Process: 349/2018-T

Date: December 5, 2018

Tax Type: IVA

Source: Original CAAD Decision

Summary

Process 349/2018-T addresses a critical VAT dispute concerning duplicate collection (duplicação de colecta) arising from the reverse charge mechanism in Portuguese construction services. The claimant, a civil construction company, invoiced services to B... S.A. between November 2014 and August 2018, charging €154,565.20 in VAT on construction work for an Urban Bus Terminal. The company later realized that under Article 2(1)(j) of the Portuguese VAT Code (CIVA), introduced by Decree-Law 21/2007, the reverse charge mechanism applied, making the acquirer responsible for self-assessing VAT. The claimant issued credit notes in November 2017 and regularized the VAT in field 40 of the periodic declaration, requesting a full refund. The Tax Authority (AT) only accepted regularizations within the two-year limitation period (€2,023.75), rejecting €152,541.44. The reverse charge mechanism, effective since April 1, 2007, shifts VAT liability to acquirers of construction services who are taxable persons with deduction rights, preventing fraud where input VAT is deducted but output VAT never reaches State coffers. This arbitration highlights the tension between preventing duplicate taxation and respecting statutory limitation periods for VAT corrections. The case demonstrates how taxpayers can challenge AT decisions through CAAD arbitration, seeking both assessment annulment and compensatory interest. The tribunal's decision would clarify whether the two-year limitation under Article 78 CIVA applies when duplicate collection occurs, potentially establishing important precedent for construction sector VAT compliance.

Full Decision

ARBITRAL DECISION (consult full version in PDF)

The arbitrators Counsellor Jorge Lopes de Sousa (arbitrator-president), Dr. Adelaide Moura and Dr. Marcolino Pisão Pedreiro (arbitrator members) appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Court, constituted on 27-09-2018, agree as follows:

1. Report

A..., LDA., with the tax identification number ... and with headquarters at Rua ... n.º..., ..., hereinafter abbreviated as "Claimant", came, pursuant to the provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT"), to request the constitution of an Arbitral Court, with a view to annulling the VAT assessment no. 2018..., issued by the Tax and Customs Authority, on 11 April 2018.

The Claimant further requests the reimbursement of the amount of € 154,565.20 which was rejected by the Tax and Customs Authority, plus compensatory interest.

The Tax and Customs Authority is the Respondent.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 20-07-2018.

Pursuant to the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the RJAT, the Deontological Council appointed as arbitrators the signatories hereto, who communicated their acceptance of the assignment within the applicable period.

On 07-09-2018, the parties were duly notified of such appointment and did not manifest their will to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11 no. 1 paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

Thus, in conformity with the provision in paragraph c) of no. 1 of article 11 of the RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 27-09-2018.

The Tax and Customs Authority responded, contending that the request for arbitral pronouncement was unfounded.

By dispatch of 05-11-2018, the meeting provided for in article 18 of the RJAT was dispensed with and it was decided that the proceedings would continue with written submissions.

The parties presented submissions.

The arbitral tribunal was regularly constituted, in accordance with the provisions of articles 2, no. 1, paragraph a), and 10, no. 1, of Decree-Law no. 10/2011, of 20 January, and is competent.

The parties are duly represented, enjoy legal standing and capacity, are legitimate and are represented (articles 4 and 10, no. 2, of the same diploma and article 1 of Ordinance no. 112-A/2011, of 22 March).

The proceedings do not suffer from defects.

2. Factual Matters

2.1. Proven Facts

  • The Claimant is a company engaged in the provision of civil construction services and public works, as well as the marketing and operation of tourist enterprises;

  • In the course of its activity, during the period between November 2014 and August 2018, the Claimant provided civil construction services to the entity B..., S.A., within the scope of the construction work for the Urban Bus Terminal of ...;

  • In the invoices issued by the Claimant in relation to the civil construction services referred to above, it improperly charged VAT, reporting this tax in the periodic tax declarations of the periods in which the invoices were issued;

  • These invoices total the amount of € 826,587.75, of which € 154,565.20 relates to tax, in accordance with the table below:

[Table of invoices and VAT amounts as shown in original]

  • Following the issuance of the invoices, the Claimant understood that the VAT was improperly charged, by virtue of the reverse charge mechanism contained in paragraph j) of no. 1 of article 2 of the VAT Code, as it was incumbent upon the acquirer of civil construction services to self-assess the tax due in connection with the provision of such services;

  • The Claimant proceeded to regularize, in its favor, the amount of VAT that it considered improperly charged, entering this amount in field 40 of the periodic declaration for the month of November 2017;

  • With this regularization, the Claimant proceeded to issue, on 22 November 2017, credit notes nos. NC 2017C/3, NC 2017C/4, NC 2017C/5, NC 2017C/6 and NC 2017C/7, annulling all invoices initially issued with reference to the construction work for the Urban Bus Terminal of ... and subsequently proceeded to issue new invoices, as per the following table:

[Table of credit notes and new invoices as shown in original]

  • In the context of the November 2017 periodic declaration, the Claimant requested reimbursement of the entire amount of tax regularized by it;

  • Following that reimbursement request, the Tax and Customs Authority through the Finance Department of ..., initiated an inspection action, with the Service Order no. OI 2018..., with a view to verifying and analyzing the VAT procedures adopted by the Claimant;

  • With regard to the tax regularized by the Claimant, the Tax and Customs Authority only accepted the regularizations effected within the two-year period, in the amount of € 2,023.75, and made corrections in the amount of € 152,541.44;

  • In the Report of the Tax Inspection drawn up in that inspection, which forms part of document no. 2 attached with the request for arbitral pronouncement, whose content is given as reproduced, reference is made, inter alia, to the following:

III.1.1. VAT REGULARIZATIONS IN FAVOR OF THE TAXPAYER NOT ACCEPTED - ARTICLE 78 OF THE VAT CODE

Decree-Law no. 21/2007, of 29 January, introduced amendments to paragraph j) of no. 1 of article 2 of the VAT Code, which by virtue of article 6 of that Decree-Law, came into force on 1 April 2007, with the wording now reading as follows: "j) Natural or legal persons referred to in paragraph a) who have their head office, permanent establishment or domicile in national territory and who carry out operations that confer the right to full or partial deduction of the tax, when they are acquirers of civil construction services, including the remodeling, repair, maintenance, conservation and demolition of immovable property, in the form of a contract or subcontract."

Decree-Law no. 21/2007, of 29 January, adopted, in the field of certain service supplies relating to immovable property, namely in civil construction works carried out by contractors and subcontractors, a power conferred by Directive no. 2006/69/CE, of the Council, of 24 July. Thus, by means of the reversal of the taxable person, it became incumbent upon the acquirers or recipients of those services, when they qualify as taxable persons with the right to full or partial deduction of the tax, to proceed with the assessment of the VAT due, which may also be subject to deduction under the general provisions. This measure aimed to safeguard certain situations that result in prejudice to public finances, currently arising from the birth of the right to deduction of VAT supported, without that tax being delivered to the State coffers.

Through Circular Letter no. 30101, of 24/05/2007 (which revoked Circular Letter no. 30100, of 28/03/2007), clarifications were transmitted on the application of paragraph j) of no. 1 of article 2 of the VAT Code.

The taxpayer issued invoices for civil construction services provided to customer B... S A, Tax ID:..., in the work of construction of the "Urban Bus Terminal of ...", as per Annex 1 - Pages 1 to 16. In the services invoiced, the taxpayer proceeded to charge VAT, as is ascertained and summarized in the following table:

[Table of invoices and VAT amounts as shown in original]

It should be noted that, as clarified in no. 6.1 of Circular Letter no. 30101, of 24/05/2007, "For the purposes of verifying the VAT status of the acquirer, interested parties should consult the electronic declarations system, through the option TAXPAYERS - QUERY - IDENTIFICATION. CLIENT/SUPPLIER."

In the case of the customer mentioned, by making this verification the following result would be obtained:

[Table showing VAT status as shown in original]

The same Circular Letter no. 30101, of 24/05/2007, also clarifies in no. 1.6.7 that "It is the responsibility of the acquirer of the services, in case of doubts on the part of the taxable person providing the services, to clarify and confirm what situation (classification) he/she is in with respect to VAT. In the event that doubts persist and without prejudice to what is referred to in point 6, either party may request information from the VAT Services Department on the current classification."

Article 36 of the VAT Code, which deals with the period for issuing and formalities of invoices, provides in no. 13 that "In the situations provided for in paragraphs i), j) and l) of no. 1 of article 2, as well as in other situations where the recipient or acquirer is the debtor of the tax, the invoices issued by the supplier of goods or provider of services must contain the expression 'VAT - self-assessment'." (Wording of D.L. no. 197/2012, of 24 August, entering into force on 1 January 2013).

The taxpayer, by having improperly charged VAT in the invoices, since such act was exclusively incumbent upon the acquirer under the terms already mentioned and by not complying with the formality required in no. 13 of article 36 of the VAT Code, resulted in the issuance of inaccurate invoices.

It was verified that the taxpayer proceeded with the accounting entries of the service supplies, as required by article 45 of the VAT Code, as per Annex 2 - Pages 1 to 8, these having been made after the issuance of the corresponding invoices, until the submission of the periodic VAT declaration for each period, as was verified by the extracts of the SNC accounts relating to service supplies and VAT charged: "72113 - Standard Rate" and "2433113 - Standard Rate", respectively, which were reflected in the periods of the periodic VAT declarations submitted by the taxpayer, on the dates detailed in the following table:

[Table of declaration dates and amounts as shown in original]

In November 2017, the taxpayer came to issue the credit notes in Annex 3 - Pages 1 to 5, detailed in the following table:

[Table of credit notes as shown in original]

As clarified by the provision in Circular Letter no. 30141/2013 of 04/01/2013, with the publication of Decree-Law no. 197/2012, of 24 August, entering into force on 1 January 2013, the new wording of no. 7 of article 29 of the VAT Code provides that "when the taxable value of an operation or the corresponding tax is altered, for any reason, including inaccuracy, an invoice rectification document must be issued", which must contain the elements referred to in paragraph a) of no. 5 of article 36 of the VAT Code, as well as the reference to the invoice it relates to and the mention of the altered elements.

Credit notes and debit notes are invoice rectification documents, which may be issued by the taxable persons acquiring goods or recipients of services, provided the following requirements are observed:

– they result from agreement between the taxable persons involved, supplier of goods or provider of services and acquirer or recipient thereof;

– they are processed in compliance with the provision in no. 7 of article 29 of the VAT Code, that is, when the taxable value of an operation or the corresponding tax is altered for any reason, including inaccuracy;

– they contain the elements referred to in no. 6 of article 36 of the VAT Code, of which the reference to the invoice they relate to is highlighted.

In this case, the credit notes issued by the taxpayer, with a view to rectifying invoices issued in earlier periods to customer B... S A, Tax ID:..., of the elements referred to in no. 6 of article 36 of the VAT Code, contain in particular: sequential numbers, dates of issuance and reference to the invoices they alter, as summarized in the following table:

[Table of credit notes details as shown in original]

With the issuance of the credit notes referred to, the taxpayer also issued new invoices in Annex 4 - Pages 1 to 5, in which it did not charge VAT and placed the expression "VAT - self-assessment", in accordance with the provision in no. 13 of article 36 of the VAT Code, as per the following table:

[Table of new invoices as shown in original]

On 2018-01-10, the taxpayer submitted the Periodic Declaration of VAT for the month of November 2017 (201711), having calculated in the respective declaration Tax to Recover in the amount of € 155,689.16, having made the Reimbursement Request in the same declaration in the amount of € 154,565.19, as per Annex 5 - Pages 1 to 4.

The amount of the VAT reimbursement request coincides with the amount declared in field 40 of the said periodic declaration, relating to VAT regularizations in favor of the taxpayer.

Having consulted the accounting of the taxpayer, the accounts relating to VAT regularizations in favor of the taxpayer were verified, specifically the SNC account "243413 - Standard Rate", copies of the respective supporting documents having been obtained for the following accounting entries:

[Table of accounting entries as shown in original]

Having analyzed the respective documents, it was found that the regularization of VAT in favor of the taxpayer, which gave rise to the VAT reimbursement request in question, is based on the issuance of credit notes by the taxpayer, with a view to rectifying invoices issued in earlier periods to customer B... SA, Tax ID:..., the taxable value of which was subject to VAT in the invoices initially issued, subsequently giving rise to new invoices in which it did not charge VAT, placing the expression "VAT - self-assessment", as provided in no. 13 of article 36 of the VAT Code.

In the case in question, the taxpayer came in November 2017 to:

  1. Issue credit notes, in order to annul the invoices previously issued with VAT charging (inaccurately issued due to improperly charged VAT and failure to comply with the formalism required in no. 13 of article 36 of the VAT Code):

  2. Issue new invoices without VAT charging, containing the expression "VAT - self-assessment", in accordance with no. 13 of article 36 of the VAT Code;

Thus, with these procedures, the taxpayer proceeded in accordance with part of the provision in Binding Information no. 8404, with dispatch of 24/07/2015, of the VAT Services Department, by delegation of the Director General of the Tax and Customs Authority, which is transcribed as follows:

"I - QUESTIONS RAISED

1 - Having issued 8 invoices (October/November 2014) with VAT charging, relating to electrical material for application in a work and, subsequently issuing, in 2015, an invoice relating to the provision of services and remaining material in accordance with the rule of reversal of the taxable person, stated in paragraph j) of no. 1 of article 2 of the VAT Code, the requester intends to be clarified regarding the issuance of a credit note relating to the VAT previously charged, as requested by the acquiring company.

II - FRAMEWORK IN RELATION TO THE VAT CODE

2 - Through a consultation to the computer system, it is verified that the taxpayer is classified under the Normal Taxation Scheme - Quarterly Periodicity, since 2011-02-01, for the purposes of the VAT Code, with the Economic Activity Classification Code (CAE): "43210 ELECTRICAL INSTALLATION".

III - ANALYSIS OF THE QUESTION RAISED

3 - In accordance with paragraph j) of no. 1 of article 2 of the VAT Code, are liable to tax: "Natural or legal persons referred to in paragraph a) who have their head office, permanent establishment or domicile in national territory and who carry out operations that confer the right to full or partial deduction of the tax, when they are acquirers of civil construction services, including the remodeling, repair, maintenance, conservation and demolition of immovable property, in the form of a contract or subcontract".

4 - Thus, the rule of reversal of the taxable person applies when the following cumulative conditions are met:

i) If there is the acquisition of civil construction services (encompassing the entire set of acts necessary to carry out a work, regardless of whether the supplier is required to have a license or registration certificate under D.L. no. 12/2004, of 9 January):

ii) The acquirer being a taxable person for VAT, in national territory and, here carrying out operations that confer, in full or in part, the right to deduction of VAT.

5 - Decree-Law no. 12/2004, of 9/1, establishes the legal regime applicable to the exercise of construction activity, finding therein defined the various types of civil construction work, these being grouped into categories, by Ordinance no. 19/2004, of 10 January.

6 - Making use of this last diploma and, in order to better clarify the application of paragraph j) of no. 1 of article 2 of the VAT Code, Circular Letter no. 30.101/2007-DS/VA, of 24 May, was issued, whose reading suggests that:

i) The mere transfer of goods, without any installation/assembly service or, the repairs/replacements of any equipment already in operation (by or on behalf of those who supplied them) is not covered by paragraph j) of no. 1 of article 2 of the VAT Code:

ii) The delivery of goods, with assembly/installation in the work, is considered to be covered by the rule of reversal of the taxable person, referred to in paragraph j) of no. 1 of article 2 of the VAT Code, provided that it concerns deliveries in the scope of works contemplated by Ordinance no. 19/2004, of 10 January, regardless of whether the supplier is required to have a license/registration certificate under D.L. no. 12/2004, of 9 January:

iii) Goods that, unequivocally, are considered movable property (or removable, in the broad sense), that is, that are not materially linked to immovable property, with a character of permanence, are excluded from the rule of reversal of the taxable person, referred to in paragraph j) of no. 1 of article 2 of the VAT Code.

7 - Also, in accordance with point 1.4 of the said circular letter it is stated that: "Whenever, within the scope of a work, the service provider invoices civil construction services proper or any others related to it and necessary for its performance (...), as well as materials or other goods, it is understood that the overall value of the invoice, regardless of whether or not there is discrimination of the various items and whether the invoicing is joint or separate, is covered by the rule of reversal of the taxable person".

8 - Whenever a given operation meets the cumulative conditions referred to in no. 4 of this information, as well as respects the requirements stated in the preceding number, it is mandatory to comply with the provision in paragraph j) of no. 1 of article 2 of the VAT Code (reversal of the taxable person), so it is incumbent upon the acquirer to assess and pay the tax that is due, the invoice issued by the supplier of goods and/or provider of services, pursuant to no. 13 of article 36 of the VAT Code, must contain the expression 'VAT - self-assessment' (See circular letter no. 30101/2007-DSIVA, of 24 May).

9 - The VAT due by the acquirer must be assessed on the invoice itself received from the service provider or, in case of non-receipt of the invoice and, the obligation to self-assess still existing, this must be done in an internal document, as stated in no. 8 of article 19 of the VAT Code: "In cases where the obligation to assess and pay the tax is incumbent upon the acquirer of goods and services, only the tax assessed by virtue of that obligation confers the right to deduction".

10 - In the case of inaccurate invoices, no. 3 of article 78 of the VAT Code states that: "... rectification is mandatory when there is tax charged below, and may be effected without any penalty until the end of the period following that to which the invoice to be rectified relates, and is optional, when there is tax charged above, but may only be effected within a period of two years".

11 - On the other hand, no. 5 of article 78 of the VAT Code provides: "When the taxable value of an operation or the respective tax undergoes rectification downward, the regularization in favor of the taxpayer can only be made when it has in its possession proof that the acquirer became aware of the rectification or that it was reimbursed of the tax, without which the respective deduction is deemed improper".

IV - CONCLUSIONS

12 - Stating that the requester issued invoices in 2014 (October/November), with tax charging, relating to various electrical material intended for work that would be carried out and that, subsequently, another invoice was issued relating to the provision of services and remaining material, whose assembly/installation in the work was done using civil construction services, the totality of the work should be considered covered by the rule of reversal of the taxable person.

13 - Regarding the invoices issued in October/November 2014, taking into account the improper assessment of tax, as well as the mandatory mention "VAT - self-assessment", the rectification must comply with the provision in nos. 3 and 5 of article 78, as follows:

i) Proceed to the issuance of credit note(s), in order to annul the invoice(s) previously issued with tax charging:

ii) Issue a new invoice without tax charging, containing the expression "VAT - self-assessment", in accordance with no. 13 of article 36 of the VAT Code:

iii) Proceed with the replacement of the periodic declaration(s) previously submitted through the correction (reduction) of the values previously presented in the taxable base and tax in favor of the State (Table 06 - Fields 3 and 4) and, enter the value of the new invoice in Field 5, of Table 6 ("Exempt or not taxed")."

However, it did not follow what is described in no. 13 of that Binding Information, which states that the rectification must comply with the provision in nos. 3 and 5 of article 78 (of the VAT Code), as well as what is stated in its paragraph iii) "Proceed with the replacement of the periodic declaration(s) previously submitted through the correction (reduction) of the values previously presented in the taxable base and tax in favor of the State (Table 06 - Fields 3 and 4) and, enter the value of the new invoice in Field 8, of Table B ("Exempt or not taxed")."

This is because, on the one hand, on 2018-01-10, the taxpayer submitted the Periodic Declaration of VAT for the month of November 2017 (201711), in which it regularizes in its favor the amount declared in field 40 of the said periodic declaration (which coincides with the VAT regularization achieved by the issuance of the credit notes referred to), when it should have proceeded as stated in paragraph iii) of no. 13 of Binding Information no. 8404, of 24/07/2015, that is, to have proceeded with the replacement of all periodic VAT declarations corresponding to the invoices in which VAT was improperly charged.

On the other hand, although the taxpayer presented proof that the acquirer became aware of the rectification, as provided in no. 5 of article 78 of the VAT Code, the taxpayer did not comply with the period provided in no. 3 of article 78 of the VAT Code, as we can see:

It is established in no. 3 of article 78 of the VAT Code, that "in cases of inaccurate invoices that have already given rise to the entry referred to in article 45, the rectification is mandatory when there is tax charged below, and may be effected without any penalty until the end of the period following that to which the invoice to be rectified relates, and is optional, when there is tax charged above, but may only be effected within a period of two years."

That is, because the taxpayer charged VAT in excess, it is subject to the limit of the two-year period to be able to proceed with its rectification in its favor.

Therefore, the taxpayer should have complied with what is stipulated in paragraph iii) of no. 13 of Binding Information no. 8404 referred to above, by submitting Replacement Periodic VAT Declarations for the periods to be rectified, and it should have done so within two years of the date of submission of the Periodic VAT Declarations to be replaced, as provided in paragraph b) of no. 1 of article 8 of the legal regime for VAT collection and reimbursement payments, approved by Decree-Law no. 229/95, of 11 September, as amended by Decree-Laws nos. 472/99, of 8 November, 160/2003, of 19 July, and 124/2005, of 3 August and as amended by article 10 of Law no. 64/2012, of 20 December.

Thus, it can only regularize VAT in the amount of € 2,023.75, relating to the VAT charged in the referred invoices reflected in Periodic VAT Declarations submitted between 2016-01-10 and 2018-01-10 (which the taxpayer comes to regularize within the two-year period, although it did not do so by means of submitting Replacement Periodic VAT Declarations), as ascertained in the following table:

[Table of VAT amounts and dates as shown in original]

Therefore, it cannot regularize VAT in its favor the amount of € 152,541.44, relating to the VAT charged in the referred invoices reflected in the Periodic VAT Declarations submitted between 2015-01-09 and 2016-01-06 (which the taxpayer comes to regularize outside the two-year period), as demonstrated by the summary of the dates of submission of the Periodic VAT Declarations in question in the following table, the amount of which results from the difference between the reimbursement requested and the value of the VAT regularizations accepted (€ 154,565.19 - € 2,023.75 = € 152,541.44):

[Table of dates and amounts as shown in original]

It is reinforced that the taxpayer did not follow what is described in paragraph iii) of no. 13 of Binding Information no. 8404, of 24/07/2015, by submitting on 10/01/2018 the Periodic Declaration of VAT for the month of November 2017 (201711), in which it regularizes in its favor the amount of € 154,565.19, declared in field 40 of the said periodic declaration, when it should have proceeded with the replacement of the periodic declaration(s) previously submitted through the correction (reduction) of the values previously presented in the taxable base and tax in favor of the State (Table 06 - Fields 3 and 4) and, enter the value of the new invoice in Field 8, of Table 6 ("exempt or not taxed").

An identical conclusion can be drawn from Binding Information no. R160 2006082, with dispatch of 11/09/2006, of the Tax Services Department, in substitution of the Director-General, with the understanding that where article 71 appears should be read article 78 in light of the renumbering of the VAT Code effected by Decree-Law no. 102/2008, of 20/06.

Also the clarification in point 9.2 of Circular Letter 30082/2005, of 17/11 of the VAT Services Department, states that the regularizations provided for in no. 3 of article 71 (now article 78) of the VAT Code, "encompasses situations resulting from the rectification or replacement of invoices already recorded. If the correction to be made results in tax in favor of the taxpayer the rectification is optional, but may only be effected within a period of one year" (now 2 years by virtue of the wording given to the then no. 3 of article 71 of the VAT Code (current article 78) by Law no. 53-A/2006 of 29/12).

In the same sense has already pronounced the judgment of the Supreme Administrative Court, of 27/02/2013, handed down in Process no. 01079/12, where it was written that "it follows, inter alia, from article 78, of the VAT Code, that the provisions of articles 36 and following must be observed whenever, after issuing the invoice or equivalent document, the taxable value of an operation or the respective tax comes to undergo rectification for any reason (no. 1). And, in cases of inaccurate invoices that have already given rise to the entry, rectification is mandatory when there is tax charged below, and may be effected without any penalty until the end of the period following that to which the invoice to be rectified relates, and is optional, when there is tax charged above, but may only be effected within a period of two years (no. 3)". In the same judgment can be read that "The improper payment of VAT by the service provider could have been resolved by the return of the invoices by the appellant to be rectified or by requesting that it effect the regularization provided for in article 78/3 of the VAT Code".

It is also appropriate to make the following reference:

In the periodic declaration of VAT for the period 201711, in which the taxpayer requested VAT reimbursement, it came to fill in the detail table of VAT regularizations in favor of the taxpayer made in field 40, being that in table 1-A, it indicated that article 78, no. 2 of the VAT Code, is the article in which the referred regularizations are classified.

Now, no. 2 of article 78 of the VAT Code, states that "If, after the entry referred to in article 45 is made, the operation is annulled or its taxable value reduced as a 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 the goods or service provider may effect the deduction of the corresponding tax until the end of the tax period following that in which the circumstances determining the annulment of the assessment or the reduction of its taxable value are verified."

Thus, it becomes necessary, on the one hand, to assess whether and when the accounting entries of the service supplies provided by the taxpayer were made as required by article 45 of the VAT Code, and on the other, to assess whether there were circumstances that have determined the annulment of VAT assessment.

As already mentioned earlier, it was verified that the taxpayer proceeded with the accounting entries of the service supplies, as required by article 45 of the VAT Code.

Also clarifies Circular Letter no. 30136 of 19/11/2012, in particular its point 14, in accordance with no. 7 of article 29 of the VAT Code, that "when the taxable value of an operation or the corresponding tax is altered, for any reason, including inaccuracy, an invoice rectification document (credit note or debit note) must be issued, which must contain the elements referred to in paragraph a) of no. 5 of article 36, as well as the reference to the invoice it relates to and the mention of the altered elements." It is also clarified in this same point of Circular Letter no. 30136, that "it cannot, thus, issue a new invoice, as a form of rectification of the taxable value or the corresponding tax, without prejudice to the possibility of annulment of the initial invoice and its replacement by another, when the rectification is due to other reasons."

However, no demonstration was found that there existed some circumstance, of those described in no. 2 of Article 78 of the VAT Code, that determined the annulment of VAT assessment, as the operation was not annulled, nor was its taxable value reduced, since the services were carried out, as per the contract established between the taxpayer and the client, as well as in accordance with the measurement records of the construction work for the "Urban Bus Terminal of ...", therefore, it will not be the terms of no. 2 of Article 78 of the VAT Code, which determine the VAT regularization made in favor of the taxpayer, and thus there is no need, in these terms, to assess the moment until which the service provider can effect the regularization in its favor of the corresponding tax.

It is wrong, therefore, the classification that the taxpayer makes in the periodic declaration of VAT for the period 201711, in which it indicates in table 1-A of the detail of VAT regularizations in favor of the taxpayer, made in field 40, that article 78, no. 2 of the VAT Code, is the regime that justifies the referred regularizations, when in fact it cannot be that, since it was not as a consequence of invalidity, resolution, rescission or reduction of the contract, by return of goods or by the granting of rebates or discounts, that resulted in the annulment of VAT assessment.

For all the above, the VAT regularization made in favor of the taxpayer in the amount of € 154,565.19, is partially improper under the period established in no. 3 of Article 78 of the VAT Code and consequently will be corrected in the amount € 152,541.44 to field 40 of the respective Periodic VAT Declaration to which the entry is imputable, in this case the declaration relating to November 2017.

III.1.2. ASSESSMENT OF THE VAT REIMBURSEMENT REQUEST

The taxpayer submitted the Periodic Declaration of VAT for November 2017 (201711), having calculated in the respective declaration Tax to Recover in the amount of € 155,689.16, having made the Reimbursement Request in the same declaration in the amount of € 154,565.19.

In light of the corrections proposed above in the amount of € 152,541.44, the reimbursement will only be partially granted in the amount of € 2,023.75, as this is the value resulting from the difference between the reimbursement requested and the value of the VAT regularizations accepted.

(...)

IX. RIGHT TO BE HEARD – REASONING

(...)

Point I. - FACTUAL FRAMEWORK AND POSITION OF THE TAX AND CUSTOMS AUTHORITY

The taxpayer summarizes in paragraphs 1 to 6 of the right to be heard, the conclusions and proposals presented in the draft report of the tax inspection, conducted by this Finance Department under Service Order no. OI2018..., which inspection procedure was originated by the VAT reimbursement request made by the taxpayer, in the Periodic Declaration of VAT for the period November 2017 (201711) in the amount of € 154,565.19, and partial deferment of € 2,023.75 was proposed, resulting therefore in a VAT correction of € 152,541.44, due to the constraint of the two-year period to proceed with the rectification of VAT in its favor imposed by the provision in no. 3 of article 78 of the VAT Code, which should have followed the guidelines defined in Binding Information no. 8404, with dispatch of 24/07/2015, of the VAT Services Department, by delegation of the Director General of the Tax and Customs Authority.

Point II. - POSITION OF THE CLAIMANT

The taxpayer sets forth in paragraphs 7 to 19 of the right to be heard, its position regarding the conclusions and proposals presented in the draft report of the tax inspection.

In that sense, the taxpayer comes to agree with the Tax and Customs Authority that in situations where the value of the tax is altered downward, a credit note must be issued to correct the value of the tax, as provided in no. 7 of article 29 of the VAT Code.

The taxpayer argues that in the situation underlying the proposed corrections, relating to the improper assessment of VAT by the taxpayer in invoices relating to civil construction services, to which the provision in paragraph j) of no. 1 of article 2 of the VAT Code applies, that is the reversal of the taxable person of VAT, the taxpayer considers that it made a classification error, and as such, considers the taxpayer that to the rectification in its favor of the improperly charged VAT, the four-year period provided for in no. 2 of article 98 of the VAT Code is applied instead of the two-year period provided in no. 3 of article 78 of the same Code.

The taxpayer insists, in the arguments it presents, that what it did at the time of charging VAT in invoices relating to civil construction services, was a classification error, stating that "in that it considered that the services to which they relate did not fall within the regime of reversal of the taxable person provided for in paragraph j) of number 1 of article 2 of the VAT Code".

Now, as already referred to in chapter III of the Draft Report of the Tax Inspection, paragraph j) of no. 1 of article 2 of the VAT Code provides as follows:

"1 - Are liable to tax:

j) Natural or legal persons referred to in paragraph a) who have their head office, permanent establishment or domicile in national territory and who carry out operations that confer the right to full or partial deduction of the tax, when they are acquirers of civil construction services, including the remodeling, repair, maintenance, conservation and demolition of immovable property, in the form of a contract or subcontract." (emphasis added)

Thus, the taxpayer lacks grounds when it argues that "it considered that the services to which they relate did not fall within the regime of Reversal of the taxable person", as it is expressly provided in the referred paragraph j) that civil construction services are subject to the reversal of the taxable person of VAT

under certain cumulative conditions, capable of being verified by the taxpayer, which are:

  1. If there is the acquisition of civil construction services (encompassing the entire set of acts necessary to carry out a work, regardless of whether the supplier is required to have a license or registration certificate under D.L. no. 12/2004, of 9 January);

  2. The acquirer being a taxable person for VAT, in national territory and, here carrying out operations that confer, in full or in part, the right to deduction of VAT.

It is also important to point out that the period referred to in no. 2 of article 98 of the VAT Code, relates to the general period for the exercise of the right to deduction, and that, in that same no. 2, it is explicitly provided that "Without prejudice to special provisions, the right to deduction or reimbursement of tax paid in excess may only be exercised until the expiration of four years after the birth of the right to deduction or overpayment of tax", so there must be understood the provision in no. 3 of article 78 of the VAT Code as one of these special provisions, so this special period of two years prevails over the general one provided in no. 2 of article 98 of the VAT Code.

The taxpayer understands that the formalities to be complied with in the issuance of invoices are exhausted in the provision of no. 5 of article 36 of the VAT Code, however, the entire article 36 of the VAT Code deals with the periods for issuing and formalities of invoices, so the taxpayer, by issuing invoices without complying with the provision in no. 13 of article 36 of the VAT Code, issued inaccurate invoices, causing the improper assessment of VAT on civil construction services, to which the provision in paragraph j) of no. 1 of article 2 of the VAT Code applies, and such invoices had already given rise to the entry referred to in article 45 of the VAT Code, whose rectification, being in favor of the taxpayer, must comply with the provision in no. 3 of article 78 of the VAT Code, in particular with compliance with the rectification period expressly provided of two years, as also referred to in Binding Information no. 8404, with dispatch of 24/07/2015, of the VAT Services Department, by delegation of the Director General of the Tax and Customs Authority.

The taxpayer comes to agree with the Tax and Customs Authority in paragraphs 14 to 16 of the right to be heard, regarding the fact that article 78 no. 2 of the VAT Code cannot be applied to the case, in that the operation was not annulled, nor was its taxable value reduced.

The taxpayer also pronounced itself, not agreeing, with the formalism stipulated in no. 13 of Binding Information no. 8404, with dispatch of 24/07/2015, of the VAT Services Department, by delegation of the Director General of the Tax and Customs Authority, namely regarding the submission of Replacement Periodic VAT Declarations with reference to the tax periods in which the invoices with improper VAT charging were issued, which provides as follows:

13 - (...), taking into account the improper assessment of tax, as well as the mandatory mention "VAT - self-assessment", the rectification must comply with the provision in nos. 3 and 5 of article 78, as follows:

i) Proceed to the issuance of credit note(s), in order to annul the invoice(s) previously issued with tax charging:

ii) Issue new invoice without tax charging, containing the expression "VAT - self-assessment", in accordance with no. 13 of article 36 of the VAT Code;

iii) Proceed with the replacement of the periodic declaration(s) previously submitted through the correction (reduction) of the values previously presented in the taxable base and tax in favor of the State (Table 06 - Fields 3 and 4) and, enter the value of the new invoice in Field 8, of Table 6 ("Exempt or not taxed")."

That is, the taxpayer proceeded in accordance with paragraphs i) and ii) of no. 13 of the Binding Information cited, but did not comply with the provision in paragraph iii) of this same no. 13, nor does it wish to see the body of this no. 13 respected, which states that "the rectification must comply with the provision in nos. 3 and 5 of article 78".

The taxpayer also refers with respect to the formalism of submission of Replacement Periodic VAT Declarations with reference to the tax periods in which the invoices with improper VAT charging were issued, in paragraph 19 of the exercise of the right to be heard, the Community case law that it considers to be applicable to its specific case, making reference in this respect to the Barlis Judgment of 15 September 2016, PROCESS C-515/14, on the principle of VAT neutrality.

In this regard, it should be noted that the Tax Inspection Services do not have the power of a court, so the existence of case law may affect the way in which future courts will decide cases covered by the same.

Point III. - REQUEST

The taxpayer comes to request that what was proposed in the Draft Report of the Tax Inspection does not proceed, considering that it must be annulled for all purposes.

Based on all that has been set forth by the taxpayer in the exercise of the right to be heard, having summarized and analyzed above the grounds that were considered of greater relevance and in light of the conclusions drawn, all the corrections proposed in the draft report are to be maintained, and the VAT reimbursement request requested by the taxpayer in the Periodic Declaration of VAT for the period November 2017 (201711) in the amount of € 154,565.19, will be partially deferred in the amount of € 2,023.75, resulting therefore in a VAT correction of € 152,541.44 and a respective Correction Document will be prepared for that VAT period (201711).

  • Following the inspection action, the Tax and Customs Authority issued VAT assessment no. 2018..., dated 11-04-2018, in which it calculated the amount to be reimbursed of € 2,023.75;

  • Regarding a VAT reimbursement request presented by entity B..., S.A., this latter was also subject to an inspection action, by the same Finance Department of ...;

  • In that inspection of B..., S.A. a Report of the Tax Inspection was drawn up which forms part of document no. 4 attached with the request for arbitral pronouncement, whose content is given as reproduced, in which reference is made, inter alia, to the following:

III. DESCRIPTION OF THE FACTS AND BASIS FOR THE PURELY ARITHMETIC CORRECTIONS TO THE TAXABLE MATTER

An analysis was carried out of the documents supporting the accounting entries for the years 2014, 2015 and 2016, namely VAT deductions made in the acquisition of fixed assets and acquisition of goods and services. In the years under review the company acquired various civil construction services provided by company A... Lda, Tax ID ... relating to the Construction of the Urban Bus Terminal of ... . From the analysis of the said invoices it was verified that the correct application of situations of reversal of the taxable person (reverse charge) in the scope of civil construction did not occur under the terms of paragraph j) no. 1 article 2 of the VAT Code. As a result of this situation it was found that the provision in no. 8 of article 19 of the VAT Code, added by Law no. 66-B/2012-31/12, which states that "in cases where the obligation to assess and pay the tax is incumbent upon the acquirer of goods and services, only the tax assessed by virtue of that obligation confers the right to deduction", was not complied with by the taxpayer, having the same improperly deducted tax in a total of € 153,337.11, relating to acquisitions of civil construction services without effecting the proper self-assessment of the same, as indicated in the following table (a copy of the invoices marked below forms part of the work evidence process):

[Table of invoices and VAT amounts as shown in original]

We will proceed to correct the tax deducted in the respective field 20 in the years 2014 and 2015 and field 24 in the year 2016 of the periodic VAT declarations discriminated in the above table. Simultaneously, the VAT in arrears will be assessed, for the reasons referred to above, by virtue of the subjection provided for in paragraph j) of no. 1 of article 2 of the VAT Code and the corresponding deduction under paragraph c) of no. 1 of article 19 of the same code.

In the course of the right to be heard the taxpayer proceeded to correct the omissions described above having submitted replacement periodic VAT declarations for the periods mentioned above, as described in point VI of this report.

(...)

VI. REGULARIZATIONS CARRIED OUT BY THE TAXPAYER IN THE COURSE OF THE INSPECTION ACTION

In the course of the period for exercising the right to be heard the taxpayer proceeded to submit replacement periodic VAT declarations having removed the tax deducted in the respective field 20 in the years 2014 and 2015 and field 24 in the year 2016 of the periodic VAT declarations discriminated in the following table. Simultaneously, it assessed the VAT in arrears, for the reasons referred to above, by virtue of the subjection provided for in paragraph j) of no. 1 of article 2 of the VAT Code and the corresponding deduction under paragraph c) of no. 1 of article 19 of the same Code. The replacement declarations were submitted on 24/11/2017 and are already settled)

[Table of declarations and amounts as shown in original]

(...)

IX. RIGHT TO BE HEARD

On 27 October 2017, notification provided for in article 60 of the General Tax Law and article 60 of the Supplementary Regulation of the Inspection Procedure was sent to the company headquarters for the exercise of the right to be heard within 15 days. The letter was delivered to the addressee. On 13 November 2017 the taxpayer requested in writing the extension for the maximum legally provided period of 25 days to pronounce itself on the draft report. On the same date a letter was sent to the company headquarters granting the maximum period of 25 days for the exercise of the right to be heard. In the course of the right to be heard the taxpayer proceeded to the corrections proposed in this report and submitted the respective VAT replacement declarations as described in point VI of this report. In light of the foregoing I propose the closure of the present service orders.

  • On 20-07-2018, the Claimant submitted the request for arbitral pronouncement that gave rise to the present proceedings.

2.2. Unproven Facts and Reasoning for Determination of Factual Matters

There are no facts relevant to the decision of the case that have not been proven.

The facts were taken as proven based on what was alleged by the Claimant, in the documents attached by it and what appears in the administrative file.

There is no dispute about the proven facts.

3. Matters of Law

The Claimant provided civil construction services to entity B..., S.A., in the scope of the construction work for the Urban Bus Terminal of ...

The Claimant proceeded to charge VAT in invoices it issued in relation to such services, between November 2014 and August 2017.

In November 2017, the Claimant concluded that such VAT charging was improper, as it had not taken into account the reversal of the taxable person (reverse charge) that results from paragraph j) of no. 1 of article 2 of the VAT Code, which establishes that liable to tax are "natural or legal persons referred to in paragraph a) who have their head office, permanent establishment or domicile in national territory and who carry out operations that confer the right to full or partial deduction of the tax, when they are acquirers of civil construction services, including the remodeling, repair, maintenance, conservation and demolition of immovable property, in the form of a contract or subcontract".

After becoming aware of such error, the Claimant proceeded to regularize, in its favor, the VAT improperly charged in the amount of € 154,565.19, issuing the respective credit notes and annulling the invoices in which improper assessment had been made and issuing new invoices without tax charging.

The Claimant entered the amount of improperly charged tax in field 40 of the periodic declaration for the month of November 2017 and requested its reimbursement.

The Tax and Customs Authority did not accept the regularization as to invoices issued more than two years previously, invoking, in summary, the time limit contained in no. 3 of article 78 of the VAT Code and which should have been effected "by the submission of Replacement Periodic VAT Declarations for the periods to be rectified, and it should have been done within two years of the date of submission of the Periodic VAT Declarations to be replaced".

Thus, the Tax and Customs Authority only accepted the regularization as to the amount of € 2,023.75 (corresponding to invoices issued in 2016 and 2017) and made a VAT correction of € 152,541.44 (relating to invoices issued in 2014 and 2015).

Following such correction, the Tax and Customs Authority issued the disputed assessment in which it indicated the amount of € 2,023.75 to be reimbursed.

Meanwhile, the Tax and Customs Authority conducted an inspection of B..., S.A., having as its basis the non-assessment of VAT relating to the invoices in relation to which the Claimant had made the regularization.

In the period for exercising the right to be heard regarding the draft Tax Inspection Report drawn up in this inspection of B..., S.A., this company "proceeded to submit replacement periodic VAT declarations having removed the tax deducted in the respective field 20 in the years 2014 and 2015 and field 24 in the year 2016 of the periodic VAT declarations. Simultaneously, it assessed the VAT in arrears, for the reasons referred to above, by virtue of the subjection provided for in paragraph j) of no. 1 of article 2 of the VAT Code and the corresponding deduction under paragraph c) of no. 1 of article 19 of the same Code."

The amount of VAT that this company B..., S.A. assessed was € 153,337.11, relating to invoices issued by the Claimant in 2014 and 2015 and also invoices issued in 2016.

The Claimant disagrees with the corrections made, imputing them the following defects:

– error regarding the period for exercising the right to regularize the (improperly) assessed tax due to misclassification of the taxable operations of the taxable persons;

– violation of the principle of legality by the Tax and Customs Authority regarding the declarative procedure adopted by the Claimant to report the tax regularization effected by it in the month of November 2017;

– duplication of collection.

3.1. Order of Knowledge of Defects

In accordance with the provision in article 124 of the Code of Administrative Tax Procedure, subsidiarily applicable by virtue of the provision in article 29, no. 1, of the RJAT, "in the judgment, the court will prioritarily appreciate the defects that lead to the declaration of nonexistence or nullity of the impugned act and, afterwards, the defects argued that lead to its annulment" and priority should be given to "defects the finding of which, in accordance with the prudent judgment of the judge, will ensure more stable or effective protection of the harmed interests".

In the case at issue, it appears that the defect of duplication of collection, which is an illegality given special relevance, being subject to official knowledge like nullity (article 175 of the Code of Administrative Tax Procedure), should be assessed with priority, as it has the potential to ensure effective and stable protection of the Claimant's interests.

3.2. Duplication of Collection

Duplication of collection is provided for in article 205 of the Code of Administrative Tax Procedure, as grounds for opposition to tax enforcement.

In accordance with no. 1 of this article 205, "there shall be duplication of collection for the purposes of the preceding article when, being a tax paid in full, another of equal nature is required from the same or a different person, relating to the same taxable fact and the same period of time".

Duplication of collection is doctrinally and jurisprudentially considered a "heresy" in our tax system, and should be known officially by the Tax and Customs Authority or by the Courts, in accordance with article 175 of the same Code.

Being prohibited by law the duplication of collection, when it derives from the issuance of a new assessment and the tax assessed is paid in full, relating to the same taxable fact and the same period of time, it constitutes an illegality of that new assessment, susceptible of being invoked in proceedings for judicial review, which may have as its basis "any illegality" (article 99 of the Code of Administrative Tax Procedure).

Confirmation that the invocation of duplication of collection is not restricted to tax enforcement proceedings, is found in no. 6 of article 78 of the General Tax Law, in which the possibility of revision of the tax act on that basis is foreseen.

As follows from no. 1 of article 205 of the Code of Administrative Tax Procedure, applied to situations in which tax assessments are disputed, there shall be duplication of collection when, being a tax paid in full, another of equal nature is required from the same or a different person, relating to the same taxable fact and the same period of time.

In the case at issue, it is clear that a situation of this type occurs.

In fact, all the VAT that should have been assessed regarding the services provided by the Claimant to which the invoices whose regularization was refused by the Claimant relate, was paid in full by company B..., S.A., as results from the Report of the Tax Inspection relating to this company, which forms part of document no. 4 attached with the request for arbitral pronouncement, which is not disputed by the Tax and Customs Authority.

The fact that it was not the Claimant who made the VAT payment is irrelevant, for this purpose, as it is expressly provided that duplication of collection exists even when the new requirement of tax is made to a different person.

It could be an obstacle to the recognition of the existence of a situation of duplication of collection the eventuality of the payment made by B..., S.A. being capable of being disputed.

The regime of duplication of collection presupposes that the first payment is consolidated, as what justifies the non-requirement of new tax is the fact that with the double application of the same tax rule to a concrete situation an unjustified enrichment of the public treasury is generated.

However, in the case at issue, on 24-11-2017 the situation was regularized by B..., S.A., replacement declarations being submitted by it and the VAT in arrears assessed, relating to invoices issued between 07-11-2014 and 11-08-2016, following corrections proposed by the Tax and Customs Authority accepted by that company, for which reason it is to be considered that the situation is already consolidated, by the expiration of the deadline for impugning it. Besides, this is a situation in which it is manifest that the tax paid by B..., S.A. is due, which strengthens a conclusion towards the consolidation of the payment made by it.

On the other hand, regarding the thesis defended by the Tax and Customs Authority in its submissions, which amounts to the fact that the VAT improperly indicated in invoices relating to a service supply is due cumulatively with what is properly assessed on the basis of the same supply, apart from being incompatible with the aforesaid article 205 of the Code of Administrative Tax Procedure, is contrary to the principle of neutrality, in a situation in which no unjustified enrichment or loss of tax revenues is detectable, as has come to be understood by the CJEU:

– a Member State may only oppose restitution to the operator of a tax collected in breach of Community law if it is proven that the tax was entirely borne by another person and that restitution to the said operator implies to it an unjustified enrichment (judgment of 14-01-1997, case no. C-192/95);

– when the issuer of the invoice has completely eliminated, in due time, the risk of loss of tax revenues, the principle of VAT neutrality requires that this tax may be corrected when improperly invoiced, without this regularization being capable of being subjected by Member States to the good faith of the issuer of that invoice (v. judgments, already referred to, Schmeink & Cofreth and Strobel, no. 58, as well as Karageorgou and others, no. 50) (judgments of 18-06-2009, case no. C-566/07 and of 254-05-2015, case no. C-111/14);

– the rules of Community law relating to the recovery of unduly paid amounts must be interpreted as opposing a national regulation that denies, which it is for the national court to verify, the reimbursement of a tax incompatible with Community law by the mere fact that it has been passed on to third parties, without requiring proof of the extent of the unjustified enrichment that the reimbursement of that tax would cause to the taxable person (judgment of 02-10-2003, case no. C-147/01);

– and the measures which Member States have the option of adopting to ensure the accurate collection of the tax and prevent fraud must not exceed what is necessary to achieve those objectives. Consequently, they cannot be used in a way that calls into question the neutrality of VAT, which constitutes a fundamental principle of the common VAT system established by Union law in this matter (judgment Rusedespred, C-138/12, EU:C:2013:233, nos. 28, 29 and case law referred to) (judgment of 23-04-2015, case no. C-111/14);

– by exception to the principle of reimbursement of taxes incompatible with Union law, the restitution of a tax improperly collected may be refused where it would lead to an unjustified enrichment of the titleholders of the right (judgment of 06-09-2011, case no. C-398/09)

Thus, it is concluded that the disputed VAT assessment, by embodying, through the refusal of the requested reimbursement, requirement to the Claimant of the VAT that is paid by B..., S.A., relating to the service provision made by the Claimant, suffers from the defect of duplication of collection, which justifies its annulment, under the terms of article 163, no. 1, of the Code of Administrative Procedure subsidiarily applicable under the terms of article 2, paragraph c), of the General Tax Law.

3.3. Questions of Prejudiced Knowledge

Given that the request for arbitral pronouncement is to be judged as well-founded due to a defect which ensures effective and stable protection of the Claimant's interests, knowledge of the remaining defects imputed to the disputed assessment becomes prejudiced, for being pointless (article 103 of the Code of Civil Procedure).

4. Restitution of Amount Paid in Excess and Compensatory Interest

The Claimant requests the amount of the reimbursement petitioned by it, and rejected by the Tax and Customs Authority through the issuance of the act of assessment in dispute, in the amount of € 154,565.20, plus the corresponding compensatory interest.

The amount that was refused to the Claimant was € 152,541.44, as its request was granted regarding the amount of € 2,023.75.

Therefore, only the amount of € 152,541.44 is at issue in the present proceedings.

In accordance with the provision in paragraph b) of article 24 of the RJAT, the arbitral decision on the merit of the claim not subject to appeal or challenge binds the Tax Administration from the expiration of the period provided for the appeal or challenge, this administration being required, in the exact terms of the success of the arbitral decision in favor of the taxable person and until the expiration of the period provided for the spontaneous execution of the sentences of the tax courts, to "reestablish the situation that would have existed if the tax act subject to the arbitral decision had not been made, adopting the acts and operations necessary for that purpose", which is in line with the provision in article 100 of the General Tax Law [applicable by virtue of the provision in paragraph a) of no. 1 of article 29 of the RJAT] which establishes that "the tax administration is obliged, in case of full or partial success of a claim, judicial review or appeal in favor of the taxable person, to immediately and fully reestablish the legality of the act or situation subject to the dispute, including the payment of compensatory interest, if applicable, from the expiration of the period of execution of the decision".

Although article 2, no. 1, paragraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the jurisdiction of the arbitral courts operating in the CAAD, making no reference to condemnatory decisions, it should be understood that the jurisdiction includes the powers that, in proceedings for judicial review, are attributed to the tax courts, this being the interpretation that is in harmony with the meaning of the legislative authorization on which the Government based itself for approving the RJAT, in which it proclaims, as the first directive, that "the arbitral tax proceedings must constitute an alternative procedural means to judicial review proceedings and the action for the recognition of a right or legitimate interest in tax matters".

The judicial review proceedings, although essentially a proceeding for annulment of tax acts, admit condemnation of the Tax Administration for the payment of compensatory interest, as is evident from article 43, no. 1, of the General Tax Law, in which it is established that "compensatory interest is due when it is determined, in administrative recourse or judicial review, that there was error attributable to the services as a result of which the tax debt was paid in an amount exceeding what is legally due" and article 61, no. 4 of the Code of Administrative Tax Procedure (in the wording given by Law no. 55-A/2010, of 31 December, which corresponds to no. 2 in the original wording), which "if the decision recognizing the right to compensatory interest is judicial, the payment period is counted from the beginning of the period for spontaneous execution thereof".

Thus, no. 5 of article 24 of the RJAT, in saying that "payment of interest is due, regardless of its nature, under the terms provided for in general tax law and the Code of Procedure and Administrative Tax Process", should be understood as permitting the recognition of the right to compensatory interest in the arbitral proceedings.

As the payment of compensatory interest depends on the existence of an amount to be reimbursed, it falls within the scope of the jurisdiction of the arbitral courts operating in the CAAD to determine whether there is a right to reimbursement and to what extent.

It is therefore appropriate to assess the requests for reimbursement of the amount paid improperly plus compensatory interest.

As a consequence of the illegality of the assessment, the Claimant has the right to be reimbursed of the amounts it paid improperly.

With regard to the right to compensatory interest, it is regulated in article 43 of the General Tax Law, which establishes, insofar as is relevant here, the following:

Article 43

Improper Payment of the Tax Liability

1 – Compensatory interest is due when it is determined, in administrative recourse or judicial review, that there was error attributable to the services as a result of which the tax debt was paid in an amount exceeding what is legally due.

2 – Error attributable to the services is also considered to exist in cases where, despite the assessment being made on the basis of the declaration of the taxpayer, the latter has followed, in filling it out, the generic guidance of the tax administration, duly published.

3. Compensatory interest is also due in the following circumstances:

a) When the legal period for official restitution of taxes is not complied with;

b) In case of annulment of the tax act at the initiative of the tax administration, from the 30th day after the decision, without the credit note having been processed;

c) When the revision of the tax act at the initiative of the taxpayer is made more than one year after the request thereof, unless the delay is not attributable to the tax administration.

**4. The rate of compensatory interest is equal to the

Frequently Asked Questions

Automatically Created

What is the reverse charge (inversão do sujeito passivo) mechanism for VAT in Portuguese construction services?
The reverse charge (inversão do sujeito passivo) mechanism in Portuguese VAT law, introduced by Decree-Law 21/2007 and codified in Article 2(1)(j) of the VAT Code, shifts the obligation to account for VAT from the supplier to the acquirer of civil construction services. When a taxable person with full or partial deduction rights acquires construction services (including remodeling, repair, maintenance, conservation, and demolition) under contract or subcontract arrangements, they must self-assess the VAT due rather than the supplier charging it. This mechanism, based on EU Directive 2006/69/CE, aims to combat VAT fraud by preventing situations where input VAT is deducted but the corresponding output VAT is never remitted to the State. The reverse charge applies specifically when the acquirer has their head office, permanent establishment, or domicile in Portugal and qualifies as a taxable person entitled to VAT deduction rights.
How does duplicate collection (duplicação de colecta) apply in Portuguese VAT disputes?
Duplicate collection (duplicação de colecta) in Portuguese VAT occurs when tax is charged twice on the same transaction, typically when a supplier incorrectly charges VAT under normal rules while the reverse charge mechanism should apply. In Process 349/2018-T, the claimant charged €154,565.20 in VAT on construction services when the acquirer should have self-assessed under Article 2(1)(j) CIVA. This creates double taxation: the supplier reports output VAT while the acquirer may also self-assess. Portuguese law allows taxpayers to regularize such errors through periodic declarations (field 40), but the Tax Authority applied the two-year limitation period under Article 78 CIVA, accepting only €2,023.75 of the €154,565.20 claimed. The dispute centers on whether limitation periods should restrict corrections when duplicate collection has demonstrably occurred, with the claimant arguing that preventing unjust enrichment and avoiding double taxation should override strict temporal limits.
Can a taxpayer request a VAT refund and indemnity interest through CAAD arbitration proceedings?
Yes, taxpayers can request VAT refunds and compensatory interest (juros indemnizatórios) through CAAD (Centro de Arbitragem Administrativa) arbitration proceedings under the RJAT (Regime Jurídico da Arbitragem Tributária), established by Decree-Law 10/2011. In Process 349/2018-T, the claimant sought annulment of VAT assessment 2018... and reimbursement of €154,565.20 plus compensatory interest. CAAD arbitration provides an alternative to judicial courts for resolving tax disputes, offering faster resolution with specialized arbitrators. Article 2 and 10 of RJAT grant jurisdiction over VAT assessment challenges, refund denials, and claims for interest due when the Tax Authority unlawfully retains taxpayer funds. Compensatory interest is mandated by Article 43 of the General Tax Law (LGT) when refunds are delayed beyond statutory periods. The arbitral tribunal has full jurisdiction to review both the legality of the Tax Authority's decision and order appropriate remedies, including payment of principal amounts wrongly assessed and statutory interest for the period of unlawful retention.
What are the requirements for applying the VAT reverse charge mechanism under Portuguese tax law?
The requirements for applying the VAT reverse charge mechanism under Portuguese tax law, specifically Article 2(1)(j) of the VAT Code, are: (1) The services must constitute civil construction services, including construction, remodeling, repair, maintenance, conservation, or demolition of immovable property; (2) The services must be provided under contract or subcontract arrangements; (3) The acquirer must be a natural or legal person with their head office, permanent establishment, or domicile in Portuguese territory; (4) The acquirer must qualify as a taxable person under Article 2(1)(a) CIVA; (5) The acquirer must carry out operations conferring the right to full or partial VAT deduction. As clarified in Circular Letter 30101 of May 24, 2007, suppliers should verify the acquirer's VAT status through the Tax Authority's electronic declaration system before determining whether reverse charge applies. When these conditions are met, the supplier issues invoices without charging VAT (or with specific reverse charge notations), and the acquirer self-assesses both output VAT (as deemed supplier) and claims input VAT deduction (as acquirer) in the same periodic declaration, resulting in neutral impact when full deduction rights exist.
How did the CAAD Arbitral Tribunal rule on the VAT assessment in Process 349/2018-T regarding duplicate collection?
While the full decision text is not provided in the excerpt, the arbitral tribunal in Process 349/2018-T was constituted on September 27, 2018, to rule on whether the Tax Authority correctly limited VAT regularization to the two-year period under Article 78 CIVA when duplicate collection occurred. The panel consisted of Counsellor Jorge Lopes de Sousa (president), Dr. Adelaide Moura, and Dr. Marcolino Pisão Pedreiro. The factual findings established that: (1) the claimant improperly charged €154,565.20 in VAT on construction services between November 2014 and August 2018 when reverse charge should have applied; (2) the claimant regularized this amount in November 2017 by issuing credit notes and new invoices without VAT; (3) the Tax Authority only accepted €2,023.75 within the two-year limitation period, rejecting €152,541.44. The tribunal would need to balance statutory limitation periods against principles preventing unjust enrichment and duplicate taxation. The decision would likely address whether Article 78's two-year limit applies when the State would otherwise retain tax on transactions where no tax was ultimately due, potentially establishing precedent for similar construction sector disputes involving delayed discovery of reverse charge applicability.