed at the refund of the amount of €11,907.44 that the Claimant says it charged incorrectly constitutes the existence of a dilatory exception that determines the material incompetence of the arbitral tribunal, preventing the knowledge of the claim and, therefore, should determine the dismissal of the Defendant from the proceedings".

The scope of material jurisdiction of tribunals is a matter of public policy and its knowledge precedes that of any other matter, and it is therefore necessary, before anything else, to proceed with its appreciation (cf. Articles 16 of the TCPT, 13 of the CPTA and 96 and 98 of the CPC, subsidiarily applicable by reference, respectively, from paragraphs (a), (c) and (e) of No. 1 of Article 29 of the RJAT).

It is therefore important to first consider the claim formulated by the Claimant:

"In these terms and in other respects of Law that will be duly supplied by Your Excellency, this arbitral action should be judged entirely proven and meritorious, and by virtue thereof, with the inherent legal consequences, declare illegal and partially annul the VAT self-assessment act of March 2012 in the amount of €11,907.44 and also the act dismissing the necessary appeal filed in timely manner in relation thereto, if necessary after a request to the Court of Justice of the European Union to decide as a matter of preliminary ruling on its compatibility with Directive 2006/112/EC, of 28 November, and with the rules of Union law relating to the recovery of overpayments, under the terms of Article 267 of the TFEU."

It appears to us that it follows with crystalline clarity from the literal wording of the claim that what the Claimant in fact seeks is the declaration of illegality and partial annulment of the VAT self-assessment act of March 2012, by way of the declaration of illegality and annulment of the act that dismissed the timely and previously filed administrative appeal.

To that extent, the claim formulated by the Claimant is comprised within the scope of the competencies of the arbitral tribunals constituted under the CAAD, as it is included the appreciation of claims for "declaration of illegality of acts of charging of taxes, self-assessments, retention at source and payment on account", as follows from the provision in paragraph (a) of No. 1 of Article 2 of the RJAT.

As it is well stated in the decision issued in case No. 117/2013-T of CAAD: "...the formula 'declaration of illegality of acts of charging of taxes, self-assessments, retention at source and payment on account', used in paragraph (a) of No. 1 of Article 2 of the RJAT does not restrict, in a mere declaratory interpretation, the scope of arbitral jurisdiction to cases in which an act of one of those types is directly challenged. In fact, the illegality of charging acts can be declared in judicial terms as a corollary of the illegality of a second-level act, which confirms a charging act, incorporating its illegality.

The inclusion in the competencies of arbitral tribunals that function in CAAD of cases in which the declaration of illegality of the acts mentioned there is effected through the declaration of illegality of second-level acts, which are the immediate object of the challenging claim, results with certainty from the reference made in that rule to self-assessment acts, retention at source and payment on account, which expressly are referred to as included among the competencies of arbitral tribunals. Indeed, regarding these acts it is imposed, as a rule, the necessary administrative appeal, in Articles 131 to 133 of the TCPT, whereby, in these cases, the immediate object of the challenging procedure is, as a rule, the second-level act that reviews the legality of the charging act, an act which, if it confirms it, must be annulled to obtain the declaration of illegality of the charging act. The reference made in paragraph (a) of No. 1 of Article 10 of the RJAT to No. 2 of Article 102 of the TCPT, in which the challenging of acts dismissing administrative appeals is provided for, dispels any doubts that the competencies of arbitral tribunals that function in CAAD include cases in which the declaration of illegality of the acts referred to in paragraph (a) of that Article 2 of the RJAT must be obtained following the declaration of the illegality of second-level acts."

The claim to receive the amount of tax that was charged illegally is, therefore, a consequence of the possible declaration of illegality, within the scope of the duty to "restore the situation that would exist if the tax act that is the subject of the arbitral decision had not been taken", as stated in paragraph (b) of No. 1 of Article 24 of the RJAT, whereby such claim does not contend with the jurisdiction of the tax tribunals that function in CAAD, all the more so as it presupposes the prior declaration of illegality of the self-assessment act.

In these terms, the exception of material incompetence of the Arbitral Tribunal to appreciate and decide the present case is judged to lack merit.

II.2. On the exception of untimeliness of the administrative appeal, due to the non-existence of error in VAT self-assessment

The Defendant further invokes the exception of untimeliness of the administrative appeal, due to non-existence of error in VAT self-assessment, for whose knowledge and decision it is, however, necessary to first establish the matter of fact proven and not proven, which is now done, after which it will be decided.

III. STATEMENT OF REASONS

III.1. FACTS FOUND

Regarding the matter of fact, it is important, first of all, to emphasize that the Tribunal does not have to pronounce itself on everything that was alleged by the parties, with it rather having the duty to select the facts that matter for the decision and distinguish the proven matter from the not proven (cf. Article 123, No. 2, of the TCPT and Article 607, Nos. 3 and 4, of the CPC, applicable ex vi Article 29, No. 1, paragraphs (a) and (e), of the RJAT). In this way, the facts relevant to the judgment of the case are chosen and delineated based on their legal relevance, which is established in light of the various plausible solutions of the question(s) of law.

Within this framework, taking into account, in particular, the positions assumed by the parties, the documentary evidence produced, the AF attached to the proceedings and the testimony given by the witnesses examined, the following facts are considered proven as relevant to the decision:

1. The Claimant is a person subject to income tax, with registered office in the national territory and within the normal VAT regime with monthly periodicity – cf. AF attached to the proceedings (files AF1 to AF5).

2. The Claimant is taxed on the activity of "Tourist Apartments with Restaurant – CAE 55118", having started such activity on 29/12/2004 – cf. AF attached to the proceedings (files AF1 to AF5).

3. The Claimant is the owner of a tourist establishment called "Tourist Apartments...", commercially designated as "Quinta B....", located on Rua..., s/, Quinta B..., district of ... – cf. Article 5 of the initial petition, document No. 1 attached hereto and AF attached to the proceedings (files AF1 to AF5).

4. The said tourist establishment includes all the typical elements that characterize most establishments intended for tourist accommodation, with services being provided therein that are provided in hotels – cf. Article 6 of the initial petition, document No. 1 attached hereto, AF attached to the proceedings (files AF1 to AF5) and testimony of witness D....

5. The said establishment has 36 accommodation units fully equipped and ready to occupy and use that enjoy daily cleaning services, replacement of towels, bed linen and personal hygiene consumables – cf. Article 7 of the initial petition, document No. 1 attached hereto, AF attached to the proceedings (files AF1 to AF5) and testimony of witness D....

6. The same establishment has support and leisure infrastructure, namely reception, bar, outdoor and indoor swimming pools, sauna, gymnasium, games room and common rest areas – cf. Article 8 of the initial petition, document No. 1 attached hereto, AF attached to the proceedings (files AF1 to AF5) and testimony of witness D....

7. In that establishment, personalized service, meals and specific complementary services are provided to its respective clients – cf. Article 9 of the initial petition, document No. 1 attached hereto, AF attached to the proceedings (files AF1 to AF5) and testimony of witness D....

8. The aforementioned establishment is sought exclusively for non-residential purposes and its use by all its clients is limited to short periods of time intended for rest and leisure – cf. Article 10 of the initial petition, document No. 1 attached hereto, AF attached to the proceedings (files AF1 to AF5) and testimony of witness D....

9. The Claimant provides all its services to the general public, but offers more advantageous conditions to those designated as members of Quinta B... (briefly designated as Club) – cf. Article 11 of the initial petition, document No. 1 attached hereto, AF attached to the proceedings (files AF1 to AF5) and testimony of the witnesses.

10. Club membership confers on clients the right of use for temporary accommodation of a certain accommodation unit during a certain week of each year, at preferential prices – cf. Article 13 of the initial petition, document No. 1 attached hereto, AF attached to the proceedings (files AF1 to AF5) and testimony of the witnesses.

11. Club membership depends on an annual payment that dispensed with the payment of any other consideration for accommodation, but which is usually less than the price of identical accommodation charged to other clients – cf. Article 14 of the initial petition, document No. 1 attached hereto, AF attached to the proceedings (files AF1 to AF5) and testimony of the witnesses.

12. If any annual payment is missed, the client will permanently lose their Club membership and will be treated as any other client, being able to occupy an accommodation unit only available upon payment of the price owed by any non-Club member client – cf. Article 15 of the initial petition, document No. 1 attached hereto, AF attached to the proceedings (files AF1 to AF5) and testimony of witness D....

13. The service that the Claimant provides to all its clients, Club members and non-members, is identical – cf. Article 16 of the initial petition, document No. 1 attached hereto, AF attached to the proceedings (files AF1 to AF5) and testimony of the witnesses.

14. The service that the Claimant provides to all its clients, Club members and non-members, consists of accommodation in a hotel-type establishment – cf. Article 17 of the initial petition, document No. 1 attached hereto, AF attached to the proceedings (files AF1 to AF5) and testimony of the witnesses.

15. The Claimant charged VAT at the reduced rate on hotel accommodation services provided to clients who are not Club members, whereas on the value of the annual payment invoiced to Club member clients for accommodation in the same units, the Claimant was charging VAT at the normal rate – cf. Articles 19 and 20 of the initial petition, document No. 1 attached hereto, AF attached to the proceedings (files AF1 to AF5) and testimony of witness D....

16. In the month of March 2012, the Claimant charged VAT to its Club member clients at the rate of 23% – cf. Article 1 of the initial petition, documents Nos. 1, 2 and 4 attached hereto, AF attached to the proceedings (files AF1 to AF5) and testimony of witness D....

17. Given the identity of the services it provides to all its clients, the Claimant understood that it should treat them uniformly for the purposes of their subjection to VAT – cf. Article 21 of the initial petition, document No. 1 attached hereto, AF attached to the proceedings (files AF1 to AF5) and testimony of witness D....

18. For that reason – specifically, alleging, in summary, that there had been an error in the application of the VAT rate in relation to the services provided to its clients, as the rate to be applied to the operations in question would be the reduced rate (6%) and not the normal rate (23%), as was mistakenly applied – it filed an administrative appeal against the VAT self-assessment act of March 2012, dated 10 May 2012, to which corresponds the periodic VAT declaration No...., in which it calculated €15,754.27 to be delivered to the State – cf. Article 22 of the initial petition, document No. 2 attached hereto and AF attached to the proceedings (files AF1 to AF5).

19. The said administrative appeal was submitted to the Finance Department of Loulé - 1, on 11 September 2013 – cf. AF attached to the proceedings (files AF1 to AF5).

20. The aforementioned administrative appeal was dismissed by dispatch of the substitute Director of Finances of Faro, dated 28 October 2013, the content of which is deemed entirely reproduced, which states, among other things, the following [cf. Article 23 of the initial petition, document No. 2 attached hereto and AF attached to the proceedings (files AF1 to AF5)]:

"OPINION:

In accordance with the provision in Articles 70 and 102 of the Tax Code of Procedural Taxation (TCPT), the claimant had 120 days from the end of the period for voluntary payment (10-05-2012) to file an administrative appeal, a period that ended on 7-09-2012. Given that the appeal was only presented on 10-09-2013 (registration date with the postal service), I consider the request to be untimely.

On the other hand, even if it were not, having in mind that the VAT delivered to the State, the one claimed here, was charged to clients and not borne by the firm and that on the other hand I am not aware of any adjustment in favor of the taxable person (by correction of the tax for less), nor that the requirements demanded by Article 78, in particular in its No. 5, of the CIVA have been met, I am of the opinion that the claimant's request cannot be accepted."

1. That dismissal was notified to the Claimant by official letter No... of the Tax Justice Division of the Finance Directorate of Faro, of 28.10.2013, sent by registered mail, as per postal service record No. RM ...PT – cf. document No. 2 attached to the initial petition and AF attached to the proceedings (files AF1 to AF5).

2. The Claimant filed a hierarchical appeal of that dismissal, on 29 November 2013, on which no express decision was issued – cf. document No. 1 attached to the initial petition and AF attached to the proceedings (files AF1 to AF5).

3. The annual price established by the Claimant with its Club member clients for the hotel accommodation service it provides them is, from the outset, a final price, with VAT included – cf. Article 35 of the initial petition, document No. 1 attached hereto, AF attached to the proceedings (files AF1 to AF5) and testimony of the witnesses.

4. Any tax calculated, whether it shows itself to be legally due or not, is contained and incorporated in that price and is at the expense and risk of the Claimant – cf. Article 36 of the initial petition, document No. 1 attached hereto, AF attached to the proceedings (files AF1 to AF5) and testimony of witness D....

5. If it charges tax higher than due, the Claimant will see its margin reduced; if it charges tax lower than due, the Claimant will have to bear the additional portion without being able to demand it from its clients – cf. Article 37 of the initial petition, document No. 1 attached hereto, AF attached to the proceedings (files AF1 to AF5) and testimony of witness D....

6. The Claimant assumed, through the reduction of its margin, the VAT charged in March 2012 resulting from the difference between the normal rate included in the value invoiced to Club member clients for the hotel accommodation service provided to them and the reduced rate, which amounts to €11,907.44, in accordance with the following table [cf. Article 153 of the initial petition, documents Nos. 1, 2 and 3 attached hereto, AF attached to the proceedings (files AF1 to AF5) and testimony of witness D...]:

[Detailed invoice table with calculations follows - omitted for brevity as it contains extensive numerical data]

1. On 22 April 2014, the Claimant filed the request for constitution of an arbitral tribunal that gave rise to the present case – cf. CAAD case management computer system.

III.1.2. FACTS NOT PROVEN

As relevant to the appreciation and decision of the case, there are no facts that were not proven.

III.1.3. REASONING ON MATTERS OF FACT

Regarding the proven matter of fact, the Tribunal's conviction was based on the administrative file, on the statements made in the pleadings, on the points indicated, in which the correspondence thereof to reality was not put in question, on the documents attached to the proceedings, referenced in relation to each of the points, whose correspondence to reality was not questioned, and also on the witness testimony produced.

Regarding the testimony given by the witnesses examined – who testified in an objective and unbiased manner, so their testimony deserves our complete credibility – it is important to here make a very brief summary thereof, referring to their essential aspects:

(i) D…

Has been, for 6 years, director of the hotel tourist establishment called "Quinta B....", owned by the Claimant.

He described the infrastructure of that tourist establishment and the services provided therein to its respective clients, which are similar to those of any hotel.

With regard to clients who are members of Quinta B...., briefly designated as Club, he described the conditions applied to them, both as regards prices, as well as stays in that tourist establishment – they make an annual payment, usually by 31 January of each year, of a fixed amount (which may be reviewed annually, although it has not been, nor will it be for the next year), in order to use a certain accommodation unit, for a certain period (normally, a week), at a given time of the year –, having said that these clients benefit from more advantageous conditions than the general public, but enjoy services identical to those provided to other clients.

He further stated that prices are always presented/advertised to clients with VAT included, that is, they are final prices, and apply the 6% tax rate to all its clients.

However, in the period to which the facts in question relate, he confirms that the 23% rate was applied to Club member clients. When they changed the tax rate applied to these clients to 6%, the prices of the annuities that these clients have to pay did not undergo any change.

He further noted that if it is understood that the VAT rate applicable to Club clients is 23%, it will be the Claimant that has to bear the difference for more between that rate and the 6% rate that is being applied, as it cannot demand any additional payment from its clients.

(ii) E…

Has been a client for 23 years of the hotel tourist establishment called "Quinta B....", owned by the Claimant, being a member of Quinta B...., briefly designated as Club.

He usually stays there in May (2 weeks), July (4 weeks) and October (2 weeks), doing so both as a Club member and as a regular client, and never felt any different treatment from that fact.

He stated that the value of the annuities he has to pay in advance – which has not fluctuated in recent years – is always a fixed/final price – that is, it is not a given value, plus VAT –, and has always been so.

He further said that the Claimant has never demanded from him payment of and/or charged any additional amount beyond that annuity, relating to accommodation.

He affirmed that most of the Club member clients are aware of the existence of this VAT process related to overpaid tax, but, according to what he said, he is not aware that any of these clients intend to demand any reimbursement from the Claimant. He himself does not intend to demand any reimbursement, as he understands there is no reason for the Claimant to do so.

III.2. ON THE LAW

The questions to be appreciated and decided are the following:

(A) Matter of Exception

The exception of untimeliness of the administrative appeal, due to non-existence of error in VAT self-assessment.

(B) Question Subject of the Case

The question to be decided in this case is whether, although the Claimant wrongfully charged Club member clients VAT at the normal rate and no correction has been made, it has the right to challenge the self-assessment act of March 2012 on the grounds of the illegality of that self-assessment and, in consequence, recover the VAT charged and paid in excess.

III.2.1. ON THE MATTER OF EXCEPTION

§ Only. On the exception of untimeliness of the administrative appeal, due to non-existence of error in VAT self-assessment

The Defendant alleges that we are not faced with a case of error in self-assessment (of VAT relating to the month of March 2012), but rather with a situation of invoices (issued in March 2012) that are inaccurate (as to the applicable VAT rate).

In that sequence, the Defendant then proposes that the correction of that inaccuracy is made via the issuance of credit notes and new invoices (with the fields of taxable value and tax due correct according to the new applicable rate), which should be reported in field 40 of the periodic declaration relating to the period in which the adjustment was made, under the terms of Articles 29, Nos. 1 and 7, 36, 44, 45 and 78, all of the VAT Code; thus, says the Defendant, that adjustment is never made through the replacement or annulment of the periodic declaration relating to the period corresponding to the invoices that were annulled.

Now, since the error in self-assessment is an essential presupposition for the filing of the administrative appeal provided for in Article 131 of the TCPT, once this does not exist, the Claimant could not have resorted to that means of challenge.

In that measure, the Defendant contends, the administrative appeal in question, which had for its legal basis Article 131 of the TCPT, was presented untimely; indeed, the untimeliness of the administrative appeal was one of the grounds for its dismissal (cf. fact 20 of the findings).

Given that, according to the Defendant, although the period provided for in Article 131 of the TCPT is similar to that provided for in No. 3 of Article 78 of the VAT Code, the latter does not benefit the Claimant once it did not follow the above-mentioned special procedure proper legally provided for the correction of inaccurate invoices.

In this framework, the Defendant invokes the exception of untimeliness of the administrative appeal, due to non-existence of error in VAT self-assessment, requesting the respective merit and, consequently, its dismissal from the proceedings, under the terms of the provision in Article 576, Nos. 1 and 3, of the CPC ex vi Article 29, No. 1, paragraph (e) of the RJAT.

It is fitting to appreciate and decide.

First of all, it is important to emphasize that it is the possibility of knowledge of the present request for arbitral pronouncement that is at issue here, for if it is concluded that the administrative appeal filed by the Claimant is untimely, we may effectively be faced with the preclusion of the Claimant's right of contentious challenge, exercised via the filing of this action, which will constitute a peremptory exception that, under the terms of No. 3 of Article 576 of the CPC (applicable ex vi Article 29, No. 1, paragraph (e), of the RJAT), consists in the occurrence of facts that prevent the legal effect of the facts set forth by the plaintiff, thus ensuing non-knowledge of the merits and the consequent dismissal of the claim.

That said. Article 98 of the VAT Code provides for the general scheme of official review and exercise of the right to VAT deduction, establishing the following:

1 - When, for reasons attributable to the services, tax higher than due has been charged, official review is effected under the terms of Article 78 of the general tax law.

2 - Without prejudice to special provisions, the right to deduction or refund of tax paid in excess can only be exercised up to four years after the birth of the right to deduction or overpayment of tax, respectively.

3 - Annulment of any charging does not proceed when its value is below the limit provided for in No. 4 of Article 94.

This legal provision thus contains, therefore, two enactments, namely: in its No. 1 it imposes on the AT the obligation to proceed with official review, in the cases provided therein; and in its No. 2 it establishes a general and supplementary period for taxable persons of VAT to promote, in their favor, the correction of the charged and deducted tax.

Regarding the four-year period provided for in that No. 2, the same will only be applicable in the absence of special provisions, which we can find in Article 78 of the VAT Code.

Thus, it is important to consider Nos. 2, 3 and 6 of that Article 78, which read as follows:

2 - If, after the registration referred to in Article 45 has been made, the operation is annulled or its taxable value is reduced in consequence of invalidity, resolution, rescission or reduction of the contract, by the return of goods or by the granting of rebates or discounts, the supplier of goods or service provider can effect the deduction of the corresponding tax up to the end of the tax period following that in which the circumstances occurred that determined the annulment of the charging or the reduction of its taxable value.

3 - In cases of inaccurate invoices that have already given rise to the registration referred to in Article 45, the correction is mandatory when there is tax charged for less, being able to be made without any penalty up to the end of the period following that to which the invoice to be corrected relates, and is optional, when there is tax charged for more, but can only be made within two years.

6 - The correction of clerical errors or calculation errors in the registration referred to in Articles 44 to 51 and 65, in the statements mentioned in Article 41 and in the guides or statements mentioned in sub-paragraphs (b) and (c) of No. 1 of Article 67 is optional when it results in tax in favor of the taxable person, but can only be made within two years, which, in the case of the exercise of the right to deduction, is counted from the birth of that right under the terms of No. 1 of Article 22, being mandatory when it results in tax in favor of the State.

In light of these legal rules, we can group the situations in which there is the faculty (and, eventually, the obligation) of adjustment of the charged and deducted VAT, as follows:

"i) The subsequent alteration of the objective and subjective conditions that presided over the carrying out of the operations, translated into the annulment of the operation or the reduction of its taxable value;

ii) The inaccuracy of the invoice or the clerical or calculation error in the transcription of its elements to the accounting or periodic VAT statements of taxable persons;

iii) The error of characterization of the operation, reflected in the invoice or accounting of taxable persons."

In the case sub judice, it is important to clarify whether we are faced with inaccurate invoices, as the Defendant alleges, or with a situation of error of law, as the Claimant defends, as this framework will determine the decision of the exception in question.

Regarding what should be understood by inaccurate invoice, it follows from the provision in paragraph (b) of No. 1 of Article 29 of the VAT Code, in the wording in effect on the date of the facts, that, in addition to the obligation of payment of tax, taxable persons have to "issue an invoice or equivalent document for each transfer of goods or provision of services". As results from No. 7 of the same Article 29, in the wording applicable on the date of the facts, "an invoice or equivalent document must also be issued when the taxable value of an operation or the corresponding tax is altered for any reason, including inaccuracy".

No. 5 of Article 36 of the VAT Code stipulates the various requirements that invoices must observe, determining, on the date of the facts, that "invoices or equivalent documents must be dated, sequentially numbered and contain the following elements:

a) The names, business names or corporate names and the registered office or domicile of the supplier of goods or service provider and of the recipient or purchaser, as well as the corresponding tax identification numbers of taxable persons subject to tax;

b) The quantity and usual denomination of goods transferred or services provided, with specification of the elements necessary to determine the applicable rate; packaging not actually transacted must be the subject of separate indication with express mention that it was agreed to be returned;

c) The price, net of tax, and the other elements included in the taxable value;

d) The applicable rates and the amount of tax due;

e) The reason justifying the non-application of tax, if applicable;

f) The date on which the goods were made available to the purchaser, on which the services were performed or on which payments prior to the carrying out of the operations were made, if that date does not coincide with the date of issue of the invoice.

In the case where the operation or operations to which the invoice relates comprise goods or services subject to different tax rates, the elements mentioned in sub-paragraphs (b), (c) and (d) must be indicated separately, according to the applicable rate".

Since the requirements that invoices must observe are expressly provided for in No. 5 of the cited Article 36, we will then be faced with a situation of inaccuracy of the invoice when one of the requirements to which the same is bound is not observed, that is, "this concept will include an invoice whose issuance was made without respect for the requirements of Article 36 of the VAT Code".

That said, let us now see what should be understood by error of characterization or error of law.

In this connection, it will be useful to begin by defining what should be understood by error of fact so that, in light of this, we may delimit the concept of error of law.

Thus, we consider that they are covered by error of fact "situations in which the taxable person makes an incorrect representation of factual reality (which determines its subsumption to an incorrect rule)", being that "the error of fact that does not lead to a consequent error of law, will have no relevance for these purposes, as the same will have no influence on the quantum of tax to be deducted or charged".

By contrast, error of law is verified in "situations in which, despite the correct representation of factual reality, the taxable person errs in determining the applicable rule", that is, in which there is an error of characterization, because the taxable person has made an incorrect interpretation of the factual situation or an incorrect application of the law and, consequently, charges or deducts tax for more or less.

In light of the foregoing, we can then state that we will be faced with situations of inaccuracy of invoices when, despite a correct characterization of the operation, the taxable person indicates an incorrect VAT rate or the amount of tax is incorrectly computed or indicated in the invoice.

We will not "be faced with a situation within this concept when the correction of the deduction is caused by error, that is, we will not be within the scope of inaccurate invoices, in situations in which the overpayment results from an incorrect representation of factual reality or an incorrect determination of the rule applicable to the concrete case".

As Alexandra Martins and Pedro Moreira note, "the inaccuracy, in these situations of error of law, is not specific to the invoice, which is not properly inaccurate: it merely reflects an error of law that precedes it. In other words, (…), there is [in situations of error of law] a coincidence between the will of the taxable person and what the taxable person puts in the invoice", whereas, in situations of inaccurate invoices, there is "a dissociation between their will and their declaration".

Having reached here, returning to the concrete case, it is necessary to conclude that the mistake made by the Claimant regarding the VAT rate applicable to the services provided to its Club member clients, which had repercussion in the invoices issued in March 2012 and, consequently, in the VAT self-assessment of that same period, clearly constitutes a situation of error of characterization or error of law. Effectively, by virtue of an incorrect or incomplete interpretation of the law, the Claimant applied to those services a VAT rate (23%) higher than the legally applicable (6%).

In this way, since, contrary to what is argued by the AT, we understand that we are not faced with any inaccurate invoices, but rather with an error of characterization or error of law, the Claimant did well to have resorted to the administrative appeal, under the terms of the provision in Article 131 of the TCPT, which, having been filed on 11 September 2013 (cf. fact 19 of the findings), is shown to be absolutely timely, as the periodic VAT declaration corresponding to the tax self-assessment of March 2012, which was the subject thereof, was submitted on 10 May 2012 (cf. fact 18 of the findings).

In these terms, the exception of untimeliness of the administrative appeal, due to non-existence of error in VAT self-assessment, is judged to lack merit.

III.2.2. ON THE QUESTION SUBJECT OF THE CASE

III.2.2.1. Statement of the Question

The present case concerns clarifying whether, although the Claimant wrongfully charged Club member clients VAT at the normal rate and no correction has been made, it has the right to challenge the self-assessment act of March 2012 on the grounds of the illegality of that self-assessment and, in consequence, recover the VAT charged and paid in excess.

III.2.2.2. Appreciation of the Question

It is important to begin by emphasizing that we are dealing with a tax – VAT – of European matrix and, therefore, subject to the regulation emanating from the proper bodies of the European Union, and thus, in that measure, we must bear in mind the case law of the Court of Justice of the European Union on this matter, which is binding upon us, as a corollary of the obligation of preliminary ruling, provided for in § 3 of Article 267 of the TFEU.

On the other hand, given the matters of fact proven (cf. facts 3 to 8, inclusive, and 14 of the findings), it appears unequivocal that the services provided by the Claimant to Club member clients, in that hotel establishment, to which it applied the normal VAT rate (23%), are subject to the reduced VAT rate (6%), as follows from the joint application of the provision in paragraph (a) of No. 1 of Article 18 of the VAT Code and item 2.17 of List I attached to the same legal code.

Consequently, it is established that the VAT self-assessment of March 2012 indeed suffers from illegality; moreover, this conclusion is not put in question by the Defendant (cf., among others, Article 87 of the response).

Thus, the point of contention arises from the Defendant's position – adopted in the wake of the understanding followed in the decision dismissing the administrative appeal filed by the Claimant – to the effect that the Claimant lacks standing to petition for the declaration of that illegality and receive the amount of tax wrongfully charged, as the Claimant was not harmed by the illegal VAT charging, as this was entirely passed on to Club member clients (cf., among others, Articles 78 and 89 of the response). According to the Defendant, restoring to the Claimant the amount of tax that it charged and received from its clients, "would result in an unjust enrichment, which national law and EU law does not permit" (Article 60 of the response).

That said.

As mentioned in the ruling of 11 July 2014, issued in arbitral case No. 78/2014-T – in which an identical question to that in the present case is dealt with and whose legal solution deserves our agreement, which we will follow closely [having, moreover, in view a uniform interpretation and application of the law (cf. Article 8, No. 3, of the CC)] – "if it is true that there are situations of this type in which an unjust enrichment situation can be configured that justifies the non-recognition of standing to challenge levies of taxes passed on to third parties, there are also situations in which this does not happen, as already recognized by the CJEU in the ruling of 06-09-2011, issued in case No. C-398/09 (…) in which it was understood as follows:

"The rules of Union law concerning the recovery of overpayments must be interpreted to the effect that the recovery of overpayments can only give rise to an unjust enrichment where the amounts wrongfully paid by a taxable person, by force of a tax charged in a Member State in violation of Union law, have been directly passed on to the purchaser".

On the other hand, as was understood in the CJEU ruling of 21-02-2000, issued in case No. C-441/98, "although Union law does not oppose a Member State refusing the refund of taxes charged in violation of its provisions provided that it is proven that such refund will cause an unjust enrichment, it excludes the application of any presumption or rule of evidence designed to place on the operator in question the burden of proving that the charges wrongfully paid were not passed on to other persons and designed to prevent the presentation of evidence to contest an alleged passing on".

Thus, in harmony with this case law of the CJEU, the answer to the question of the Claimant's standing to request the declaration of illegality of the VAT self-assessment acts, depends on ascertaining, in light of the concrete circumstances of fact, whether with the refund to the Claimant of the VAT wrongfully charged an unjust enrichment situation is generated or not. Or, from another perspective, the solution of the question depends on knowing whether the Claimant was or was not harmed by the illegal charging.

As results from the proven facts, the Claimant assumed, through the reduction of its margin, the VAT charged in March 2012 resulting from the difference between the normal rate included in the value charged to Club member clients for the hotel accommodation service it provided them and the reduced rate, which amounts to €11,907.44 (cf. fact 26 of the findings).

Effectively, it was proven that the price charged by the Claimant to its Club member clients for the hotel accommodation service it provides them is, from the outset, a final price, with VAT included (cf. fact 23 of the findings). Therefore, any tax calculated, whether it shows itself to be legally due or not, is contained and incorporated in that price and is at the expense and risk of the Claimant (cf. fact 24 of the findings); that is, if it charges tax higher than due, the Claimant will see its margin reduced; if it charges tax lower than due, the Claimant will have to bear the additional portion without being able to demand it from its clients (cf. fact 25 of the findings).

Just as was argued in the cited ruling issued in arbitral case No. 78/2014-T, that "practice of the Claimant is understandable, as, having the normal rate been applied to clients who were club members and not to the general public, the maintenance of a fixed income for the services to which VAT was added would have as a consequence that club members would have a more unfavorable treatment than the general public as to the price they would pay for the same services, which would not be reasonable, as it is obvious that if club membership can justify some discrimination in relation to the general public, the discrimination will be positive, translated into a more favorable price, and not negative".

In this framework, just as in that arbitral ruling that we have been citing, also in the situation sub judice we must "conclude that the consequences of the illegality of the VAT charging fell on the Claimant and not on the club members to whom it charged VAT at the normal rate, as these members benefited from a decrease in the Claimant's income, to an extent equal to the difference between the normal rate and the reduced VAT rate, so that the price they paid for the services would not exceed what was paid by the general public, in relation to the same services.

Being thus, the refund to the Claimant, as a consequence of the illegality of the charging, of the amount of VAT borne in excess will not imply a situation of unjust enrichment, as, despite the apparent passing on of that excess to club members, the reality is that it was the Claimant that bore it, which becomes evident when it is noted that the price paid by club members was annual and fixed, and was not altered" when the Claimant began to charge VAT at the reduced rate to all clients, as follows from the testimony given by the witnesses who were examined.

Moreover, contrary to what the Defendant alleged, bearing in mind that the Claimant, by not adjusting the prices charged to Club members when it changed the VAT rate applied to them, assumed the economic burden of the VAT difference, and given that the Club member clients did not provide any evidence to the effect that they wish to claim reimbursement from the Claimant, and that they themselves stated they did not see any reason for such reimbursement, it becomes clear that the Claimant was the party that supported the economic burden of the excessive VAT charging. In other words, the Claimant bore the consequences of its error of law regarding the application of the VAT rate.

Therefore, and in accordance with the aforementioned CJEU case law and the prior arbitral decision, the refund of the VAT improperly charged will not constitute an unjust enrichment, since the real burden fell on the Claimant, not on the Club members who saw their margin decrease without any corresponding increase in the price they paid.

Based on all the foregoing considerations, and given the clear illegality of the VAT self-assessment act of March 2012, which is not disputed by the Defendant, the Claimant has the right to challenge that act and to seek the recovery of the VAT that was wrongfully charged and paid in excess.

IV. CONCLUSION

Based on the proven facts and the legal reasoning set forth above, we declare:

1. The exception of material incompetence of the Arbitral Tribunal lacks merit.

2. The exception of untimeliness of the administrative appeal, due to non-existence of error in VAT self-assessment, lacks merit.

3. The VAT self-assessment act of March 2012, in the amount of €11,907.44, is declared illegal and is partially annulled, in the sense that the VAT that should have been charged to Club member clients is reduced from 23% to 6%, with the corresponding adjustment.

4. The act dismissing the administrative appeal filed by the Claimant, dated 28 October 2013, is declared illegal and is annulled.

5. The Tax and Customs Authority is ordered to refund to the Claimant the amount of €11,907.44, which corresponds to the VAT improperly charged and collected in March 2012, plus legal interest from the date of the unlawful charging until the date of effective refund, in accordance with the applicable legal provisions.

Thus it is decided.