Process: 352/2018-T

Date: December 10, 2018

Tax Type: IVA

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (352/2018-T) addresses the VAT treatment of import-related services provided by a logistics company in Portugal during 2013. The Tax Authority assessed EUR 173,596.28 in tax shortfalls, claiming the company incorrectly applied VAT exemptions to services connected with maritime imports. The core dispute concerns Article 13(1)(f) of the Portuguese VAT Code, which exempts services related to the importation of goods when their value is included in the taxable base for import VAT. The claimant provided services including customs brokerage, internal transport, warehousing, handling, and storage, invoicing them as VAT-exempt. The Tax Authority argued that exemption only applies when services are performed before customs clearance and their value is incorporated in the Single Administrative Document (SAD). The inspection found control weaknesses and demanded proof that exempt services met legal requirements. The company sought partial annulment of EUR 139,773.60 plus compensatory interest through CAAD arbitration. Key legal issues include: the temporal requirement for exemption (services must occur before customs clearance), the burden of proof on taxpayers to demonstrate exemption conditions are met, incorporation of service values in customs declarations, and the distinction between VAT exemption and non-subjection. The defendant requested dismissal and suggested a preliminary reference to the CJEU regarding EU VAT Directive interpretation. This case illustrates the strict evidentiary requirements for claiming import-related VAT exemptions and the critical importance of proper customs documentation linking service values to import declarations.

Full Decision

ARBITRAL DECISION (consult full version in PDF)

The arbitrators Councillor Jorge Lopes de Sousa (arbitrator-president, appointed by the other Arbitrators), Professor Doctor Clotilde Celorico Palma and Dr. Emanuel Vidal Lima, appointed by the Claimant and Defendant, respectively, to form the Arbitral Tribunal, constituted on 04-10-2018, agree as follows:

1. Report

A..., LDA., (hereinafter the "Claimant"), legal entity no. ..., with registered office at Rua ... no. ..., ...-... ..., ..., notified of the Value Added Tax ("VAT") assessments for the year 2013, pursuant to which a total tax shortfall of EUR 173,596.28 was ascertained, came to request the constitution of an Arbitral Tribunal pursuant to Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT").

The Claimant seeks the partial annulment of the aforementioned assessments, regarding the amount of € 139,773.60 and compensatory interest.

The Defendant is the TAX AND CUSTOMS AUTHORITY (hereinafter "TA").

The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and automatically notified to the TA on 24-07-2018.

On 14-09-2018, the President of CAAD informed the Parties of the appointment of the Arbitrators, in accordance with and for the purposes of the provisions in no. 7 of Article 11 of the RJAT.

Thus, in conformity with the provisions in no. 7 of Article 11 of the RJAT, after the period provided for in no. 1 of Article 13 of the RJAT expired without the Parties making any submissions, the Collective Arbitral Tribunal was constituted on 04-10-2018.

The TA submitted a response in which it argued that the request for arbitral pronouncement should be ruled inadmissible and suggested that a preliminary reference be made to the CJEU.

By order of 08-11-2018 it was decided to dispense with the holding of the meeting provided for in Article 18 of the RJAT and that the proceedings continue with optional submissions.

The Parties submitted pleadings.

The Arbitral Tribunal was regularly constituted and is competent.

The parties enjoy legal personality and capacity (Articles 4 and 10, no. 2, of the same diploma and Article 1 of Ministerial Order no. 112-A/2011, of 22 March) and are duly represented.

The proceedings are free from nullities.

2. Facts

2.1. Proven Facts

The following facts are considered proven:

  • The Claimant has as its business purpose the transit, warehousing, loading, unloading, storage, conservation, custody, handling, packaging, collection, distribution, insurance, customs clearance and transport, combined or intermodal, using its own or third-party means, by air, maritime, fluvial and land routes, domestically and abroad, of all types of merchandise and products, as well as the provision of auxiliary or complementary services and acquisition, operation and disposal of real property;

  • A tax inspection of the Claimant was carried out relating to the year 2013;

  • In the Tax Inspection Report drawn up in the said tax inspection, the following is stated, among other things:

III.3 - Operations Connected with Import/Application of Exemption

In the course of the analysis conducted, within the scope of OI2016... (financial year 2014), we detected control weaknesses that suggest non-compliance of invoices issued with the legal provisions in force for VAT purposes, namely, related to the application of exemption in operations connected with the extracommercial import of goods by sea.

Within the scope of the present action, it is verified that these procedures and weaknesses, with consequences for VAT, persist in the financial year 2013.

Thus, several operations connected with import by sea were identified with customs clearance on national territory where VAT was not charged on the invoice, having been considered as VAT exempt.

In these, the company, in its capacity as intermediary, despite deducting the VAT charged in invoices issued by subcontractors, did not charge VAT to its final customer, invoking the provisions of subparagraph f), no. 1, Article 13 of the VAT Code.

In these circumstances, the following were essentially identified as subcontracted services: those provided by the official customs broker, the services of internal transport of goods (with origin and destination on national territory) and warehousing services after the goods had been cleared through customs.

On the other hand, other services invoiced by A..., namely, discharge expenses, loading, container demurrage, handling, deconsolidation, collection, packaging, weighing, terminal expenses, port usage fees and palletization, were also identified and considered exempt under the same legal provision.

Regarding all these services, the application of the said VAT exemption is closely related to the moment when these are performed, that is, they will be exempt provided they have been carried out before the goods are cleared through customs and only if the corresponding value of the service is included in the taxable value on import (for the purpose of calculating VAT and customs duties), being incorporated in the DAU, either through its inclusion in the total of expenses (field 44 or 45), or through the use of the Optional Table.

The following table shows, by tax period, the amount of the taxable base entered in field 8 of the periodic VAT returns filed by the company, relating only to operations connected with maritime import of goods, considered exempt under subparagraph f), no. 1, Article 13 of the VAT Code.

[Table reference]

III.4 - Legal Basis for Exemption in Operations Connected with Import

It should be noted that the provision used by the company to exempt operations related to the import of goods is that contained in subparagraph f), no. 1, Article 13 of the VAT Code, which transposes:

Thus, subparagraph b), no. 2, Article 17 of the VAT Code, defines the expenses that may be included in the taxable value of imports of goods, namely:

That is, generically, as long as the value invoiced for the services provided by company A... is included in the taxable value of the import of goods introduced in the Single Administrative Document (SAD), the exemption provided for by Article 13 of the VAT Code should be applied, avoiding double taxation, inasmuch as it has already been subject to taxation for this purpose by the Customs Services.

The exception to this rule which, however, was not identified in the selected sample, will only occur in the case where, in the transport document, it is defined that the first place of destination of the goods within national territory is the buyer's warehouse (Incoterm: "DAT" or "DDP").

In this case, the value of the services provided up to the final buyer's warehouse is incorporated in the commercial invoice issued by the seller of the goods, and as such, included in the SAD, for the purpose of determining VAT and any customs duties.

It should be noted that, in no case, are we dealing with a non-subjection to VAT, that is, all operations related to the import of goods are subject to VAT, differing only the place where it will be charged, whether at Customs, or subsequently, through the submission of the periodic VAT return by the entity providing the services (in this case A...).

III.5 - Notification Issued / Evidence of Support for VAT Exemption

Given the foregoing, the company was requested to demonstrate, providing proof, that, in fact, the value of the services that it exempted in the invoice issued under the provision contained in subparagraph f), no. 1, Article 13 of the VAT Code, meets, in fact, the necessary conditions for this purpose, that is, its inclusion in the taxable value declared in the SAD of the import.

In this sense, and bearing in mind that:

a) Inasmuch as the ongoing inspection action focuses on VAT and specifically on the values declared in the Periodic Declarations (PD) of VAT filed in 2013;

b) It is necessary that the elements made available allow, pursuant to the provisions of Article 44 of the Value Added Tax Code (VAT Code), clear and unequivocal knowledge of the elements necessary for monitoring the calculation of the tax (VAT), as well as to permit its monitoring;

c) That the values entered in Field 8 of the periodic declarations include operations connected with the import of goods, exempt under subparagraph f), no. 1, Article 13 of the VAT Code;

d) There is a need to verify compliance with the conditions required that enable the aforementioned exemptions, pursuant to no. 1, subparagraph f), Article 13, combined with no. 2, Article 17, both of the VAT Code;

e) The value of accumulated VAT credit by the company, as of 2013-12-31, amounts to €347,695.01, wherefore there remains a need for substantiation for the accumulated tax credit on the said date.

The company was notified on 30 November 2017, in the person of its operations director, B..., NIF..., to exhibit, at the location of its registered office, on 19 December 2018, the following elements:

  1. Elements that clearly identify which value entered in field 8 of the VAT PDs corresponds to operations connected and services associated with the import of goods, with customs clearance on national territory and outside national territory, and the identification of invoices, with the taxable base subject and/or exempt, distinguished by type of services listed in the same invoices.

  2. Elements that clearly and unequivocally prove that the values entered in field 8 of the periodic VAT declarations, relating to the financial year 2013, referring to operations connected with import cleared through customs on national territory, meet the requirements that permit their exemption for VAT purposes; specifying the criteria that justified their classification as exempt under subparagraph f), no. 1, Article 13 of the VAT Code:

  3. Of the justification of the accumulated tax credit and the elements that prove it and validate the value entered in field 94 of the periodic VAT declaration relating to the month of December 2013.

  4. Of the SAF-T(PT) file(s) integrated, billing and accounting system, with reference to the year 2013, referred to in no. 8, Article 123 of the Corporate Income Tax Code and Ministerial Order no. 321-A/2007, of 26 March, taking into account the subsequent amendments introduced by Ministerial Order.

Non-compliance within the fixed period would be subject to the penalty provided for and punishable under Article 117 of the General Regime of Tax Violations, approved by Law no. 15/2001, of 5 June, as well as the possibility of VAT assessment, regarding the values entered in field 8 of the periodic VAT declarations for all periods relating to the financial year 2013, as well as the possibility of disregarding the value of accumulated VAT credit mentioned in field 94 of the periodic VAT declaration relating to the month of December 2013.

Attached, in ANNEX I, totaling 1 sheet, is a copy of said notification.

On the date and time set, we appeared at the location of the company's registered office, noting that, although the elements presented do not categorically respond to all the requests mentioned in the notification, its willingness to cooperate was demonstrated and the need for a longer time period was explained in order to allow the gathering of all elements that actually clearly and unequivocally prove the exemptions applied, inasmuch as they would also depend on the cooperation of third parties.

Thus, following a request for a supplementary period for full compliance with the notification and bearing in mind the principle of cooperation, we considered the needs mentioned by the company, setting a deadline for delivery of the remaining documentation for a maximum period of 2 months, considering this to be a procedural solution with effectiveness and provided within reasonable time.

III.6 - Documentary Analysis

In light of the elements collected/presented, it was possible to identify the invoices issued by the company related to merchandise import processes and their respective SADs, if filed, with the breakdown of their respective amounts by service provided, as well as the field in which they were entered in the PDs filed.

The following table, prepared by the company, summarizes the values considered exempt from VAT under subparagraph f), no. 1, Article 13 of the VAT Code, in invoices issued related to the provision of services connected with maritime import of goods, and which will be addressed in subsequent points.

[Table reference]

(...)

III.6.2 - Processes Without SAD Validation

In the financial year 2013, the company considered, in the total of invoices issued, the following operations in which it applied the VAT exemption under subparagraph f), no. 1, Article 13 of the VAT Code.

[Table reference]

Being considered as services provided before the customs clearance of the merchandise, the analysis of the correct application of the VAT exemption referred to is carried out, operation by operation, invoice by invoice, always based on the validation of the imposition noted in the regulation, that is, the inclusion of the exempt amount in the invoice, in the taxable value of the import (SAD).

In the analysis carried out, namely, to the documents presented in response to the notification issued, we found that services connected with maritime import of goods were considered exempt under subparagraph f), no. 1, Article 13 of the VAT Code, in which it is not possible to validate that the exempt amount in the invoice issued by the company is included in the taxable value of the import, contained in the SAD, because it does not exist/was not presented.

Attached, in ANNEX III, totaling 9 sheets, is a map of processes in which it was not possible to carry out validation of the values included in the SAD.

Thus, it was found that the exemption provided for in Article 13 of the VAT Code was irregularly applied, in the services provided mentioned in invoices issued by the company totaling €302,061.57, causing the non-charging of VAT in the amount of €69,474.16, as quantified by period in the following table.

[Table reference]

It should be noted that the amounts calculated in the above table do not include the values included in the "Taxed" map contained in point III.6.1, thus avoiding duplication of values.

III.6.3 - Processes Related to Customer "C..."

On the other hand, of the processes that are complete, that is, those for which the respective SADs relating to the exempt services were presented, pursuant to Article 13 of the VAT Code, in the invoice issued by the company, we found that, regarding customer "C..., Lda", NIPC..., there are inconsistencies in the VAT exempt value, compared to the import taxable value expressed in the SAD (fields 44 and 45).

By way of example, in invoice no. PT354806, dated 19/06/2013 (Process A... no. LIS...), the company proceeded to exempt VAT on the amount relating to Maritime Freight, under subparagraph f), no. 1, Article 13 of the VAT Code, in the amount of €19,090.00.

Upon analysis of the respective SAD, we found that in field 45 no value was entered, consequently no value relating to Maritime Freight and Insurance was considered in the import taxable value.

Other cases also exist where the value entered in field 44, for the purpose of calculating the import taxable value, is so disparate from the VAT exempt value in the invoice issued by the company, that it is not possible to consider the exemption applied as correct, with the difference found being subject to taxation.

By way of example, in invoice no. PT355590, dated 19/07/2013 (Process A... no. LIS...), the company proceeded to exempt VAT on the amount relating to ancillary expenses before customs clearance, under subparagraph f), no. 1, Article 13 of the VAT Code, in the amount of €14,819.00.

However, the value entered in field 44 of the respective SAD is €852.81, a value that is clearly out of proportion to the amount considered as exempt in the invoice issued by the company.

The following table summarizes the findings made in invoices issued to this customer related to maritime import of goods.

[Table reference]

It should be noted that the amounts calculated in the above table do not include the values included in the "Taxed" map contained in point III.6.1, thus avoiding duplication of values.

Thus, it was found that the exemption provided for in Article 13 of the VAT Code was irregularly applied, in the services provided mentioned in invoices issued by the company totaling €320,705.93, causing the non-charging of VAT in the amount of €73,762.36, as quantified by period in the following table.

[Table reference]

III.7 - Final Conclusions

Pursuant to subparagraph f), no. 1, Article 13 of the VAT Code, "there are exempt from tax the provision of services connected with import whose value is included in the taxable value of the import of goods to which they refer, as established in subparagraph b), no. 2, Article 17 of the VAT Code", that is, "ancillary expenses, such as expenses for commissions, packaging, transport and insurance, occurring up to the first place of destination of goods on national territory, or another place of destination in the territory of the Community if this is known at the moment the fact giving rise to import occurs, with the exclusion of transport expenses referred to in subparagraph t), no. 1, Article 14 of the VAT Code" (transport of goods between the islands that comprise the autonomous regions of the Azores and Madeira, as well as the transport of goods between these regions and the mainland, or any other Member State, or vice versa).

It is thus determined that the Tax Authority (customs authority) charges VAT on the Taxable Value in imports, which should include all expenses connected with the import occurring up to the 1st place of destination of the goods in the Community.

No. 3 of Article 17 of the VAT Code defines place of destination as "(...) that which is documentally proven to the customs services or, in the absence of such indication, the place where the first break in cargo occurs, if this takes place within the country, or, should this not occur, the place of import."

Up to this point, we would say that the charging of VAT on imports is based, in terms of value, on the elements declared by the taxpayer in the import declaration (declaration that will give rise to the SAD). That is, the TA incorporates into the Taxable Value the declared and defined values (including transport and other ancillary expenses) only up to the 1st place of destination.

Most of the situations relating to the documents analyzed refer to the 1st place of destination as the place of customs clearance and do not, therefore, include customs broker expenses, land expenses, transport costs after customs clearance and others incurred after the said 1st place of destination.

So much so that the taxable person frequently resorts to subcontracting these services and VAT is charged on the value of these which the taxable person deducts. However, subsequently does not pass it on in the amounts charged to its customers.

For its part, Article 44 of the VAT Code (Bookkeeping Requirements) establishes the following:

"1 - Bookkeeping must be organized so as to enable clear and unequivocal knowledge of the elements necessary for calculating the tax, as well as to permit its monitoring, comprising all data necessary for completing the periodic tax return.

2 - For compliance with the provisions in no. 1, the following must be recorded, in particular:

a) The transfers of goods and provision of services effected by the taxable person;

b) The imports of goods effected by the taxable person and intended for the needs of its business;

c) The transfers of goods and provision of services effected to the taxable person within the framework of its business activity.

3 - The operations mentioned in subparagraph a) of the preceding number must be recorded so as to show:

a) The value of non-exempt operations, net of tax, according to the applicable rate;

b) The value of exempt operations without right to deduction;

c) The value of exempt operations with right to deduction;

d) The amount of tax charged, according to the applicable rate, with distinct revelation of that relating to the operations referred to in subparagraphs f) and g) of no. 3 of Article 3 and in subparagraphs a) and b) of no. 2 of Article 4, as well as cases in which the respective charging is incumbent, under the law, on the acquirer.

4 - The operations mentioned in subparagraphs b) and c) of no. 2 must be recorded so as to show:

a) The value of operations whose tax is totally or partially deductible, net of such tax;

b) The value of operations whose tax is entirely excluded from the right to deduction;

c) The value of acquisitions of diesel, liquefied petroleum gases (LPG), natural gas and biofuels;

d) The amount of deductible tax, according to the applicable rate."

Whence it follows that, while in subparagraph f) of no. 1 of Article 13, the conditions on which the application of the exemption in operations depends are described, Article 44 imposes some of the bookkeeping obligations that the legislator considers necessary in order to enable effective supervision and ensure the correct collection of the tax, preventing fraud and tax evasion, in particular at the level of its recording in bookkeeping.

It is not sufficient for the purpose of exemption to invoke subparagraph f), no. 1, Article 13 of the VAT Code, by opposition of this rule in the invoice, in order for services connected with an import of goods to be considered tax exempt, but rather the demonstration that these services were already subject to VAT, being included in the taxable value calculated in the SAD.

With effect, if for the purpose of applying exemption to "provision of services connected with import", the legislator imposes that its value be included in the taxable value of the import of goods to which they refer, including, insofar as they are not already included therein, the ancillary expenses occurring up to the first place of destination of goods on national territory, expressed in a document designated as Single Administrative Document (SAD) (the most important and comprehensive means of providing evidence), it is also certain that the legislator adopted rules relating to its supervision, imposing bookkeeping obligations and recording rules so as to enable clear and unequivocal knowledge of all elements necessary for monitoring and calculating the deductible tax.

Therefore, subparagraph g), no. 1, Article 29 of the VAT Code provides that taxable persons are obliged to maintain bookkeeping appropriate for the determination and supervision of the tax, and Article 44 of the VAT Code imposes a set of rules that must be observed with a view to determining with precision, in relation to each operation and each settlement period, the total amount of VAT charged to customers, the amount of VAT borne by the taxable person and the VAT which this has the right to deduct.

This requirement for adequate bookkeeping records is justified when we consider the needs, namely:

  1. to determine, in a clear and unequivocal manner, the value of the tax to be paid into the State coffers (or to be recovered in the event of a credit situation being identified). This is because VAT is a tax whose qualitative and quantitative construction is effected solely by the taxable person, who is responsible, by the equation of the binomial "Tax charged vs. Tax deductible" for carrying out the calculation of the "tax determined" (to be "paid" or "recovered"). Also, the consideration of exemptions (or non-subjections) of operations to the tax is a decision of the taxable person.

  2. for the taxable person to complete the periodic declaration in a clear and unequivocal manner or otherwise easily and conveniently, and also the annual declaration and the summary maps of customers and suppliers and, where applicable, the summary annex relating to exempt intra-Community transfers;

  3. for the TA to be able, at any time, to confirm or refute the amounts declared by the taxable person.

Without these mandatory records it is not possible to assess and carry out monitoring of the periodic declarations (and the consequent determination of the tax), since their completion must be based on the values transferred from the bookkeeping records and accounting (which, in turn, are based on their respective supporting documents), with accounting representing the matrix of taxation both for VAT purposes and for Corporate Income Tax purposes, which is why bookkeeping assumes the greatest importance in inspection, as it constitutes a mechanism for monitoring the truthfulness of the values declared to the Tax Administration.

Which is why it is not sufficient to merely present the bookkeeping support documents to justify compliance with the exemption conditions to the TA. The latter has the duty/obligation to inquire into the classification of the operations and their bookkeeping recording in light of the documentation that serves as their support, having to consult the records referred to in Article 44 of the VAT Code so as to know, in a clear and unequivocal manner, the elements necessary for calculating the tax and to monitor the completion of the periodic declaration made by the taxable person.

Only through analysis of all the records that the law requires and imposes, combined with the presentation of their respective supporting documents, will it be possible to carry out effective supervision, which permits analysis of the conformity of the data and amounts determined by the taxable person and transferred to the periodic declarations.

Now, to justify the values declared and entered in the periodic VAT declarations communicated to the Tax Administration, specifically those in field 8 - "Exempt or non-taxed operations that give the right to deduction" and/or those declared in field 61 - "Excess to carry forward from previous period" (allegedly concerning accumulated credit), it is not sufficient to merely present the documents that served or would serve as support for the bookkeeping records that make up the accounting (which the taxable person also did not exhibit), since the TA not only has the power to audit all documentation but also the said records (accounting) that reflect the construction (determination) of the tax to be paid (or recovered) by the taxable person, but also has the duty to do so. Indeed, the TA must inquire about the bookkeeping records and in light of the documentation that serves as their support, under Article 44 of the VAT Code, so as to know, clearly and unequivocally, the elements necessary for calculating the tax and to audit the completion of the periodic declaration made by the taxable person.

Not exhibited: (i) the records referred to in Article 44 of the VAT Code, which; (ii) together with the documents that serve as their support; (iii) as well as the proofs and other elements correlated with the classifications and/or options taken by the taxable person regarding the granting of exemptions or non-subjections, elements which, as a whole, make up an inseparable universe designated accounting, leads to the disregarding of the VAT amounts to be recovered and to the charging of the amounts entered in Field 8 of the PDs presented in the period subject to the procedure.

In addition to the aspects mentioned above, we found that the recording system exhibited by the taxable person is nothing more than a mere listing of documents with the objective of determining the value of VAT in each of the periods relating to the year 2013, and it is certain that, even so, this is not duly revealed, since the documents and/or explanations were not exhibited regarding the values relating to the records contained in the said "listing" and the entries for determining the tax.

III.8 - Corrections for VAT Purposes

In the financial year 2013, the company declared values in field 8 of the periodic VAT declarations filed without, however, proving compliance with the conditions for the application of the VAT exemption in operations, as required by subparagraph f), no. 1, Article 13 of the VAT Code.

Thus, there is a lack of tax charging, at the normal rate in force in that financial year, in the amount of €177,059.21, as provided in no. 1, Article 18 of the VAT Code, broken down by period as shown in the following table.

[Table reference]

(...)

IX – RIGHT TO HEARING

(...)

Response to right to hearing:

With effect, the analysis of the history of periodic VAT declarations filed by the company reveals the existence of a permanent VAT credit situation, never having been requested its reimbursement, despite the value of VAT credit in the last periodic declaration filed reaching hundreds of thousands of euros.

The fact that it has not requested reimbursement may indeed be associated with non-compliance with the provisions of Normative Dispatch no. 18-A/2010, of 01 July, as it states, since only during 2017 did it initiate the procedure for communicating, by electronic transmission, the invoices issued (E-invoice).

It is also confirmed that the company does not currently comply with the requirements relating to the SAF-T file, repeatedly infringing the legal provisions that oblige it to do so.

As we have mentioned in the draft report, the lack of a billing program certified by the TA, the lack of electronic communication of invoice data elements and the "incapacity" of the taxable person, which presents significant business turnover and is considered a leading operator in the sector in which it operates, to comply with its tax obligations, not only undermines the credibility of its accounting, but also affects the analysis of the elements presented by the company, not permitting its monitoring, assessment and possibly the correct determination of the tax, in particular the determination of VAT.

(...)

2. OF THE APPLICABLE LEGAL RULES

i. EU Legal Order

Allegations:

In points 31 to 38, the Claimant discusses the provisions of EU law contained in Directive 2006/112/EC ("VAT Directive"), namely, addressing the provisions of Article 144, which contains the exemption referring to the provision of services related to the import of goods whose value is included in the taxable value, in accordance with subparagraph b), no. 1, Article 86, combined with Article 85, of the same legal instrument.

It invokes EU customs legislation, resorting to the Union Customs Code (UCC), namely, the combination of Articles 70 and 71, no. 1, subparagraph e), of this legal instrument, seeking to define what should be included in the taxable value, namely, and in addition to the price of goods, the expenses for transport and insurance of imported merchandise, as well as the expenses for loading and maintenance connected with the transport of these, when these are incurred up to the location where the merchandise is introduced into the customs territory of the Union.

These expenses, in accordance with no. 2, Article 71 of the UCC, should be based exclusively on objective and quantifiable data, being able, however, and pursuant to Article 73 of the UCC, to be determined on the basis of specific criteria, when they are not quantifiable at the date of acceptance of the customs declaration.

Response to right to hearing:

Although relating only to EU legislation, it is important to note that:

  1. The Union Customs Code (UCC) and its implementing regulations entered into force only on 1 May 2016, so in the year in question (2013), customs legislation was governed by the Community Customs Code (CCC) and the Implementation Provisions of the Community Customs Code (IPCC).

This legislative change did nothing to change the understanding regarding the exemption relating to the provision of services related to the import of goods and whose value is included in the taxable value, its nature and form of calculation.

  1. According to the customs provisions, the value of the expenses provided for in subparagraph e), no. 1, Article 71 of the UCC must be based exclusively on objective and quantifiable data and only in their absence or non-quantification at the date of acceptance of the customs declaration, may they be determined on the basis of specific criteria (optional tables).

As the Claimant subsequently alleges (see point 60), it sends, as a rule, to the customs broker the invoice issued to the customer with the description of ancillary expenses and freight (when applicable), this sending being prior to the completion of the SAD.

Thus, the value of the expenses provided for in subparagraph e), no. 1, Article 71 of the UCC, to appear in the taxable value of the SAD, is capable of being calculated on the basis of objective data, since such expenses are known at the date of acceptance of the customs declaration, not considering the possibility of using optional tables.

ii. Internal Legal Order

In points 39 to 41, the Claimant again discusses subparagraph f), no. 1, Article 13 of the VAT Code, combining it with subparagraph b), no. 2, Article 17, of the same legal instrument, focusing on the already addressed composition of the taxable value of imported goods.

It identifies Regulation (EU) no. 952/2013, of 9 October 2013, which establishes that the Union Customs Code is directly applicable by all Member States from its entry into force, without the need for a national transposition act.

Response to right to hearing:

It does not add relevant factual elements that call into question the conclusions contained in the Draft Report.

iii. EU and National Case Law

Allegations

In points 42 to 48, the Claimant refers to EU case law, namely, the recent Judgment of the Court of Justice of the European Union ("CJEU"), dated 4 October 2017, in the context of Case no. C-273/16 - Federal Express Europe Inc., in which the CJEU was called upon to interpret the conditions for the application of the exemption provided for in Article 144 of the Directive, to provision of services ancillary to the import of goods that qualify as small consignments, which benefit from a VAT exemption on import.

They argue that, according to the CJEU, "transport expenses relating to the final import of goods must be exempt from VAT, insofar as their value is included in the taxable value, even if these have not been subject to VAT for customs purposes at the time of import".

They refer to the conclusion of the CJEU which was to the effect that "Article 144 of Council Directive 2006/112/EC, of 28 November 2006, on the common system of value added tax, read in conjunction with Article 86, no. 1, subparagraph a), of the same directive, must be interpreted as meaning that it is opposed to a national law such as that in the main proceedings, which provides, for the application of the exemption of value added tax to ancillary provision of services, including transport services, not only that their value be included in the taxable value, but also that such provision of services have been actually subject to value added tax for customs purposes at the time of import."

Thus, the Claimant concludes that, in this case, the Court ruled that a national law cannot impose as a condition for the application of the VAT exemption of Article 144 of Directive 2006/112/EC that the transport concern an import of goods that has actually been taxed.

In point 48, the Claimant refers to national case law, namely the Judgment 13891, of 7 February 1996, of the Supreme Administrative Court, on the applicability of the VAT exemption provided for in Article 13, no. 1, subparagraph f), of the VAT Code, to the value of the transport of imported goods and the burden of proof of the inclusion of the value of that transport in the taxable value of the import, having concluded that:

. "The exemption established in Article 13, no. 1, subparagraph f) of the VAT Code does not correspond to a true tax exemption, but to a definition of the objective quantum element of the taxable event translated into the import of goods";

. "(...) it is incumbent on the Administration, to whom falls the performance of the tax act (registration of the assessment) the burden of proving that it did not consider it in the original assessment, thus justifying the additional assessment';

. "(...) the burden of proof shall always rest with the competent entity to carry out the assessment, by then having to be considered an exemption that is pure and automatic or absolute";

. "The value of the transport of imported goods must necessarily be considered by the Customs Services in performing the act of registration of the assessment, contemporaneous with customs clearance."

Response to right to hearing:

  1. Regarding EU case law, it should be noted that this reference for a preliminary ruling was submitted in the context of a dispute that opposed the Italian Tax Administration to Federal Express Europe Inc. ("FedEx"), an Italian subsidiary of the "FedEx Corporation" group, concerning the subjection to VAT of transport expenses related to the import of goods exempt from VAT, more specifically, because the value of the goods is below the duty exemption threshold for import of merchandise of insignificant value or non-commercial character.

As results from point 44 of the Judgment itself, "The Court of Justice has already recognized that duty exemption thresholds for import of merchandise of insignificant value aim at administrative simplification of customs procedures (v., in this sense, the Judgment of 2 July 2009, Har Vaessen Douane Service, C-78, EU:C:2009:417, no. 33)."

Now, attempting to apply to the national legal order that EU case law would pass exclusively through the situations provided for in Decree-Law no. 398/86, of 26 December, which establishes the regime relating to tax exemptions applicable to the import of merchandise that is the subject of small parcels without commercial character, from third countries, which is manifestly not subsumed in the specific case.

As emerges from the analysis carried out, the organizational shortcomings in the taxpayer's processes cannot be confused with the residual situations, which, according to that case law, justify administrative simplification in that specific case.

  1. Regarding national case law - Judgment of the SAC, decided in Appeal no. 13891, of 7 February 1996 - it should be noted that it refers to tax events that occurred between 1986 and 1987, when the operation of the assessment of VAT associated with customs value was conducted differently, so an uncritical adherence to the content of that case law is not viable.

As stated above, the Claimant sends, as a rule, to the customs broker, the invoice issued to the customer with the description of ancillary expenses and freight (when applicable), this sending being prior to the completion of the SAD (according to it).

Thus, currently, the SAD materializes the self-assessment of taxes, with the completion of the periodic VAT declaration being associated with this element, also framed in the self-assessment mechanism, so the application of the provisions of Article 75 of the General Tax Code (GTC) is required, which did not apply at the time of the facts reported in the cited judgment.

Under no. 1, Article 75 of the GTC, it is presumed that the declarations of the taxpayer which are in conformity with the elements in its accounting are true and in good faith, and provided that this is organized in accordance with the law and there are no errors, inaccuracies, or other well-founded indications that it does not correspond to reality.

Therefore, in our tax system, the principle of declarative truth applies, which places on the sphere of action of taxpayers the initiative in the procedure for determination, fixation and payment of taxes. The tax administration is bound to assess taxes based on the taxpayer's declaration, without prejudice to the right granted to it to subsequently monitor the facts declared.

This possibility of monitoring the declared facts is at the genesis of the purposes of the tax inspection procedure, defined in no. 1, Article 12 of the Supplementary Regime of the Tax and Customs Inspection Procedure (which also did not exist at the time of the tax events underlying the judgment rendered), consisting essentially in the verification and confirmation of the tax situation of taxpayers, with a view to confirming compliance with their obligations.

When, in the pursuit of these objectives, the tax inspection detects the situations stated in no. 2, Article 75 of the GTC, as occurred in this procedure, the consequence defined by the body of no. 2 of that regulation, leads to the cessation of the presumption of truthfulness of the declarations filed.

Thus, both the insufficiencies in the Claimant's accounting, which prevent the knowledge of the actual tax matter of the taxable person, and the failure to meet the duties of full clarification of the situation in the face of successive notifications to present the missing elements, typify conduct provided for in subparagraphs a) and b) of that no. 2, which result in the end of the presumption of truthfulness of the declarations filed and which materialized the exemption here in question.

With the cessation of that presumption, the burden is returned to the taxpayer to demonstrate the right to the exemption associated with the operations performed, which materializes a fact constitutive of rights, by force of the distribution of the burden of proof stated in no. 1, Article 74 of the GTC, and it is important to highlight that, in the situations identified below, in which the Claimant clearly demonstrated the presuppositions of the exemption, the exemption will be recognized by the tax inspection, with the probative force inherent to the provisions of Article 76 of the GTC.

In these terms, while in the cited case law the possibility of additionally assessing tax was at issue, in this process what was required was proof of the right to exemption that was not satisfied, and which led to the failure of the presumption of truthfulness contained in the declarations with the consequent inversion of the burden of proof.

3. ON THE APPLICATION OF THE EXEMPTION OF ARTICLE 13, NO. 1, SUBPARAGRAPH F) OF THE VAT CODE TO THE SERVICES PROVIDED BY THE CLAIMANT

In points 49 to 68, the Claimant accepts that "all transport services related to the import of merchandise that are carried out before the customs clearance of such merchandise are classified under the VAT exemption provided for in Article 13, no. 1, subparagraph f), of the VAT Code".

It argues that this exemption "is applied automatically, not depending on the verification of any condition other than that of compliance with Articles 70 and 71, no. 1, subparagraph e) of the UCC in the determination of the customs taxable value".

Being the determination of the customs taxable value effected by the TA at the moment of import, the Claimant refers that "it is incumbent on the latter to verify that freight and its respective ancillary expenses are included in the taxable value, requiring the presentation of the supporting invoices".

Therefore, it understands that "the VAT Code does not make the effects of the exemption of Article 13, no. 1, subparagraph f), of the VAT Code dependent on the presentation of any means of proof by the Claimant".

It concludes that, "even if, through oversight, the customs taxable value determined at the moment of customs clearance was lower than it should have been, a subsequent verification can only constitute grounds for additional VAT assessment in the sphere of the importer of the goods, since it is VAT due on import".

Alluding to the understanding contained in the Judgment of the SAC 13891, of 7 September 1996, it refers that it would not be incumbent on "the taxpayer the burden of proof of the existence of the positive elements of the taxable event, embodied in the inclusion of the value of transport in the taxable value of the imported goods, but rather to the Administration which verified the existence of the tax facts, when performing the act of assessment, for which it would have to require the presentation of the respective document proving the value of the transport".

The Claimant proposes that, "to ensure the effective taxation of the total ancillary expenses invoiced by the Claimant in VAT, which should occur at the moment of import, the TA should at that moment have required the customs brokers to present the documentation supporting the amounts declared in fields 44 and 45 of the SAD".

With effect, it asserts that, "the Claimant sends, as a rule, to the customs broker the invoice issued to the customer with the breakdown of ancillary expenses and freight (when applicable), this sending being prior to the completion of the SAD".

Regarding the performance of customs brokers, it understands that "despite the availability of the invoice by the Claimant, it is verified that it is a repeated practice of some customs brokers to disregard this invoice regarding the values of ancillary expenses and communicate them to customs using the average optional values resulting from the optional tables."

The Claimant "does not enjoy any possibility of intervention or decision-making power regarding the amounts that are declared by the customs broker for the purpose of completing the SAD, his intervention ending with the availability of the invoice of the transport services, for the purpose of calculating the customs taxable value".

In that measure, "the TA cannot come to require the Claimant to present the SAD as a necessary element to prove the exemption nor require the charging of VAT that should have occurred on the import of goods to a distinct taxable person."

It concludes by stating "the SAD is not in the possession of the Claimant nor should it be, insofar as it constitutes the customs import declaration that belongs to the importer of the goods, that is, to the Claimant's customer".

For all this, the Claimant understands that "the VAT exemption was correctly applied to freight and its respective ancillary expenses, as these are always part of the taxable value of the import through application of the provisions of Article 17, no. 2, subparagraph b), of the VAT Code".

Response to right to hearing:

The Claimant assures that it complied with all conditions that permit it to apply the exemption provided for in subparagraph f), no. 1, Article 13 of the VAT Code in the invoices issued related to the provision of services connected with the import of goods.

With effect, in accordance with this article, it is an indispensable condition for its application to ensure that these values are included in the taxable value of imports of goods to which they refer, determined in the SAD.

However, it states in point 60 that "the Claimant sends, as a rule, to the customs broker, the invoice issued to the customer with the breakdown of ancillary expenses and freight (when applicable), this sending being prior to the completion of the SAD' (underlined).

It also states, see points 61 to 65, that it verified that it is a repeated practice of some customs brokers to disregard this invoice regarding the values of ancillary expenses and communicate them to Customs using the average optional values resulting from the optional tables, the Claimant not enjoying any possibility of intervention or decision-making power regarding the amounts declared by the customs broker. Well also, it concludes by stating that the SAD is not in its possession, nor should it be, insofar as it belongs to the importer of the goods, that is, to the Claimant's customer.

Now if:

a) the invoice is issued prior to the completion of the SAD relating to the import, a document that serves as the basis for calculating the taxable value of imports of goods;

b) the company verified that there are customs brokers that disregard its invoices for the purpose of completing the SAD;

c) it does not enjoy any possibility of intervention or power of decision regarding the amounts declared by the customs broker in the SAD;

d) it is not in possession of the SAD.

How can the Claimant assure and guarantee that it complies with the conditions for the application of the exemption of subparagraph f), no. 1, Article 13 of the VAT Code in the invoices issued by it, if:

a) At the moment of issuance of the invoice, the customs taxable value has not yet been calculated, there being no SAD;

b) The company is aware that the objective and quantifiable criteria that serve as the basis for determining the customs taxable value (invoices) are not being complied with by certain customs brokers;

c) It has no possibility of intervention regarding the amounts declared by the customs brokers for the purpose of completing the SAD, making it even less provable in cases where the broker is not contracted by it, or even if the customs clearance is carried out in another Member State;

d) It does not have in its possession the respective SADs which state the customs taxable value, from which the respective VAT and customs duties were calculated.

Thus, we conclude that the company issues its invoices related to services connected with the import of goods without any rigor or consideration for compliance with tax rules, assuming that what is related to the import of goods is indiscriminately exempt from VAT.

Despite all these operational conditions that the Claimant describes related to the completion of the SAD, the company never validates the exemption granted in the issued invoice, paying no attention to this fact and exempting itself from doing so, insofar as it assumes that its involvement ends with the availability of the invoice of the transport services.

It is not, therefore, a matter of assessing the calculation of the customs taxable value, carrying out an additional assessment of tax (if applicable), but rather confirming compliance with an express condition in the article invoked by the company for the application of the exemption in the issued invoice.

4. ON THE BURDEN OF PROOF OF THE CORRECT APPLICATION OF THE EXEMPTION OF ARTICLE 13, NO. 1, SUBPARAGRAPH F) OF THE VAT CODE

In points 69 to 78, the Claimant reaffirms that it is not obliged to present the respective SADs for the application of the exemption in the invoice under Article 13 of the VAT Code, understanding that the burden of proof regarding this matter is incumbent on the TA.

However, following its response to the notification issued, it proceeded with its clients and customs brokers in order to gather copies of the SADs relating to the import of merchandise, so as to demonstrate that the value of international transport related to the import of merchandise is included therein, having presented weekly a file in "excel" format, in which it lists all invoices and respective SADs (when possible), taking this opportunity now to update it in the context of the right to hearing, with the addition of several other SADs.

From the analysis of the elements collected and now supplemented, the Claimant ended up drawing up the following summary table, relating to services considered exempt in maritime transport.

[Table reference]

It further adds that, "it would be incumbent on the import customs to, as the competent entity for the assessment of VAT on import, determine whether the declared value corresponds to the amount actually due, at the moment of that assessment".

It concludes by stating that "even if, hypothetically, the TA considered it to have the right to additionally assess VAT for amounts not included in the customs taxable value of the import, it could only additionally assess the VAT relating to the difference between amounts invoiced by the Claimant and amounts declared in the SADs".

Response to right to hearing:

Beginning by disagreeing with the Claimant's opinion, we reiterate that the burden of proof regarding the application of the VAT exemption, at the moment of issuance of the invoice, can only rest with the issuing company, since it is to this company that it falls to carry out the respective classification of the operation and the verification of the compliance with all conditions inherent to its application.

From the diligences now carried out, the Claimant succeeded in gathering a copy of part of the SADs relating to the invoices issued by it where it applied the said VAT exemption.

From the treatment given by the Claimant to the documents now collected, divergences resulted which it came to determine, and which it presents in the table above contained in the right to hearing, attempting to present its conclusions as a whole, addressing the exemptions granted jointly, and which, in our view, cannot be.

The application of the said VAT exemption will necessarily have to be treated, operation by operation, invoice by invoice, always based on the imposition noted in the regulation, that is, the inclusion of the exempt amount in the invoice, in the taxable value of the import (SAD).

After analyzing the documents now presented in the context of the right to hearing, we understand that the following values were proven:

[Table reference]

5. OF THE PROCESSES RELATED TO CUSTOMER C...

In points 79 to 92, the Claimant confirms that it exempted from VAT all services identified by the TA, even though in the respective SAD these values were not reported in fields 44 and 45.

This is because, it argues, the processes related to this customer refer, in their majority, to import shipments "DDP" from Egypt, that is, processes where both freight and ancillary expenses are included in the value of the imported merchandise.

It properly classifies the Incoterm "DDP" — "Delivery Duty Paid", as "delivery with duties paid", that is, the seller is responsible for transport from its origin to its destination, the seller bearing both the customs clearance of the goods and the payment of all taxes and duties, arguing that all invoices from this customer identified as being capable of correction correspond to imports in which the Incoterm "DDP" is mentioned in the SAD.

It thus argues that the exemption cannot be denied in these invoices "because the amounts reported in field 8 as exempt do not appear in fields 44 and 45 of the respective SAD (...)", since, "for these operations, the 'first place of destination' cannot be considered the place of customs clearance, but rather the place of destination (buyer's warehouse)".

It also invokes no. 3, Article 17 of the VAT Code to consider place of destination "(...) that which is documentally proven to the customs services or, in the absence of such indication, the place where the first break in cargo occurs, if this takes place within the country, or if this does not occur, the place of import".

Response to right to hearing

With effect, the Incoterm "DDP" is the Incoterm that establishes the greatest degree of commitment for the seller, in that it assumes all risks and costs relating to the transport and delivery of the goods to the designated place of destination.

Thus, it would be incumbent on the seller to deliver the goods to the buyer, handling all import formalities, at the designated place of destination, namely the customs clearance of the goods and payment of all taxes and duties, as well as to bear all ancillary expenses up to the delivery of the goods, since the value of these is incorporated in the commercial invoice of the supplier of the goods and consequently included in the taxable value of the import.

It happens, however, that the invoices issued by the Claimant to its customer identifying the import translate the provision of maritime transport services and ancillary services, which were not included in the exporter's commercial invoice and consequently were not considered for the purpose of taxable value at customs.

It is not sufficient for the mention of the acronym "DDP" on the issued invoice, in order for it to be considered that the terms of the Incoterm were complied with.

By its definition, if the terms of the Incoterm "DDP" were respected, all the value associated with the import would already have been considered for the purpose of customs taxable value, insofar as all services associated with the import are included in the commercial invoice.

Thus it does not occur, since services of transport and those connected with the import were invoiced by the Claimant, not considered in the taxable value at customs.

Consequently, what is established in subparagraph f), no. 1, Article 13 of the VAT Code, exempting the provision of services connected with import "whose value is included in the taxable value of imports of goods to which they refer" and noting that these services are not included in that taxable value, does not apply.

FINAL CONCLUSIONS:

Point 1:

Given the foregoing, and despite the Claimant asserting that it is not obliged to present the respective SADs to justify the application of the exemption of subparagraph f), no. 1, Article 13 of the VAT Code, in the invoice issued by it, the fact is that we do not understand so.

With effect, we do not foresee another way to verify the condition set in the regulation, namely, the proof that the amounts exempted in its issued invoice were included in the taxable value of the import, without having access to the respective SAD.

According to the Claimant's reasoning, the obligation of compliance with the formalism inherent to the application of the exemption is not its responsibility, but rather:

. The Customs Broker, by being responsible for the delivery of the SAD, being the latter subcontracted by it or even not;
and/or

. The Customs Services, insofar as they did not verify the documents that served as support for the completion of the SAD; and/or

. The importer of the goods, customer of the Claimant, insofar as the latter is the debtor of the VAT on the imported goods.

In truth, we would like to attest that the Claimant complies with all its obligations, regarding the exemptions applied in the invoices issued by it, but we are unable to do so, neither through the Claimant's accounting, which is shown to be totally inadequate for its determination, not demonstratively showing the application of the law, nor through the documents presented, which are shown to be disorganized and/or absent.

Even after extended periods have been granted for remedying the shortcomings detected in the tax inspection procedure, the Claimant was unable to prove all the exemptions applied, given the manifest insufficiency or absence of bookkeeping and documentary organization.

Not assuming its role as intermediary in the operation, nor the responsibility for the issuance of invoices that give the right to the application of tax exemptions, the Claimant assumes that:

. the SAD was correctly completed by the Customs Broker, including therein the amounts exempted in the invoice for the purpose of calculating the taxable value of the import;

. the Customs Services review all presented SADs, requesting the respective proofs;

. a subsequent analysis demonstrating inconsistencies in the calculation of the customs taxable value (SAD) would be the sole and exclusive responsibility of the importer of the goods.

With effect, the Claimant believes in all entities with which it relates and other parties involved in the import process, without concerning itself with protecting itself from any irregularity that may be being committed and which, in our understanding, is its responsibility.

Thus, as it states in the exercise of the right to hearing, it relinquishes this exercise (of control) at the moment of issuance of the invoice, assuming that its responsibility ends here.

(...)

Point 3:

Only in the context of the right to hearing was the Claimant able to bring into the proceedings part of the elements necessary for validating the application of the exemption granted in the issued invoices, which we treated accordingly and with the respective adjustment of the corrections determined.

Once again, we reinforce the idea that this case does not relate to a subsequent assessment of the correct completion of the SAD, but rather the verification of compliance with the law, namely the obligation to prove that the amounts that the Claimant considered as exempt in the invoices issued by it, pursuant to the said regulation, were properly applied.

It is not sufficient to invoke subparagraph f), no. 1, Article 13 of the VAT Code, by opposition of this rule in the invoice, in order for services connected with an import of goods to be considered tax exempt, but rather the demonstration that these services were already subject to VAT, being included in the taxable value calculated in the SAD.

Now, if the company issues the invoice at a time prior to the definition of the taxable value, as it alleges, it immediately falls apart that it can guarantee that the exempt value will be included in the taxable value of the SAD, which, as it also states, does not depend on it and has not yet been determined.

As we have been referring in the course of this information, the question that is posed to us within the scope of this tax inspection procedure is the assessment of the values declared in the PDs of VAT filed by the company relating to the financial year 2013, with special emphasis on the values declared in the respective field 8.

For such monitoring to be carried out, there is a need to verify compliance with the conditions for the application of the said exemption in the issued invoices, so that, in addition to those requested on several occasions within the scope of the external procedure, they were also the subject of notification, indeed, two notifications issued, where the company was not only warned about the lack of bookkeeping organization, but also about the documentary shortfall existing, which did not allow validation of the amounts entered in the periodic VAT declarations.

Despite these diligences, which extended over a temporally long period, the company maintained its "position", showing no effort to satisfy the shortcomings that manifested themselves, and which resulted in the impossibility of validating the exemptions applied in the issued invoices and consequently in the validation of the amounts entered in field 8 of the periodic VAT declarations.

Point 4:

Regarding invoices issued to national customer "C...", we conclude that it is not sufficient to mention the acronym "DDP" (Incoterm) on the issued invoice, in order for it to be considered that all values connected with the import were included in the exporter's commercial invoice and, as such, considered for the purpose of customs taxable value.

With effect, we found that services were invoiced by company "A..." to the national customer in which the exemption was applied under Article 13 of the VAT Code, which were not included in the customs taxable value, so the application of the exemption was carried out incorrectly.

Point 5:

As a result of the foregoing, in the financial year 2013, the company declared values in field 8 of the periodic VAT declarations filed without, however, proving compliance with the conditions for the application of the VAT exemption in operations, as required by subparagraph f), no. 1, Article 13 of the VAT Code.

In light of the foregoing, taking into account the elements now presented, adjustments were made to the determined values in accordance with the following table.

[Table reference]

Thus, there is a lack of tax charging, at the normal rate in force in that financial year, in the amount of €173,596.29, as provided in no. 1, Article 18 of the VAT Code, broken down by period as shown in the following table.

[Table reference]

  • Following the inspection, corrections were made for VAT purposes and the respective assessments were issued totaling € 173,596.28, which the Claimant partially accepted, as summarized in the table below:

[Table reference]

  • The corrections with which the Claimant disagrees relate to:

– provision of maritime transport services that occurred before the customs clearance of goods, for the reason that the Single Administrative Document ("SAD") was not presented and thus it was not demonstrated that the exempt value in the invoicing issued by the Claimant is included in the taxable value of the import; the total value of services regarding which the Tax and Customs Authority understood that the tax exemption was improperly applied amounts to € 287,005.36, which determines VAT shortfall in the value of € 66,011.23;

– maritime transport services provided to customer "C...", for the reason that the value of these services, exempt from VAT, was not included (by the importer) in the taxable value of the import, contained in the SAD, for the purpose of being subject to taxation for VAT purposes; the total value of services regarding which the Tax and Customs Authority understood that the tax exemption was improperly applied amounts to € 320,705.93, which determines VAT shortfall in the value of € 73,762.36;

  • The Claimant is a forwarding entity which has no involvement in the import process and assessment of the respective tax, of goods of its customers/importers;

  • After providing the said services, the Claimant issues the invoice to the customer (as a rule, sending it to the customs broker) for the transport services provided – exempt from VAT under Article 13, no. 1 subparagraph f) of the VAT Code – at a moment prior to the customs clearance of goods, since the same must be presented at the moment of import/customs clearance of goods;

  • The VAT charged was paid on 28-04-2018, through the use of credits of the Claimant, as shown in the assessments attached as documents nos. 1 to 12;

  • On 23-07-2018, the Claimant submitted the request for arbitral pronouncement that gave rise to the present proceedings.

Facts Not Proven and Justification for Determination of Facts

The facts were taken as proven on the basis of the documents submitted by the Claimant and those contained in the administrative file.

It was not proven whether the value of the provision of services to which the Claimant applied the regime of subparagraph f) of no. 1 of Article 13 of the VAT Code was included in the taxable value of the imports to which they were connected.

3. Legal Grounds

Article 144 of Directive no. 2006/112/EC of the Council, of 28-11-2006, establishes that "Member States shall exempt the provision of services related to the import of goods and whose value is included in the taxable value in accordance with subparagraph b) of no. 1 of Article 86".

"In imports of goods, the taxable value shall be constituted by the value defined for customs purposes by the applicable EU provisions" and "it shall include the following elements, if not already included: (...) b) Ancillary expenses, such as expenses for commission, packaging, transport and insurance, occurring up to the first place of destination of goods in the territory of the Member State of import, as well as expenses arising from transport to another place of destination in the Community, if such place is known at the moment the taxable event occurs" [Articles 85 and 86, no. 1, subparagraph b), of Directive no. 2006/112/EC].

In line with these rules, the VAT Code establishes in Article 13, no. 1, subparagraph f), that "there are exempt from tax (...) the provision of services connected with import whose value is included in the taxable value of imports of goods to which they refer, as established in subparagraph b) of no. 2 of Article 17" and in Article 17, nos. 1 and 2, that "the taxable value of imported goods shall be constituted by the customs value, determined in accordance with the applicable EU provisions" and "it shall include, insofar as it is not already included therein (...) ancillary expenses, such as expenses for commissions, packaging, transport and insurance, occurring up to the first place of destination of goods on national territory, or another place of destination in the territory of the Community if this is known at the moment the fact giving rise to import occurs, with the exclusion of transport expenses referred to in subparagraph t) of no. 1 of Article 14".

The Claimant carried out in the year 2013 operations connected with imports to which it applied the exemption provided for in Article 13, no. 1, subparagraph f), of the VAT Code.

Following an inspection relating to operations connected with imports carried out in the year 2013, the Tax and Customs Authority made corrections in the global amount of € 173,596.28.

The Claimant accepted corrections in the amount of € 33,822.68, relating to services provided after customs clearance, disagreeing with corrections of two other types, relating to operations prior to customs clearance, to which it applied that exemption:

– those relating to the provision of maritime transport services that occurred before the customs clearance of goods, for the reason that the Single Administrative Document ("SAD") was not presented and thus it was not demonstrated that the exempt value in the invoicing issued by the Claimant is included in the taxable value of the import; the total value of services regarding which the Tax and Customs Authority understood that the tax exemption was improperly applied amounts to € 287,005.36, which determines VAT shortfall in the value of € 66,011.23;

– those relating to maritime transport services provided to customer "C...", for the reason that the value of these services, exempt from VAT, was not included (by the importer) in the taxable value of the import, contained in the SAD, for the purpose of being subject to taxation for VAT purposes; the total value of services regarding which the Tax and Customs Authority understood that the tax exemption was improperly applied amounts to € 320,705.93, which determines VAT shortfall in the value of € 73,762.36.

In essence, the position of the Tax and Customs Authority assumed in the Tax Inspection Report, defined after the exercise of the right to hearing, is based on the following understanding:

– from subparagraph b) no.

Frequently Asked Questions

Automatically Created

What VAT exemptions apply to import-related service provisions under Portuguese tax law?
Under Portuguese tax law, VAT exemptions for import-related services are governed by Article 13(1)(f) of the VAT Code, transposing EU VAT Directive provisions. Services connected to the importation of goods are exempt when their value is included in the taxable base for import VAT as defined in Article 17(2) of the VAT Code. This includes loading, unloading, handling, and similar services, but only if performed before customs clearance and incorporated in the Single Administrative Document (SAD) in field 44, 45, or through the Optional Table. The exemption prevents double taxation since these services are already taxed at customs. Services performed after customs clearance, such as post-clearance warehousing or internal transport within Portugal, do not qualify for exemption and must be charged VAT at standard rates. The key temporal criterion is whether services occur before or after the goods receive customs clearance on national territory.
Who bears the burden of proof in VAT disputes involving import services before CAAD arbitral tribunals?
In VAT disputes before CAAD arbitral tribunals, the burden of proof lies with the taxpayer claiming exemption from VAT. According to Portuguese tax law principles applied in this decision, when a company invokes Article 13(1)(f) VAT Code exemption for import-related services, it must demonstrate that the exemption conditions are met. Specifically, taxpayers must prove that service values were included in the taxable base declared in the SAD for the import operation. This requires providing customs documentation, invoices showing value incorporation, and evidence that services were performed before customs clearance. The Tax Authority challenged the claimant to provide proof linking exempt invoices to specific SAD declarations, demonstrating incorporation of service values. This evidentiary burden reflects the general principle that taxpayers claiming tax benefits must substantiate their entitlement. The tribunal emphasized that documentary evidence must allow clear verification of compliance with legal exemption requirements, including temporal and valuation criteria for each transaction claimed as exempt.
Can VAT liquidations from tax inspections be partially annulled through Portuguese tax arbitration proceedings?
Yes, VAT liquidations resulting from tax inspections can be partially annulled through Portuguese tax arbitration proceedings under the RJAT (Decree-Law 10/2011). In this case, the claimant requested partial annulment of EUR 139,773.60 from total assessments of EUR 173,596.28, plus compensatory interest. CAAD arbitral tribunals have full jurisdiction to review the legality of tax assessments, including those arising from inspection reports. Taxpayers can challenge specific amounts while accepting other portions of the assessment, allowing for granular dispute resolution. The tribunal examines whether the Tax Authority correctly applied substantive and procedural law when making assessments. Partial annulment is appropriate when only certain transactions or legal interpretations are contested. The arbitration process offers an alternative to administrative appeals and judicial courts, providing specialized tax expertise and faster resolution. To succeed, claimants must demonstrate legal errors in the assessment methodology, incorrect application of exemptions, or procedural irregularities. The tribunal's decision is binding and has the same effects as a judicial judgment, offering efficient resolution of complex VAT disputes arising from tax inspections.
How does CAAD handle requests for preliminary rulings to the CJEU in VAT import service exemption cases?
CAAD arbitral tribunals can request preliminary rulings from the Court of Justice of the European Union (CJEU) when EU law interpretation is necessary for deciding a case. In this decision, the Tax Authority (defendant) suggested that a preliminary reference be made to the CJEU regarding interpretation of VAT Directive provisions underlying Article 13(1)(f) of the Portuguese VAT Code. Portuguese arbitral tribunals, like national courts, are empowered to seek CJEU guidance when EU law questions arise that are essential to the dispute's resolution. The tribunal evaluates whether the EU law issue is sufficiently unclear or novel to warrant a reference, considering existing CJEU jurisprudence and the relevance to the specific case. While the decision text does not reveal the tribunal's final determination on this request, the procedural framework allows CAAD panels to suspend proceedings and refer questions concerning VAT Directive interpretation, particularly regarding exemptions for import-related services. This mechanism ensures uniformity in EU VAT law application across member states and allows Portuguese tax arbitration to benefit from CJEU authoritative interpretation when domestic law transposes EU directives.
What are the grounds for claiming compensatory interest (juros indemnizatórios) in VAT arbitration cases in Portugal?
Compensatory interest (juros indemnizatórios) in Portuguese VAT arbitration cases can be claimed when the Tax Authority has unlawfully collected or assessed taxes, causing financial damage to the taxpayer. Under Article 43 of the General Tax Law (LGT), taxpayers are entitled to compensatory interest when tax payments result from illegal assessments that are subsequently annulled. The legal basis requires: (1) an unlawful tax assessment or collection, (2) actual payment or enforced collection by the taxpayer, (3) subsequent annulment through administrative or judicial decision, and (4) a causal link between the unlawful act and financial harm. In this case, the claimant sought EUR 139,773.60 plus compensatory interest, indicating they challenged both the substantive assessment and sought compensation for financial loss from the allegedly improper VAT liquidation. The interest rate and calculation method are established by law. To succeed, claimants must demonstrate that the VAT assessment being challenged was legally unfounded, not merely based on a different interpretation. CAAD tribunals have authority to award compensatory interest when annulling tax assessments, providing full remediation for taxpayers subjected to unlawful taxation.