VAT Invoice Correction Deadline: 4-Year vs 2-Year Rule – CAAD Case 350/2015-T

ARBITRATION DECISION

The Arbitrators José Pedro Carvalho (President Arbitrator), Sílvia Oliveira and António Nunes dos Reis, designated by the Deontological Council of the Administrative Arbitration Centre to form an Arbitration Court hereby agree:

I – REPORT

On 1 June 2015, A..., Legal Entity no. ..., with registered office at Street ..., no. ..., ... ... (hereinafter designated as Claimant), filed an application for the establishment of an Arbitration Court, under the provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, briefly designated RJAT), naming as Respondent the Tax and Customs Authority (hereinafter designated as Respondent), seeking a declaration of illegality of "the self-assessment acts undertaken in respect of VAT underlying the said acts, relating to the period between February and December 2010 and between January and April 2011", as well as of "the dismissal decision of the request for official review (...) issued on 25 February 2015, by the esteemed Deputy Director of Finance of the Finance Department of ..., in the exercise of delegated powers, and notified to (...) the Claimant on 3 March of the current month, through Official Letter No. ...".

To support its request, the Claimant alleges, in summary, that the decision to reject the request for official review of said self-assessment acts is illegal, invoking for this purpose the applicability of Article 98 of the Code on Value Added Tax (VAT) and Article 78 of the General Tax Law (LGT), from which it results that it would have a period of four years to request the review of tax acts, and therefore the two-year period enshrined in Article 78, No. 3 of the VAT Code, pertaining to the system of regularizations, would not be applicable to the case sub judice.

On 02-06-2015, the application for the establishment of the Arbitration Court was accepted and automatically notified to the Respondent.

The Claimant did not proceed to nominate an arbitrator, and therefore, under the provisions of paragraph (a) of No. 2 of Article 6 and paragraph (a) of No. 1 of Article 11 of the RJAT, the President of the Deontological Council of the CAAD designated the initial composition of the collective Arbitration Court with the signatories José Pedro Carvalho and António Nunes dos Reis, as well as Professor Guilherme d'Oliveira Martins, who communicated acceptance of the position within the applicable period.

On 27-07-2015, the parties were notified of such initial designations, and did not express any intention to refuse any of them.

In accordance with what is prescribed in paragraph (c) of No. 1 of Article 11 of the RJAT, the collective Arbitration Court was constituted on 27-08-2015.

On 01-10-2015, the Respondent, duly notified for this purpose, filed its response defending itself through both exceptions and challenges to the merits.

On 16-10-2015, duly notified to do so, the Claimant responded to the matter of exception contained in the Respondent's Response.

Considering that, in this case, none of the purposes legally entrusted to it were verified, under the provisions of Articles 16(c), 19 and 29/2 of the RJAT, as well as the principles of procedural economy and the prohibition of performing futile acts, the Arbitration Court dispensed with the holding of the meeting to which Article 18 of the RJAT refers.

Having been granted a period for the presentation of written submissions, these were presented by the parties, pronouncing themselves on the evidence produced and reiterating and developing their respective legal positions.

A period of 30 days was set for the issuance of the final decision, following the presentation of submissions by the Respondent.

However, considering that Professor Guilherme d'Oliveira Martins, duly designated for the duties of assistant arbitrator in this case (see point 4, above) came to resign, justifiably, from his duties, by order of the President of the Deontological Council of the CAAD, dated 4-12-2015, his replacement by Dr. Sílvia Oliveira was determined.

In these terms, by arbitration order dated 14-12-2015, the period set in point 11, above, was extended by a further 30 days for the presentation of the final decision.

The Arbitration Court is materially competent and is regularly constituted, under the terms of Articles 2, No. 1, paragraph (a), 5 and 6, No. 1, of the RJAT.

The parties have legal personality and capacity, are legitimately interested and are legally represented, under the terms of Articles 4 and 10 of the RJAT and Article 1 of Order No. 112-A/2011, of 22 March.

The cumulation of claims hereby effectuated by the Claimant is legal and valid, under the provisions of Article 3, No. 1 of the RJAT, given that the merits of the claims depend, essentially, on the assessment of the same circumstances of fact and the interpretation and application of the same principles or rules of law.

The case is not affected by any nullities.

Thus, there is no obstacle to the determination of the case.

Everything considered, judgment must be rendered.

II. DECISION

A. MATTERS OF FACT

A.1. Facts established as proved

1. The Claimant is a public legal entity, endowed with legal personality and administrative, financial and patrimonial autonomy, subject to the superintendence of the Municipality of ... .

2. The corporate purpose of the Claimant is the "exercise of the activity of management of public works" for the Municipality, which delegated to it the necessary powers for its pursuit.

3. The Claimant is a VAT taxable person subject to the normal monthly periodicity regime, with CAE [Classification of Economic Activities] .... .

4. The relationship between the Claimant and the Municipality of ... is governed by program contracts concluded annually, which define in detail the corporate object and mission of the municipal company, as well as its functions.

5. For the years 2010 and 2011, the program contracts were concluded and attached as Documents No. 3 and No. 4 to the Claim.

6. Under the terms of the program contracts referred to above, the Municipality assigned to the Claimant the functions of contracting, management, monitoring and supervision of public works.

7. The pursuit of these functions involved the performance of all material and legal acts necessary for the completion of works whose management was indicated by the Municipality, involving any activity, from its conception to the reception of the respective works.

8. In the aforesaid program contracts, on the basis of the prepared budget, the price of the services (specifically, the execution of civil construction contracts) to be provided by the Claimant to the Municipality was defined, within the framework of the previously described powers.

9. Additionally, the value to be transferred by the Municipality to cover the losses of the Claimant (designated as "general management charges") was also defined.

10. In this scope, and given their nature, the values received by the Claimant, provided for in the program contracts, related to the following situations:

a. Execution of contract services; and

b. General management charges.

1. For the performance of contract services, which essentially involved the execution of works requested by the Municipality, the Claimant acquired various goods and services, from contracts to projects or any other services deemed necessary to ensure the performance of the works in question.

2. The performance of these services thus implied the subcontracting of (sub)contracts, as well as the acquisition of various services associated with the execution of the actual work, namely work safety, work inspection and measurement services, legal services, as well as services for the supervision and control of the execution of the contracts.

3. In the year 2010 (February to December), the Claimant here invoiced to the Municipality of ... the totality of the value of the services it acquired for the performance of these works, considering that it provided various services/transfers of goods to said Municipality.

4. Thus, during the year 2010 (February to December) the VAT treatment applied by the Claimant to the services provided to the Municipality was based on the VAT treatment applied by its suppliers in the acquisition of goods and services necessary for the performance of the works.

5. Therefore, in 2010, the Claimant charged VAT at the normal rate in the invoicing concerning goods and services connected with said contracts that it performed for the Municipality of ... (such as work safety, work inspection and measurement services, legal services, supervision and control of the execution of the contracts).

6. Subsequently, the Claimant came to understand that said services qualified as "contract services" and therefore understood it necessary to correct the VAT classification that, as described above, it had mistakenly applied.

7. The values referring to general management charges received by the Claimant corresponded to a revenue allocation made by the Municipality to the Claimant, under the terms of the program contract concluded annually between these two entities.

8. In 2010 (February to December) and 2011 (January to April), the Claimant charged VAT at the normal rate on these values.

9. Subsequently, the Claimant came to understand that the values received by it under the heading "general management charges" were intended to subsidize its activity, not thus involving the exchange of reciprocal performances between both entities, since they aimed to balance the company's accounts, ensuring coverage of the deficit resulting from the activity performed by it.

10. Therefore, the Claimant understood that this VAT classification should be corrected.

11. From May 2011, inclusive, the Claimant altered the procedures previously adopted, ceasing to charge VAT on the transfers in question here.

12. The Claimant proceeded to issue credit notes to correct the VAT classification applied to the operations referred to above, cancelling the VAT charged in excess on the invoices initially issued, having in its possession the respective evidence of the Municipality of ... 's receipt of this correction.

13. Specifically, on 27-02-2014, the Claimant issued credit notes 2014NC..., 2014NC..., and 2014NC..., in which it calculated a total amount of VAT to be regularized of €283,882.96.

14. With a view to recovering the VAT it understood had been charged in excess as a result of the VAT classification it had applied to the aforementioned operations, the Claimant presented, on 27-02-2014, a request for official review, requesting the Tax Authority to regularize in its favor the tax paid in excess during the years 2010 and 2011, in the total amount of €283,882.96.

15. Following said request, the Claimant was notified, on 3 March 2015, through Official Letter No. ..., dated 25 February, of the Decision dismissing the request for official review submitted.

16. Which, in turn, referred its grounds to the content of the draft decision to dismiss, previously notified to the Claimant here on 03-02-2015, through Official Letter No. ... dated 29 January 2015[1].

A.2. Facts established as not proved

None.

A.3. Reasoning of the matters of fact proved and not proved

Regarding matters of fact, the Court does not have to pronounce itself on everything that was alleged by the parties; rather, it has the duty to select the facts that matter for the decision and to differentiate the matter proved from that not proved [see Article 123, No. 2, of the Code of Procedure and Tax Process (CPPT) and Article 607, No. 3 of the Code of Civil Procedure (CPC), applicable by virtue of Article 29, No. 1, paragraphs (a) and (e), of the RJAT].

In this manner, the facts pertinent to the judgment of the case are chosen and delimited according to their legal relevance, which is established in view of the various plausible solutions of the legal question(s) (see former Article 511, No. 1, of the CPC, corresponding to the current Article 596, applicable by virtue of Article 29, No. 1, paragraph (e), of the RJAT).

Thus, having regard to the positions taken by the parties, in light of Article 110/7 of the CPPT, the documentary evidence and the file joined to the case records, it was considered proved, with relevance to the decision, the facts listed above.

B. LAW

a. Preliminary matters

i. On material incompetence

The Respondent begins by raising (Articles 43 et seq.) the exception of material incompetence of this arbitration court, alleging that the decision to dismiss the request for official review now being challenged "was motivated by the subsumption of the case in question into the discipline of No. 3 of Article 78 of the VAT Code, and consequently concluded on the non-compliance with the two-year period for the regularization of invoices imposed therein", and therefore "the legality of any tax assessment act was not appreciated".

Thus, in the thesis of the Respondent, we would be "faced with an administrative act in tax matters which, by not appreciating or discussing the legality of the assessment act, cannot be subject to judicial review, under the terms provided in paragraph (a) of No. 1 of Article 97 of the CPPT and Article 2 of the RJAT", and therefore "the review of the act in question is outside the scope of matters susceptible to appreciation in arbitration".

However, the Respondent itself ends up acknowledging that "the merits of the request for official review were appreciated, and the same was not granted due to non-compliance with the 4-year period established in Article 78 of the LGT."[2]

Now, the request for official review – naturally, and as unquestionably results from Article 78 of the LGT – is a request for official review of tax acts, acts which, in this case, can be none other than the Claimant's VAT self-assessment acts relating to the period between February and December 2010 and between January and April 2011.

In this manner, having been, as admittedly it was, cognizant of the merits of the request for official review, necessarily the legality of the referred tax acts, which constituted its object, was known.

In this scope, jurisprudence has corroborated what has been presented above, in the sense that (i) the appropriate procedural means to know the legality of an act of decision of the procedure for official review of an assessment act is the special administrative action if the legality of the assessment act was not appreciated in that decision [3](emphasis ours) and (ii) the appropriate procedural means to know the legality of an act of decision of the procedure for official review of an assessment act is the process of judicial review if the legality of the assessment act was appreciated in that decision (emphasis ours)[4].

Furthermore, as emphasizes Jorge Lopes de Sousa, in the comments to Article 97 of the CPPT:

"It clearly follows that, in cases where the act to be challenged is an assessment act or an act that entails the appreciation of an assessment act [(…) act of appreciation of a request for official review (…)] the appropriate means is the process of judicial review. If in the act performed (…) the legality of the assessment act was not appreciated, (…) the appropriate means of challenge will be the special administrative action (…) since it will be an act that does not appreciate the legality of an assessment act. Although it is not usual to determine the appropriate judicial means through the content of the act and not its nature or the administrative or tax procedure in which it was issued, it is clear that paragraph (d) of No. 1 and No. 2 of this Article 97 make the choice between judicial review or the special administrative action (contentious proceedings) depend on the content of the act and not any other factor" (emphasis ours)[5] [6].

The Respondent also sustains, further on (Articles 78 to 81 of the Response), that material incompetence of the Court will occur, since one cannot "in the situation of the case equate the request for official review to a claim for self-assessment, since, as mentioned, in official review the Claimant merely requested authorization for VAT regularization, not having sought the (il)legality of any self-assessment act".

Now, the request for official review has as its object – as it necessarily could not be otherwise and results directly from its legal regime[7] – tax acts, and such acts were, in this case, the self-assessment acts of VAT on which the present arbitration action also focuses.

There is thus no reason whatsoever to support the Respondent – also in this part – since the request for official review – which, unquestionably, was the procedure that unfolded in the case sub iudice – had tax acts as its object – and not claims for "authorization for VAT regularization", thus demonstrating that the Tax Authority properly interpreted, in gracious proceedings, the Claimant's claim, even corresponding it to the appropriate procedure.

Further on in its Response (Articles 108 et seq.), the Respondent reiterates the issue of material incompetence of this Arbitration Court, in the measure that "in the situation sub judice there was always an obligatory precedence of gracious claim under the terms provided in No. 1 of Article 131 of the CPPT.", since "by force of what is established in Article 2, paragraph (a) of Order No. 112-A/2011, the disputes that have as their object the declaration of illegality of self-assessment acts, as occurs in the situation sub judice, are excluded from the material competence of arbitration courts if not preceded by a gracious claim under the terms of Article 131 of the CPPT, independently of whether this is mandatory under the terms of the cited provision or whether the taxable person has opted (…) for official review", an understanding that will be imposed "by force of the constitutional principles of the Rule of Law and separation of powers (see Articles 2 and 111, both of the CRP), as well as legality (see Articles 3, No. 2, and 266, No. 2, both of the CRP), as a corollary of the principle of indisponibility of tax credits inherent in Article 30, No. 2 of the LGT, which bind the legislator and all activity of the Respondent".

As can be seen, the Tax Authority grounds its understanding on Article 2(a) of Order 112-A/2011, of 22 March, which excludes from disputes cognizable by arbitration courts operating at the CAAD, "claims relating to the declaration of illegality of self-assessment acts, withholding at source and payment on account that have not been preceded by recourse to the administrative means under Articles 131 to 133 of the Code of Procedure and Tax Process".

The Respondent understands, in light of this normative, that the same should be understood in its literal sense, excluding from the scope of arbitration tax jurisdiction the claims relating to the declaration of illegality of self-assessment acts that have not been preceded by claim under the terms of the referred provisions of the CPPT.

The entire argument of the Respondent on this matter, however, ends up being reduced to sustaining that it was the legislator's intention to restrict the competence of arbitration tax jurisdiction, as regards the knowledge of illegalities of self-assessment acts, only to situations in which there exists a claim presented under Articles 131 to 133 of the CPPT, since that is what the text of the interpreted provision says.

With all due respect, no substantial reason is discerned from among those offered by the Respondent that explains the rationality of the understanding it sustains. Effectively, no substantial reason is discerned – and the Respondent presents nothing in that sense – for why, given the conditionings and specificities proper to each of the gracious means in question, in the same terms as the tax courts are bound, the legality of self-assessment acts should not be cognizable in arbitration.

On the other hand, even a literalistic reading of the provision in question, provided it is properly contextualized, does not inexorably lead to the result defended by the Respondent in this case.

Effectively, the expression employed by such provision is parallel to the provision itself of Article 131/1 of the CPPT, which should be understood as a concretion of the assumed, and peacefully recognized, legislative intention that the arbitration tax process constitute an alternative procedural means to the process of judicial review.

The provision of paragraph (a) of Article 2 of Order 112-A/2011, of 22 March, should also be understood as explained by the circumstance that, in its absence – and given the content of Article 2 of the RJAT – it would appear to be possible the direct challenge of self-assessment acts, without precedence of prior administrative pronouncement.

That is, taking into account that given the RJAT it did not configure as necessary any prior administrative intervention to the arbitration challenge of a self-assessment, the content of the Order should be interpreted as equating – in this matter – the arbitration tax process to the process of judicial review and not, as would result from the position sustained by the Respondent, going from 80 to 8, taking a wider challengeability than that possible in the Tax Courts, and transmuting it into a more restricted one.

Thus, no reason is seen – and, once more, the Respondent gives no assistance in that sense – for why such provision should be interpreted differently from the other, all the more so since the letter of the provision of Order 112-A/2011, of 22 March, ends up being less restrictive than that of the CPPT, in the measure that it does not include the expression "mandatorily", nor does it refer to "gracious claim" but to "administrative means". Hence it is possible a reading of the letter of the law itself that contains itself in the sense that only the knowledge of claims relating to the declaration of illegality of self-assessment acts, withholding at source and payment on account that have not been preceded by recourse to the administrative means in terms compatible with Articles 131 to 133 of the CPPT is excluded from the scope of arbitration tax jurisdiction.

And this is the reading that is subscribed to, following the Decision rendered in case 48/2012T of the CAAD, and subsequent arbitration jurisprudence, as well as the doctrine that has been formed[8], it not being found, in the measure that the interpretation effectuated is contained in the letter of the law, that therefrom can result the violation of any constitutional provision, especially the indicated Articles 2, 3, No. 2, 111 and 266, No. 2, all of the Constitution of the Portuguese Republic (CRP).

Thus, and in light of all the foregoing, the Respondent having no reason in this matter, the exception of incompetence of the Arbitration Court should be judged unmeritorious.

ii. On the lack of subject matter of the dispute

The Respondent proceeds, sustaining that "going through the narrative (of fact and law) developed throughout the pleading, no reference is found to any concrete act of (self) assessment of tax (in this case VAT)".

Thus, since "the subject of the arbitration pronouncement request would necessarily have to correspond to one or more periodic tax statements (the one or those in which the legal non-conformities that are intended to be corrected are reflected) and, not, as results from the initial request, a set of months of a particular tax year", it will be verified that the "non-existence of an object subject to review in arbitration hinders the knowledge of the request, and, therefore, should determine the absolution of the Respondent from the instance"

Also here the Respondent will have no reason whatsoever.

Effectively, it is already clear from the request for official review, to the Court and to any average recipient, that the Claimant seeks the annulment of its VAT self-assessment acts relating to the period between February and December 2010 and between January and April 2011, acts which are, moreover, within the knowledge of and in the possession of the Respondent[9], and that such claim is grounded on the wrongful amount of tax mentioned in the invoices underlying those self-assessments, being further grounded, the present arbitration action, on the alleged illegality of the act of dismissal of the request for official review of those self-assessment acts, due to erroneous application of the period to which No. 3 of Article 78 of the VAT Code refers.

It is, therefore, clear and perfectly defined the subject matter of the present dispute, which manifestly does not lack thereof, and therefore the second of the exceptions raised by the Respondent should be unmeritorious.

iii. On timeliness

Admitting already "that the mediate object of the request is, unquestionably, the self-assessment acts" identified, the Respondent then understands "that the period legally defined for the challenge of assessment/self-assessment acts in arbitration is clearly exceeded", since "having exceeded the period of direct challenge of the self-assessment act of tax (that is, the primary act), the 'timeliness' of the request could only be grounded on the existence of some means of gracious challenge of the self-assessment act where a decision had been issued denying/dismissing, in whole or in part, the claims formulated therein by the taxable person (which would constitute a second-tier act)".

The Respondent's understanding in question is based on the already above-analyzed perspective that "in official review the Claimant merely requested authorization for VAT regularization, not having sought the (il)legality of any self-assessment act".

Now, as was already denoted, the request for review had as its object tax acts, and such acts were, unquestionably, the VAT self-assessment acts on which the present arbitration action also focuses.

Thus, given the existence of a means of gracious challenge of the self-assessment act where a decision was issued denying/dismissing, in whole or in part, the claims formulated therein by the taxable person (which constitutes a second-tier act), this exception should also be judged unmeritorious.

iv. On contradiction of claims

The Respondent also raises in its Response, the understanding that "the claims formulated in the arbitration pronouncement request, that is, the annulment of the self-assessment and the condemnation of the Respondent to reimburse the VAT charged in excess in the years 2010 and 2011 are incompatible with each other".

The Respondent alleges that "the restoration of tax truthfulness in the specific case is effected through the issuance of new invoices, which should be recorded in field 40 of the periodic statement of the respective regularization – to be effected within the period – and never through the substitution or annulment of the periodic statements relating to the period corresponding to the invoices that were annulled, and therefore the solution in this case can never consist of the annulment of the assessments".

It happens that there is no, and the Respondent does not even attempt such a demonstration, any relationship between the understanding conveyed and the conclusion drawn therefrom.

Effectively, if – and this constitutes a matter of law to be determined in the appreciation of the merits of the case – in fact the method of restoration of tax truthfulness is through the issuance of new invoices, and if such implies, or not, the substitution or annulment of the periodic statements relating to the period corresponding to the invoices that were annulled, therefrom will not result the defectiveness of the initial request, but simply the unmeritoriousness of the claims, which do not contain, between them, any contradiction.

Therefore, this exception also raised by the Respondent is unmeritorious.

b. on the merits of the case

The situation at hand in the present case, and which is presented for decision by this Court, is, in its essential outlines, of simple definition.

Effectively, what occurred is that the Claimant, in the periods between February 2010 and April 2011, charged in invoices it issued to the Municipality of ... and received from it, VAT which, in its opinion, wrongfully and in excess, it included in its corresponding periodic statements and which, in due course, it remitted to the State.

Subsequently, on 27/02/2014 the Claimant proceeded to issue credit notes to correct the VAT classification applied to the operations referred to above, cancelling the VAT charged in excess on the invoices initially issued, in the amount of €283,882.96, and having in its possession the respective evidence of receipt of this correction by the Municipality of ... .

On the same date, it submitted a request for official review of the self-assessment acts embodied in said periodic statements, a request that was dismissed by the Respondent, since it understood that in order to correct the situation in question, it was necessary to proceed to the correction of the invoices under the terms of Articles 29/7 and 78/1 of the applicable VAT Code, within the period to which No. 3 of this latter article refers.

It is therefore necessary to assess the legality of such decision, as well as of the Claimant's self-assessment acts embodied in its periodic statements for the periods between February 2010 and April 2011.

Following what has been said, it will therefore be necessary to verify whether or not the self-assessments in question were carried out in non-conformity with the law.

For this purpose, Article 27/1 of the applicable VAT Code provides that "taxable persons are obliged to remit the amount of tax due, determined under Articles 19 to 26 and 78, within the period provided for in Article 41, to legally authorized collection points"[10], the amount of tax due being determined, through deduction, under Articles 19 and following of the same Code, to be made on the tax incidental to the taxable operations they undertook.

For this purpose, and insofar as the case here is concerned, taxable persons are obliged to "send monthly a statement relating to the operations undertaken in the exercise of their activity during the course of the second preceding month, indicating the tax due or the credit existing and the elements that served as the basis for its calculation" (Article 29/1/c of the VAT Code).

These are the statements which, in the measure that therefrom results an obligation to pay under the heading of tax, constitute acts of (self) assessment, were at issue in the request for official review and are, presently, at issue.

Now, unless better advised, the VAT incidental to the taxable operations that the taxable person undertook and which should appear in such statements will be the VAT that was charged in the corresponding invoices issued by the declaring taxable person, in compliance with the legal obligations enshrined in Articles 36/5/d) and 37/1 of the VAT Code.

Such understanding will be imposed, immediately, given the Common VAT Regime itself (Directive 2006/112/EC of the Council, of 28 November 2006), which expressly provides (Article 203) that "VAT is due by all persons who mention this tax in an invoice", and under the terms of Article 226 of that Directive, the invoice includes, mandatorily, the applicable VAT rate[11].

Also – and as could not be otherwise – the national legal system points in the same direction, providing, immediately, Article 2/1/c) of the VAT Code, that persons subject to the tax are, "natural or legal persons who, in an invoice or equivalent document, improperly mention VAT".

From this results, clearly, it is judged, the obligation to remit to the state the VAT invoiced, even if improperly, for whatever reason, including, obviously, either the application of a rate higher than that due, or its improper mention, which are the two situations at issue in the present case.

For this very reason, Article 29/7 of the same Code provides that "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", and it should be borne in mind here Article 219 of the Directive above-mentioned, which provides that "any document or message that alters the initial invoice and makes specific and unequivocal reference to it is assimilated to an invoice".

Finally, but no less relevantly, Article 97/3 of the VAT Code provides that "assessments can only be annulled", following hierarchical review, claim and/or challenge, "when it is proved that the tax was not included in the invoice or equivalent document given to the purchaser under Article 37".

In this manner it is demonstrated, it is judged, that the self-assessment undertaken by VAT taxable persons, in the statement presented under Article 29/1/c) of the VAT Code, can only be annulled, either in official review proceedings, or in challenge proceedings, as regards the determination of the amount of tax incidental to the taxable operations they undertook, if the tax in question is not contained in an invoice or equivalent document given to the purchaser, and is in force.

What, moreover, is well understood, since the mechanics of the tax in question is based on the essentiality of the invoice, and therefore, immediately, the purchaser(s) of the Claimant's services, who possess the invoices issued by it, will be able, meeting the requirements that the applicable law imposes on them, to deduce the tax contained therein.

It is concluded, thus, that in order for it to be possible to annul the self-assessments in question, it was necessary that the invoices issued by the Claimant (in which it, admittedly, included 23% VAT) be corrected, in legal terms, so that, in some cases, the mention of VAT would be eliminated, and, in others, the rate that the Claimant considers correct would come to appear, as well as the corresponding amount of tax, resulting from the application of this rate to the taxable value of the operation.

It was necessary, therefore, that the procedure established in Article 78 of the VAT Code be followed, which provides, in its No. 1 that "the provisions of Articles 36 and following must be observed whenever, after the invoice or equivalent document is issued, the taxable value of an operation or the respective tax is to be rectified for any reason".

If such requirements are verified, the self-assessments can be annulled.

If such requirements are not verified, there will be no legal basis for the annulment of the self-assessments in question, since these are undertaken in conformity with the provisions governing them.

What has just been concluded is not hindered by the circumstance – which is not disputed – that the operations in question, given the legal framework (the "normative block", in the Claimant's words) are not taxable, or are taxable at a rate lower than that invoiced by the Claimant, of 23%.

Effectively, from this results, not the illegality of the self-assessments undertaken by the Claimant in the statements to which Article 29/1/c) of the VAT Code refers, but of the assessments undertaken by the Claimant itself in the invoices it issued, in compliance with Article 37/1 of the VAT Code[12], assessments the correction of which was incumbent on the Claimant itself, under the terms set out above.

Thus, as was decided in the Decision of the TCA-South [Administrative Tax Court – South] of 04-07-2000, rendered in case 1525/98[13]:

"1. The VAT debt of each taxable person is found by deducting from the total of the tax mentioned in the invoices processed to its clients the tax borne in the invoices of acquisition of goods and services intended for its production, all reported to a certain period of time;

1. If there is a change in the taxable value of goods or services, the taxable person may proceed to its rectification, such being optional if the tax mentioned in the invoice is higher, and obligatory if such tax is lower;

2. In case of tax mentioned in the invoice of an amount higher than that due, as long as it is not rectified, the same is due, and it is incumbent on the Tax Authority to make an additional assessment, should the taxable person fail to do so".

In the case, it is therefore determined that the Claimant proceeded to issue credit notes to correct the VAT classification applied to the operations referred to above, cancelling the VAT charged in excess on the invoices initially issued, in the amount of €283,882.96, and having in its possession the respective evidence of receipt of this correction by the Municipality of ... .

The Respondent first questions, in arbitration, that the Claimant complied with the provisions of Articles 29/7 and 78/1 of the applicable VAT Code, in the measure that it did not attach to the case records copies of the corrected invoices it allegedly issued.

With all due respect, it is understood that the Respondent has no reason in such matter, in the measure that the provisions in question should be interpreted in light of applicable Community Law and, as has already been seen, Article 219 of the VAT Directive provides that "any document or message that alters the initial invoice and makes specific and unequivocal reference to it is assimilated to an invoice", which is unquestionably, it is judged, the case of the credit notes presented by the Claimant.

The Respondent further argues, in the present case, that the regularization of tax resulting from the rectification of the invoices in question should occur in the statement for the period in which the rectification takes place, and not in the period to which the rectified invoices refer, asserting that "the restoration of tax truthfulness in the specific case is effected through the issuance of new invoices, which should be recorded in field 40 of the periodic statement relating to the period in which the regularization was effected, and never through the substitution or annulment of the periodic statements relating to the period corresponding to the invoices that were annulled".

Also here it is considered that the Respondent has no reason.

Effectively, and immediately, that Authority bases such position on Annex V to Circular Official Letter No. 30082/2005, of 17 November, of the VAT Services Department, which contains no grounds whatsoever.

Now, properly interpreted, the applicable provisions will have to lead to the opposite conclusion, that is, that the rectification of the invoices should be reflected in the periodic statement relating to the period in which the same were issued, and not the period in which the rectification took place.

In truth, the rectification does not correspond to the undertaking of a new taxable operation, nor even to an alteration of that one, but rather to the rectification of the taxable value thereof, or of the amount of tax on it incidental, contained in the invoice originally issued[14], and therefore should be reflected in the tax assessment of the period in which the corrected invoice was issued, and not that in which the correction took place.

Here will reside, moreover, the basis for the temporal limitation of 2 years, established in No. 3 of Article 78 of the VAT Code.

Effectively, and unless better advised, such limitation will be directly related to the general period of expiration of the right to assess taxes, fixed in Article 45/1 of the LGT, on the one hand, and to the mechanism of the right to deduction, intrinsic to the functioning of VAT, on the other. Since, corresponding, as a rule, the assessment of tax by a taxable person of that tax, to the right of deduction of another taxable person, the rectification downward, by a taxable person of tax, in the taxable value of an operation, or of the tax due thereon, will correspond, as a rule, to a decrease in the corresponding right to deduction of another taxable person.

It will be this circumstance that will justify the establishment of the reduced 2-year period, for the rectifications in question, since, if it were not so, and the taxable person could undertake such rectifications within the 4-year period, occurring such near the end of this period, the Respondent would be rendered unable to supervise and correct the repercussions of the rectification undertaken, in the legal sphere of the counterparty of the taxable person who effectuated the correction.

Thus being, how will the limitation to two years of the possibility of correction only be understandable, within the framework of the understanding that considers that the rectification does not correspond to the undertaking of a new taxable operation, or to an alteration thereof, but rather to the rectification of the value of the original operation, or of the amount of tax incidental thereto, contained in the invoice originally issued, since if it were not so, and the rectification were considered a new taxable operation, or an alteration thereof, it would make no sense to limit the possibility of the rectification to two years counted from the operation underlying the rectified invoice, since the Respondent would always have a 4-year period, counted from the rectification, to supervise and correct what it deemed fit.

Indeed, precisely because the rectification relates to the period in which the inaccurate invoice was issued, can it only "be effected without any penalty until the end of the period following that to which the invoice to be rectified relates"[15].

It is concluded, in this manner, that the rectifications undertaken under No. 3 of Article 78 of the VAT Code, should be reflected in the tax assessment of the period in which the rectified invoice was issued, as occurred in the case sub iudice, and not that in which the correction took place.

Notwithstanding it being considered, as has just been seen, that the Claimant proceeded to the correction of the invoices it understood to be afflicted with error (due to improper application of VAT, or due to application of a rate higher than that due) and that the rectifications should be reflected in the self-assessments of the periods in which the rectified invoices were issued (as happened), it is judged that the rectifications undertaken by the Claimant (and at issue in the present case) will not be effective for VAT purposes, in the measure that they occurred beyond the period established in Article 78/3 of the VAT Code, as was understood in the decision on the request for official review.

The Claimant sustains that that period will not be applicable, in this case, in the measure that, in its opinion, "the rule contained in No. 1 of Article 98 of the VAT Code is applicable to the situation at issue, which provides that 'when due to reasons attributable to the services, tax higher than that due has been assessed, official review is undertaken under Article 78 of the LGT', and the VAT charged in excess can be recovered within a 4-year period".

Now, with all due respect, it is judged that, contrary to what the Claimant appears to understand, the provisions of Article 98/1 and 78/3 of the VAT Code will not be incompatible or mutually exclusive.

Effectively, and in the sequel of everything set out above, it must be borne in mind that one thing will be the assessment of tax undertaken in an invoice issued by a taxable person, in which it charges the taxable person purchaser the tax, and another will be the self-assessment undertaken in the corresponding periodic statement, where it fixes the tax to be remitted to the State.

As was also seen, the self-assessment should be in conformity with the VAT actually assessed by the declaring taxable person in its invoicing (reduced by the VAT mentioned in invoices in which that one appears as purchaser, and which is deductible). Hence the illegality of that (self-assessment), to the prejudice of the taxable person, for what interests us now, may result from two types of situation, namely:

• the non-conformity between the self-assessment and the VAT actually assessed by the declaring taxable person in its invoicing, or mentioned in invoices in which that one appears as purchaser, and which is deductible;

• the rectification, downward, of the VAT actually assessed by the declaring taxable person in its invoicing.

In any of the cases referred to above, the provisions of Article 98/1 of the VAT Code will apply.

However, in the first case, the self-assessment will be immediately illegal, because it is not in conformity with the VAT actually assessed by the declaring taxable person in its invoicing, or mentioned in invoices in which that one appears as purchaser, and which is deductible.

In the second case, the self-assessment will only become illegal, subsequently, as a function of the rectifications in invoicing. And here is where the provision of No. 3 of Article 78 of the VAT Code will come in, which does not limit the period of official review of acts of VAT self-assessment (a matter governed by Article 98/1 of the VAT Code), nor even, as the Respondent understood in the decision on the request for official review, establish a special period for the regularization of errors in self-assessment[16], but only restricts the effectiveness, for VAT purposes, of the rectifications of invoices in which tax was charged in excess[17].

In the specific case, the errors on which the Claimant bases its claim occurred in the assessments included in the invoices issued by it to the Municipality of ... and not in its self-assessments, which were undertaken in conformity with the tax mentioned by it in those invoices, and, as such, with the law. Hence the Claimant, admittedly[18], proceeded to rectify the invoices issued by it to the Municipality of ... precisely because it was aware that the self-assessments undertaken by it would only be illegal – and, as such, susceptible of being officially reviewed or contentiously annulled – if they were in non-conformity with the VAT assessed in its invoicing.

However, the rectifications undertaken by the Claimant occurred beyond the period to which Article 78/3 of the VAT Code refers, and relate to invoices where tax will have been charged in excess.

The Claimant alleges that there will be no case for application of such provision (of Article 78/3 of the VAT Code), in the measure that there will not be at issue invoices "inaccurate", as is the presupposition of that provision, drawing on, in this matter, arguments contained in the decision of arbitration case 245/2013-T of the CAAD, where it was written that:

"Being the requirements which invoices must observe expressly provided for in the referred Article 36, No. 5 of the VAT Code, we are faced with a situation of inaccuracy of the invoice when one of the requirements which the same is bound to observe is not observed".

It diverges, however, and immediately, from this understanding, in the measure that it is understood that one will be faced with a situation of inaccuracy of the invoice, not only when one of the requirements which the same is bound to observe is not observed (for example, there being no mention of the applicable VAT rate or the tax charged), but also when one of such requirements is incorrectly observed (when the rate mentioned or the tax charged are not the correct ones), as happens in this case.

Indeed, one cannot lose sight of the fact that No. 3 of Article 78 of the VAT Code is directly related to No. 1[19], and there is therefore no doubt that the rectification to which No. 3 refers is the same to which No. 1 refers, that is, concerning the "taxable value of an operation or the respective tax", which not only, as a rule, in cases of rectification, will not be omitted (but simply, incorrect), but also, in cases in which they are omitted, from the rectification of the invoice (at least as regards the omission of the tax due), will never result in the payment of tax in less[20], and therefore, at the limit, the interpretation advocated in the judgment to which the Claimant anchors itself would result in a (practically) complete inutilization of the scheme of Articles 78/1 and 3 of the VAT Code.

Hence it is considered, in summary, that one will be faced with a situation of inaccuracy of the invoice (relevant for purposes of), susceptible of correction, under the terms of Nos. 1 and 3 of Article 78 of the VAT Code, when the taxable value of the operation, or the respective tax mentioned therein, are not the correct ones, given the facts determined and the applicable law.

On the other hand, as has already been seen above, the Claimant itself – correctly – became aware that in order for it to be possible to correct the self-assessments undertaken by it, it was necessary that, previously, the invoices issued by it be corrected, under legal terms, so that, in some cases, the mention of VAT would be eliminated, and, in others, the rate that the Claimant understands to be correct would come to appear, as well as the corresponding amount of tax, resulting from the application of this rate to the taxable value of the operation, being certain that, both one and the other, expressly appear in paragraph (d) of No. 5 of Article 36 of the VAT Code.

Further it is expounded in the referred arbitration decision that:

"the legal-tax framework of an operation is not provided for in any of the requirements stipulated in Article 36, No. 5 of the VAT Code. Notwithstanding reference being made to the applicable rates and to the amount of tax due, it appears that such does not encompass errors in legal framework. Effectively, the amount of tax indicated in the invoices initially issued (subject matter of alteration) was in accordance with the framework, in VAT, conferred by the Claimant to its operations.

We will be faced with situations of inaccuracy of the invoices, with respect to the requirements at issue, when, notwithstanding a correct framework of the operation, the taxable person indicates an incorrect VAT rate or the amount of tax is incorrectly computed or indicated in the invoice.

Thus, the incorrect application of a particular legal regime to the operations undertaken does not constitute an inaccuracy of the invoice, and therefore it is manifest that the regime referred to in Article 78, No. 3 of the VAT Code cannot be applied to it.

The error in the legal-normative framework in terms of VAT of an operation is not an inaccuracy of the invoice, under the terms referred to of Article 78, No. 3 of the VAT Code, because it embodies an error of law concerning the applicable legal regime and not an inaccuracy in the compliance with the formal requirements provided for invoices.".

With all due respect for what was decided, and in the sequel of what has been set out, if it is certain that the legal-tax framework of an operation is not expressly provided for in any of the requirements stipulated in Article 36, No. 5 of the VAT Code, it is no less certain that the mention of the amount of tax due and of the applicable rate are expressly provided for therein, in paragraph (d), being – unless better advised – impossible to determine whether, for a particular operation, any amount of tax is due, as well as which the applicable rate is, without proceeding to a legal-tax framework – correct or incorrect – of that operation.

On the other hand, it will be inescapable that one of the normal causes – if not the main one – of inaccuracies in the mentions imposed by paragraph (d) of No. 5 of Article 36 of the VAT Code will be, precisely, the erroneous legal tax framework.

Thus, being correct the connection – resulting from the very text of the provision of Article 78/1 of the VAT Code – between the inaccuracies susceptible of correction under the terms of that No. 1 and the subsequent No. 3, and Article 36/5 of the VAT Code, it is considered that the referred scheme – of Nos. 1 and 3 of Article 78 - will be applicable to the rectifications of inaccuracies in the mentions imposed by that No. 5, independently of the cause of such inaccuracies, that is, of whether these are due to an erroneous framework of the law or of the facts, to fraud, negligence, ineptitude, slackness, or any other cause or motivation.

No material basis is discerned, effectively, for distinguishing, as is done in the decision now under analysis, the cases in which "the taxable person indicates an incorrect VAT rate", intentionally, because it is wrong in the framework it makes of the operation, from all the remaining cases in which such occurs, unwillingly or deliberately. Effectively, as was already pointed out, it is judged that the temporal limitation enshrined in Article 78/3 of the VAT Code has underlying the need to assure the Respondent a sufficient period within which, within the period of expiration of taxes, to undertake the supervisions and corrections which, as a function of the rectifications undertaken, become necessary. Now, the truth is that such necessity occurs precisely with the same intensity, whether the rectification takes place because the taxable person proceeded, in the invoices it issued, to an erroneous legal framework of the taxable operation in which it intervened, or whether that occurs for any other reason, no injustice (still less, "manifest")[21], being detected, in the circumstance that the Respondent can effect corrections against the taxpayer within a 4-year period, and the taxpayer is only permitted to protect corrections in its favor within a shorter period (2 years), immediately because the corrections that will be limited to 2 years, under the terms of Article 78/3 of the VAT Code, will be the corrections in the assessments to third parties[22], undertaken by the subject in invoices it issued, from which results tax payable in less, and not in the self-assessments of tax to be remitted by itself to the State, and afterwards because, as was seen, arising from the rectification of the invoices, under the terms of Article 78/3, from which results tax in less, the necessity, as a rule, of corrections downstream[23], at least[24], it will be only just that the Respondent have a reasonable period – and two years is – to assure that such corrections occur[25].

On the other hand, if the cases in which "the amount of tax is incorrectly computed or indicated in the invoice" following material errors or errors in calculation, are susceptible of rectification under the terms of Nos. 1 and 3 of Article 78 of the VAT Code, such situations do not exhaust the scope of that kind of rectification, immediately because when the legislator intended that it be so, he said so, as happens in No. 6 of the same Article 78, where he referred, expressly[26].

It is understood, therefore, that "the incorrect application of a particular legal regime to the operations undertaken" may, or may not, constitute an inaccuracy of the invoice, depending on whether it is, or is not, in accordance with what the law properly interpreted, applied to the facts as they occurred, imposes.

In this manner, if, for example, due to "incorrect application of a particular legal regime to the operations undertaken" a taxable person does not deduce tax, correctly mentioned in invoices it possesses (and which is deductible), one is faced with an error of law of the self-assessment, without there being any inaccuracy of the invoices[27].

On the other hand, if "the incorrect application of a particular legal regime to the operations undertaken" leads to the invoices not having been issued in the terms in which, given the law and the facts, they should have been, then they will be inaccurate and, as such, in need of rectification.

Thus, if, here as there, "the amount of tax indicated in the invoices initially issued (subject of alteration) was in accordance with the framework, in VAT, conferred by the Claimant to its operations", the certain fact is that "the amount of tax indicated in the invoices initially issued" will not, after all, be in accordance with what the Claimant, now, considers to be the correct interpretation of the law and of the facts, and in light of which such invoices will then be inaccurate, both now and at the time they were issued.

That is, if the interpretation of law and facts now sustained by the Claimant is correct, it will be so both now and when the invoices were issued, and therefore in that case the invoices will be objectively inaccurate, both now and at the moment they were issued, it not being discerned how it can be legitimate to assess the regularity of the invoice, as a function of what, at each moment, is the appreciation of the factual and legal framework underlying it, undertaken by its issuer.

Thus, the affirmation of the Claimant is not ratified, according to which the price and the amount of tax due, indicated in the mentioned invoices, were correct "having regard to the VAT framework given, at the time, by A..., to the referred operations".

Effectively, the consideration of this subjective understanding of the Claimant will lack support in the law, as nothing in the legal regime in question – unless better advised – permits sustaining that the correction of the invoices should be assessed as a function of what is the subjective perception – whether of the facts or of the applicable legal framework – of the respective issuer.

It is understood thus, and in summary, that the regularity of the invoice should be assessed objectively, as a function of what the law in concreto applicable to the facts as they occurred is, and therefore, in the perspective in which the Claimant sustains its claim, the invoices at issue in the present case should be reputed as inaccurate.

Further it was also written, in the judgment already cited, that:

"in the specific case we are faced with an 'error in the framework of the operations' or 'error of law'. Effectively, the Claimant was conferring to the operations identified in subpoints i) to iii) of paragraph (g) of the established facts a particular framework in VAT, having proceeded to a change thereof.

In this scope, the Claimant issued credit notes to annul the initial invoices and issued new invoices (see paragraph (l) of the established facts).

Thus, it is necessary to assess whether the referred error of framework or 'error of law' is a requirement that leads to rectification being susceptible of qualifying the invoice as 'inaccurate'.

In this scope, it does not appear that the framework of the operation undertaken is capable of being framed in the concept of 'inaccurate invoice' provided for in Article 78, No. 3 of the VAT Code.".

Now, once more, it appears that the reading to be made of the applicable legal regime will be distinct from that effectuated there.

Effectively, given the content of Nos. 1 and 3 of Article 78 of the VAT Code, it appears that whenever an invoice lacks rectification in the taxable value or in the amount of tax mentioned therein, the same will be, for purposes of the referred Article 78/3 of the VAT Code, inaccurate, independently, as has already been seen, of the subjective motivations of such inaccuracy[28].

What has just been said is not hindered by the wording of Article 29/7 of the VAT Code, according to which, "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" since "the taxable value of an operation or the corresponding tax" may, under the terms of the VAT Code, be altered for other reasons than the inaccuracy of the invoice, under the terms above understood, in the cases, for example, to which No. 2 of Article 78 of that Code refers.

For all the foregoing, it is considered that, dealing with a rectification downward of the value of the tax relating to the taxable operations undertaken by the Claimant, the rectification of the invoices should have been effected within the 2-year period, as follows from No. 3 of Article 78 of the VAT Code.

It not having been so, it is necessary to determine what the consequences of exceeding such a period are.

Such consequences will not, immediately, be reflected in the timeliness of the request for official review of the tax act, a matter which, as has already been seen, is exclusively governed by Article 98/1 of the VAT Code and Article 78/1 of the LGT.

Nor will the illegality/invalidity of the rectification undertaken by the Claimant result, it is judged, from the violation of the temporal limitation at issue.

Effectively, the relevance of invoices is not exhausted at the fiscal level and, within this area, in the scope of VAT.

Hence, the violation of a provision proper to this tax being at issue, relating to regularizations, the consequence of such violation should be circumscribed to the scope of the regulation in question. For this reason, it is considered that invoices in which there is tax charged in excess, rectified beyond the period established in No. 3 of Article 78, will be valid and legally relevant, except as regards regularizations, downward, under VAT, a matter in which they will not be susceptible of producing any effects (they will, for these purposes, be ineffective).

Therefore, the rectifications undertaken by the Claimant in its invoicing, at issue in the present case, having been effected beyond the period fixed in Article 78/3 of the VAT Code, will not be susceptible of producing effects as regards the intended regularizations, downward, under VAT.

Accordingly, the Claimant's self-assessments object of the present case will not suffer any illegality, in the measure that they are in accordance with its invoicing, as this is relevant for VAT purposes, and therefore the same should be reputed as conforming to the provisions governing self-assessment, analyzed above, it not being verified, contrary to what the Claimant alleges, and presumed by Article 98/1 of the VAT Code, that in the self-assessment tax higher than that due has been charged[29], and its annulment is prohibited under No. 3 of Article 97 of the VAT Code.

Nor will there be case, equally, for the application of Article 98/2 of the VAT Code, also invoked by the Claimant, in the measure that there is not at issue – manifestly – a situation of right to deduction, nor of reimbursement of tax remitted in excess.

Effectively, having the Claimant remitted to the State the tax it charged (which appears in its invoicing legally relevant for the purpose), it will have remitted, precisely, the tax due, and not in excess.

The reasoning of the Claimant is also not accepted, according to which "strictly speaking, the request for official review submitted by the Claimant does not constitute a correction of inaccurate invoices but rather, and differently, a request for official review submitted with a view to the correction of an error in the framework of the operations (i.e., reiterate, an 'error of law')", which, in itself, and with due respect, embodies several equivocations underlying the claim formulated.

Thus, and immediately, it is certain that "the request for official review submitted by the Claimant does not constitute a correction of inaccurate invoices", nor could it constitute such, since the request for official review, as has already been said, has tax acts as its object, and therefore in the case had as its object, the self-assessments incorporated in the periodic VAT statements of the Claimant, for the periods in question.

For the same reason, however, it is not a question of that request being "a request for official review submitted with a view to the correction of an error in the framework of the operations", since the "error in the framework of the operations" (that "error of law") in question did not occur in the self-assessments object of the request for official review, but in the assessments undertaken by the Claimant to the Municipality of ... in the invoices it timely issued to it.

The "correction of inaccurate invoices", is, then, in the case, a requirement of the illegality of the self-assessments in question. That is: these (the self-assessments), as was seen, will be legal if they are in conformity with the invoicing legally relevant, and will be illegal if they are not.

Having been the rectification of inaccurate invoices effected beyond the period established in Article 78/3 of the VAT Code, they will not be admissible for purposes of regularization of tax charged therein in excess, and therefore, for purposes of the legality of the corresponding self-assessments of tax to be remitted to the State, will be relevant, exclusively, under the terms of the provisions above indicated, the original invoices.

Nor will the allegation of the Claimant proceed, based on "No. 3 of Article 78 of the VAT Code (...) combined with the provision of No. 1 of Article 98 of the same Code", according to which "the regime provided for in that legal provision permits the correction of inaccurate invoices within a 2-year period, without it being necessary for such, its prior appreciation by the Tax Authority (...) maintaining, however, the possibility of, when the tax to be corrected was paid more than 2 years ago, being requested, by the taxable person, the respective official review by the Tax Authority"[30], since one will be here, once more and with due respect, faced with a confusion of the scope of the provisions implicated.

Effectively, it is reiterated that Article 78/3 has as its object invoices in which the taxable person charged, in excess, tax to third parties, and which are afflicted with inaccuracy in the taxable value of the operation or in the respective tax, whereas Article 98/1, for what is now relevant, relates to the review of tax acts in which it is the taxable person itself who is the debtor of tax and which, in the case, correspond to the self-assessments of VAT.

In this manner, and for all the foregoing, the arbitration request formulated should be entirely unmeritorious.

In accordance with the provision of Article 22, No. 4, of the RJAT, "the arbitration decision rendered by the arbitration court contains the fixing of the amount and the distribution among the parties of the costs directly resulting from the arbitration case".

Thus, under the terms of Article 527, No. 1 of the CPC (ex vi Article 29, No. 1, paragraph (e) of the RJAT), it should be established that the Party that caused the costs will be condemned to pay them or, if there is no winning party, whoever obtained benefit from the case.

In this scope, No. 2 of the referred article specifies the expression "caused the costs", in accordance with the principle of failure, understanding that the party that loses causes the costs of the case, in the proportion in which it loses.

In these terms, in the case under analysis, having regard to the foregoing, the principle of proportionality imposes that the entire responsibility for arbitration costs be attributed to the Claimant.

C. DECISION

In these terms, this Arbitration Court decides to judge the arbitration request formulated unmeritorious and, consequently,

a) to absolve the Respondent from the claim;

b) to condemn the Claimant in the costs of the case.

D. Value of the case

The value of the case is fixed at €283,882.96, under the terms of Article 97-A, No. 1, (a), of the CPPT, applicable by virtue of paragraphs (a) and (b) of No. 1 of Article 29 of the RJAT and of No. 2 of Article 3 of the Regulation of Costs in Arbitration Tax Cases.

E. Costs

The amount of the arbitration fee is fixed at €5,202.00, under the terms of Table I of the Regulation of Costs in Arbitration Tax Cases, to be paid by the Claimant, since the request was considered entirely unmeritorious, under the terms of Articles 12, No. 2, and 22, No. 4, both of the RJAT, and Article 4, No. 4, of the cited Regulation.

Let notification be made.

Lisbon, 11 January 2016

The President Arbitrator

(José Pedro Carvalho - Reporter)

The Arbitrator Member

(Sílvia Oliveira)

The Arbitrator Member

(António Nunes dos Reis)

[1] Through this Official Letter, the Claimant was also notified to, if it wished, exercise its right to a hearing within a fifteen-day period, which was not exercised.

[2] See Article 44 of the Response.

[3] In this scope, cite in particular the Decision of the STA [Supreme Administrative Court] of 20-05-2003 (Case No. 638/03), the Decision of the STA of 08-10-2003 (Case No. 870/03) and the Decision of the STA of 06-11-2008 (Case No. 357/08).

[4] In this scope, cite in particular the Decision of the STA of 19-02-2003 (Case No. 1461/02), the Decision of the STA of 29-02-2012 (Case No. 441/11) and the Decision of the STA of 24-10-2012 (Case No. 0747/12).

[5] See CPPT, Annotated and Commented, Vol. II, 6th ed., 2011, annotation 18 a) to Article 97, pages 53 and 54. In this sense, also cites Jorge Lopes de Sousa, in particular the Decision of the STA Case 0441/11 of 29 February 2012 and the Decision of the STA Case 01461/02 of 19 February 2003, as to this position.

[6] In this sense, also cites Jorge Lopes de Sousa, in particular the Decision of the STA of 29-02-2012 (Case 0441/11) and the Decision of the STA of 19-02-2003 (Case 01461/02), as to this position.

[7] See, immediately, the heading of Article 78 of the LGT.

[8] See, in this sense, "Legal Regime for Arbitration in Tax Matters - Annotated", Almedina, pp. 96 et seq.

[9] Which, moreover, invokes the application of Article 74/2 of the LGT.

[10] Being that, in the present case, in which it is mandatory to issue an invoice, the tax became due with the issuance thereof, under the terms of Article 29/1/a) of the VAT Code.

[11] "Without prejudice to the specific provisions provided in this Directive, the only mentions that must mandatorily appear, for VAT purposes, on invoices issued in application of the provisions of Articles 220 and 221 are the following: (...) 9) The applicable VAT rate".

[12] "The amount of tax assessed should be added to the value of the invoice or equivalent document, for purposes of its collection from the purchasers of the goods or the users of the services".

[13] Available at www.dgsi.pt.

[14] Although it may not be very clear at first sight, the same may be easily illustrated: there will be a change in the taxable operation when, for example, the parties, after its performance, agree on a reduction in price; there will be an alteration in the invoice, when, by oversight, it has been issued with a price different from that which had been agreed.

[15] See Article 78/3 of the VAT Code.

[16] Effectively, the self-assessment, as long as it remains in conformity with what was invoiced – for what interests us now – will be regular. Hence it should be understood that Article 78/3 of the VAT Code does not provide for the regularization of the self-assessment, but of the assessment of tax in invoices. It will be the rectification of these, if legitimate, which subsequently will impose the regularization of the self-assessment.

[17] Thus, if the invoices are altered within the period to which Article 78/3 of the VAT Code refers, nothing will prevent the request for official review from being presented within the 4-year period to which Article 98/1 of the VAT Code refers, thereby demonstrating that, contrary to what the Claimant appears to understand, the applicability of this latter article does not imply the exclusion of the applicability of the former. Whence, moreover, results also the understanding that in the request for official review the merits of the Claimant's request were known, a presupposition of the competence of this Court, under the terms decided above. Effectively, if in the decision of such request, it had been considered that the same had been presented beyond the period of Article 98/1 of the VAT Code and Article 78/1 of the LGT, a procedural presupposition would be at issue, without there being knowledge of the merits. Being at issue the period of Article 78/3 of the VAT Code, the timeliness of the procedural means used is not questioned, but rather (the effectiveness of) the Claimant's right to correct the invoices improperly issued by it.

[18] See points 48 to 50 of the Claim, as well as points 38 to 40 and 107 to 113 of the Submissions of the Claimant.

[19] Effectively, No. 1 provides that "the provisions of Articles 36 and following must be observed whenever, after the invoice is issued, the taxable value of an operation or the respective tax is to be rectified for any reason", and No. 3 that "in cases of inaccurate invoices that have already given rise to the registration referred to in Article 45, the rectification is mandatory (...) [or] optional".

[20] Effectively, if the invoice is omitted as to the tax due, the rectification consisting of the mention thereof will result in the obligation to pay the tax mentioned.

[21] And, consequently, no violation of Article 266 of the CRP.

[22] Effectively, one cannot lose sight of the fact that, economically, the correction sought by the Claimant will be, in its view, neutral. Effectively, the Claimant remitted to the State the tax it charged to the Municipality of ..., hence not having, insofar as results from the case, any patrimonial prejudice to it. The regularization sought would result in the obligation of the Claimant to return to the Municipality of ... the amounts of tax improperly invoiced, and, for that Municipality, the obligation to correct the deductions made, under the terms of Article 78/4 of the VAT Code. That is: the taxable person subject to the limitation of 2 years enshrined in Article 78/3 of the VAT Code will not be, as a rule, as happens in the case, prejudiced by the inaccurate invoicing.

[23] Immediately those prescribed by Article 78/4 of the VAT Code.

[24] Since, in certain cases, the reduction of the VAT value may imply, for example, corrections at the CIT level [Corporate Income Tax].

[25] It will be, thus, one of those situations necessary to avoid fraud and tax evasion, proper to the regime of the tax in question.

[26] "The correction of material errors or errors in calculation"

[27] These were the cases under consideration, for example, in arbitration cases 185-2014T, 277-2014-T and 56-2015-T.

[28] That is, whether the erroneous mention of the taxable value or the amount of tax in the invoice was unintentional or deliberate, and, in this case, whether it was due to an error in the legal framework of the operation, or to any other subjective motivation of the issuing taxable person.

[29] Effectively, being the self-assessment in conformity with the invoicing legally relevant for the purpose, the tax therein determined will have to be regarded as correct. Where, perhaps, tax higher than that due will have been charged, it will have been in the invoices issued by the Claimant to the Municipality of ... . However, the rectification of these, as was seen, at the time it occurred, was no longer susceptible of having relevance for purposes of VAT regularizations.

[30] An affirmation that is, moreover, contradictory with another, already analyzed above, according to which "strictly speaking, the request for official review submitted by the Claimant does not constitute a correction of inaccurate invoices".