Process: 361/2014-T

Date: December 18, 2014

Tax Type: IVA

Source: Original CAAD Decision

Summary

CAAD Process 361/2014-T addressed a VAT assessment challenge by a Portuguese branch of a Spanish company regarding January 2010. The Tax Authority initially assessed €19,341.54 in unpaid VAT plus compensatory interest. After the taxpayer paid the tax under DL 151-A/2013, the compensatory interest was annulled. Before tribunal constitution, the Tax Authority partially revoked €9,981.90 (comprising €1,897.95 for intra-community service acquisition corrections and €8,083.95 for VAT assessed at incorrect rates). The taxpayer challenged the remaining €9,359.64 assessment, alleging violations of CIVA Articles 6, 7, 8, 14, 18, 78, and Constitutional Article 268. The core dispute centered on whether an accounting correction from December 2009 was subject to legislative changes in Article 6 CIVA effective January 1, 2010, specifically regarding an invoice issued to B... in January 2010. The tribunal ruled it had no jurisdiction over revoked assessments (supervening futility) but maintained competence to decide compensatory interest claims under Article 24(5) RJAT and Article 43 LGT, rejecting the Tax Authority's jurisdictional exceptions. The key issues were: (1) entitlement to compensatory interest on the €8,083.95 revoked amount denied by the Tax Authority; (2) legality of the €9,359.64 VAT assessment under Article 6(4) CIVA; and (3) procedural costs allocation. The tribunal emphasized that partial revocation does not eliminate its jurisdiction over related compensatory interest claims, establishing an important precedent for taxpayer rights in arbitral proceedings.

Full Decision

I - REPORT

1 – A…, SA – Branch in Portugal, NIPC[1] …, with registered office at …, filed on 02/05/2014 a request for constitution of an arbitral tribunal, pursuant to the provisions of subsection a) of no.1 of article 2, subsection a) of no. 2 of article 5 and no.1 of article 6, all of the RJAT[2], with a view to examining the legality of the VAT[3] assessment for the period of January 2010.

2 – The request for constitution of the arbitral tribunal was made without exercising the option of appointment of arbitrator, and was accepted by His Excellency the President of the CAAD[4] and automatically notified to the AT[5] on 05/05/2014.

3 – Pursuant to and for the purposes of the provisions of no.2 of article 6 of the RJAT, by decision of His Excellency the President of the Deontological Council, duly communicated to the parties within the legally applicable time limits, on 19/06/2014, Arlindo José Francisco was appointed as arbitrator, who communicated to the Deontological Council for Administrative Arbitration his acceptance of the appointment within the legally stipulated time limit.

4 – Also on 19/06/2014, the AT communicated the partial revocation of the disputed act, in the amount of € 9,981.90, of which € 1,897.95 concerned a value that had been corrected in intra-community service acquisitions and € 8,083.95 of VAT assessed at a rate lower than that due, facts which on the same date were notified to the claimant.

5 – On 09/07/2014 the claimant requested the continuation of the proceedings and that the AT pronounce itself on the claimant's right to payment of compensatory interest on the revoked amount.

6 - The tribunal was constituted on 15/07/2014 in accordance with the provisions contained in subsection c) of no. 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December.

7 – With its request, the claimant sought the declaration of illegality of the VAT assessment which, in its understanding, would violate articles 6, 7, 8, 14, 18 and 78 of the CIVA[6] and also article 268 of the CRP[7].

8 – The assessment in question resulted from an inspection action by the Finance Directorate of Lisbon concerning the period of January 2010, which determined unpaid tax in the amount of € 19,341.54 to which would be added compensatory interest in the amount of € 2,226.51.

9 – As on 5 December 2013 it made payment of the tax in question pursuant to DL[8] 151-A/2013, it saw the compensatory interest annulled, hence the request was directed exclusively to the amount of tax € 19,341.54 and, if the illegality of the assessment were declared, it requested payment of compensatory interest pursuant to article 43 of the LGT[9].

10 – In turn, the AT, in its response, stated that prior to the constitution of the tribunal it revoked the amount of € 9,981.90 and that it maintained the correction of € 9,359.64, as this was an accounting correction dated December 2009 not applicable to the legislative changes that occurred in article 6 of the CIVA with effect from 01/01/2010, as stated in annex 3 pages 9 to 12 of the final inspection report.

11 – It further raises exceptions regarding the tribunal's inability to adjudicate acts of assessment revoked by it prior to the constitution of the tribunal, the tribunal's lack of material jurisdiction regarding the request for recognition of compensatory interest granted by the AT, as well as regarding the part denied.

II - PROCEDURAL SANITY

The tribunal was regularly constituted and is competent ratione materiae, in accordance with article 2 of the RJAT.

The parties have legal personality and capacity, are shown to be legitimate and are regularly represented in accordance with articles 4 and 10, no.2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

The AT raised exceptions which must be appreciated and decided immediately:

Regarding the non-reviewability of revoked assessment acts

The tribunal considers that there is a supervening futility of the dispute regarding the revoked assessments which, by this means, have been removed from the legal order, making it impossible to annul what no longer exists.

Regarding the lack of material jurisdiction of the arbitral tribunal concerning recognition of compensatory interest granted by the AT, should it not be understood thus, regarding the impossibility or futility relating to this request

There is also a supervening futility of the dispute, since the AT recognized this right prior to the constitution of the tribunal.

Regarding the lack of material jurisdiction of the arbitral tribunal concerning the request for recognition of compensatory interest in the part denied by the AT

The AT sustains, in summary, its point of view on the fact that there was revocation of the tax obligation, a fact that would prevent the tribunal from reviewing the request for corresponding compensatory interest, since, by virtue of the revocation of the tax obligation, there will no longer be a connection with the tax act and, therefore, the RJAT (no.1 of article 2) defines the claims that may be reviewed by arbitral tribunals and this is not contemplated therein.

We do not accept this point of view inasmuch as the request for arbitral pronouncement contemplated the annulment of the tax obligations and the consequent declaration of the right to compensatory interest, the tribunal being materially competent for the decision, the fact that the AT proceeded with the partial revocation does not deprive it of this competence. Moreover, no. 5 of article 24 of the RJAT, by providing "Payment of interest is due, regardless of its nature, in accordance with the terms provided in the general tax law and the Tax Procedure Code" must be understood in the sense of permitting the recognition of compensatory interest in the arbitral proceeding, while at the same time the revocation of the tax obligation does not destroy the connection between it and the request for compensatory interest. Thus the exception is not well-founded.

On 19/11/2014, the tribunal held a meeting, in accordance with article 18 of the RJAT and, having heard the parties, the claimant declared that it wished to dispense with the testimony of the witness called and with the tribunal's agreement the parties dispensed with written or oral pleadings.

The respondent requested amendment of its article 85 of the response, in the sense that where it reads "article 7 of the CIVA" it should read "article 8 of the CIVA", an amendment authorized without opposition from the claimant.

The proceeding is not affected by nullities and there are no issues that prevent the examination of the merits of the case, the conditions being met for a final decision to be rendered.

III - GROUNDS

1 – Issues to be decided:

a) Whether or not there is a right to compensatory interest denied by the AT on the revoked amount of € 8,083.95.

b) Whether or not there was grounds for VAT assessment on an invoice issued to B... in January 2010, as per the correction made by the AT in the amount of € 9,359.64, pursuant to article 6 no. 4 of the CIVA.

c) The amount of procedural costs to be fixed and its allocation.

2 - Statement of Facts:

The relevant and proven facts based on the evidence attached to the file are as follows:

a) The claimant is a legal person with NIPC … with registered office at ….

b) It is registered with the Economic Activity Code 46.160.

c) It is a branch of Group A… whose parent company is based in Spain.

d) It is undisputed that the value of service provision is calculated at the end of each month based on an estimate of sales, with deviations sometimes occurring that lead to the issuance of credit notes or debit notes.

e) It was subject to a partial scope inspection regarding VAT for the periods of January and February 2010, pursuant to work order …2013… of 09 August 2013.

f) On 10 September 2013 it was notified of the draft inspection report, which communicated to it the value of VAT corrections in the amount of € 21,568.05, of which €4,124.46 of VAT wrongly deducted (hotel and travel expenses), € 8,083.95 of VAT assessed at a rate lower than that due and € 9,359.64 of VAT not assessed on marketing and advertising services.

g) On 25 September 2013 the claimant exercised the right of hearing in which it manifested and sustained its disagreement, as per the document which accompanied the petition and which is here deemed fully reproduced.

h) The AT maintained the corrections and notified the claimant for payment with a voluntary payment deadline of 31 January 2014.

i) On 05 December the claimant made payment of the tax pursuant to DL 151-A/2013 of 31 October which resulted in the annulment of compensatory interest payment.

j) Considering the VAT assessed illegal, the claimant filed the present request for pronouncement which was accepted on 02 May 2014 with consequent notification to the AT on 05 of that month.

k) On 19 June the AT, through a motion, informs that it revoked partially the assessments concerning VAT which had been considered in the inspection report as wrongly deducted in intra-community service acquisitions and VAT which had been, in the same report, considered assessed at a rate lower than that due, all in the total amount of € 9,981.90.

l) On 09/07/2014 the claimant requested the continuation of the proceedings and that the AT pronounce itself on the request for compensatory interest regarding the part now revoked by the AT.

m) On 15/07/2014 the tribunal was constituted with consequent communication to the parties and to the arbitrator who, on 16 of the same month, issued a court order ordering the notification provided for in article 17 of the RJAT.

n) On 28/07/2014 the AT presented a motion which was ordered to be added to the file and in which, in summary, it stated that it was not party to either the constitution of the tribunal since the same was constituted without it having pronounced on what was requested by the SP[10] on 09/07/2014, that the Director-General of the AT pronounced himself to the effect that compensatory interest was due on the revoked amount concerning the corrections "wrongly deducted in intra-community service acquisitions" and not so regarding the corrections for "VAT assessed at a rate lower than that due".

o) The partnership and sponsorship agreement 409/209 between the claimant and the Municipality of … was executed on 4 November 2009.

p) We do not consider there to be unproven facts with relevance to the proceedings.

2 – Matters of Law

The issues to be decided are those already referred to which we shall address in the order listed:

2.1 - Whether or not there is a right to compensatory interest denied by the AT on the revoked amount of € 8,083.95.

Article 43 no.1 of the LGT tells us: "Compensatory interest is due when it is determined, in administrative reconsideration or judicial challenge, that there was an error attributable to the services from which results payment of a tax debt in an amount exceeding that legally due".

As the arbitral proceeding is an alternative to the challenging process, as derived from Legislative Authorization Law 3-B/2010 of 28 April, it has been settled in tax arbitration decisions that the declaration of the right to compensatory interest in cases where it is concluded that there was an error attributable to the services from which results wrongful payment of a tax debt.

In the case at hand, the AT acknowledged that there was an error, revoking the assessment in question, an act which occurred prior to the constitution of the tribunal, but only after the taxpayer had initiated the arbitral proceeding.

The argument that only after notification of the tax acts did the claimant present new probative evidence, a fact which, in itself, would be preventive of attributing error to the respondent, does not stand.

In fact, the revoked assessment was sustained by inspection scrutiny which made use of a partnership and sponsorship agreement of 28 October 2010 which, logically, had no application to the concrete case, but there is no indication that the existence or non-existence of another previous partnership and sponsorship agreement that would support the procedure followed by the respondent was questioned and, in fact, it existed, as was proven and the respondent accepted.

Accordingly, the assessment in question only occurred because the audit conducted on the claimant's documentation may not have been as exhaustive as it should have been and from this insufficiency resulted a wrongful assessment which came to be revoked by the respondent, but only after the request for arbitral pronouncement.

In this perspective, it must be understood that there was an error attributable to the services and compensatory interest is due, in accordance with the terms prescribed in no.1 of article 43 of the LGT.

2.2 - Whether or not there was grounds for VAT assessment on an invoice issued to B... in January 2010, as per the correction made by the AT in the amount of € 9,359.64, pursuant to article 6 no. 4 of the CIVA.

As is accepted by both the claimant and the respondent, the value of the claimant's service provision to B... is estimated at the end of each month and if there are actual deviations in the sales estimate, the correction that proves necessary is made. In the concrete case of the month of December 2009, this occurred, except that with the entry into force, on 1 January 2010, of the amendments introduced by DL 186/2009 of 12 August, the rules for the place of supply of services were modified. Specifically:

Until 31 December 2009 the rule provided for in no.4 of article 6 of the CIVA considered the claimant's services supplied to B... as localized in Portugal and as such subject to VAT.

From 01 January 2010 with the amendments introduced by the aforementioned DL 186/2009 such services supplied ceased to be localized in Portugal and accordingly there was no grounds for VAT assessment, whereby the claimant, in issuing in January 2010 the corrective invoice for services rendered in December 2009, no longer assessed VAT.

The claimant, in summary, sustains its procedure on the fact of the change that occurred in the legislative framework from 01 January 2010 regarding the rules of place of supply of services, whereby any invoicing whose exigibility occurred after that date will have to comply therewith and, in the concrete case, verifying that the effective net sales of B... in national territory in the month of December 2009 were of a value higher than estimated, there was a need to issue an additional invoice in January 2010 already in light of the new legislation, hence without VAT assessment.

For its part, the AT, in its response, sustained in the inspection report, understands, in summary, that despite the invoicing having occurred in January 2010 the same corresponds to the regularization of services supplied in December 2009 and should have been issued with VAT assessment since at that time the rules for place of supply of services rendered by service providers resident in national territory, as was the concrete case, were subject to VAT.

Quid juris?

Having analyzed the situation and viewed the positions sustained by the parties, the tribunal understands that in accordance with the provisions contained in article 7 no. 1 subsection b) of the CIVA where it is stipulated that the tax is due and becomes exigible in services provided at the moment of their supply and as these occurred in December 2009, the legal framework to be applied can only be that in force at the time when the same occurred and no other.

Do not invoke article 8 of the CIVA which regulates the matter of exigibility of the tax which may or may not coincide with the tax events, as it is the moment of these that is determinative for tax liability, while exigibility may or may not be coincident.

In fact, the legislative framework from 01 January 2010 was modified, but only for tax events occurring from that date. In the concrete case we are faced with a mere accounting regularization for facts occurring prior to the new legislative framework which cannot be applied to it. Moreover, it is a matter of respecting the principle of the application of tax law in time provided for in article 12 of the LGT which in its no. 1 provides: "Tax rules apply to facts subsequent to their entry into force…"

Now the tax events generating the tax occurred before the entry into force of the amendments introduced by DL 186/2009 of 12 August, hence they cannot be applied to them.

In this perspective, the tax act put into question must be maintained as it respects the legal rules in force at the time of the occurrence of the tax events.

2.3 - The amount of procedural costs to be fixed and its allocation

It is verified that the amount of the claim was € 19,341.54 and it was on the basis of this that the initial arbitration fee was ascertained and paid in accordance with the provisions of subsection a) of no. 1 of article 97-A of the CPPT and no.2 of article 3 of the RCPAT.

As the file clearly shows, the respondent, prior to the constitution of the tribunal, proceeded with the partial revocation of the assessment acts, which from its point of view would have effects both on the economic value of the proceeding and on the level of costs which could not be imputed to it, in view of the provisions of article 3-A of the RCPAT and also because it understood that there was no default of the AT.

From the tribunal's point of view, article 3-A of the RCPAT is not applicable to the concrete case since the proceeding did not cease with the partial revocation of the assessment acts.

On the other hand, if the claimant had not decided to exercise its rights to request examination of the legality of the VAT assessment acts in question, the same would remain in the legal order, despite the illegality of some of them.

Jorge Lopes de Sousa teaches us (CPPT – 6th edition, volume II, page 310) "when an act is annulled or its nullity or non-existence is declared, it is to be understood that it was the tax administration that gave rise to the proceeding by enacting an act in non-conformity with the law".

The assessment acts here in question had their origin in an inspection action promoted by the AT and only came to be removed from the legal order by the latter after the claimant's request for constitution of the arbitral tribunal and this tribunal cannot fail to declare the supervening futility of the dispute regarding the revoked part without prejudice to the AT's responsibility for costs in the corresponding part, in accordance with article 277 subsection e) and 536 no.3 and 4, both of the CPC[11].

We follow the decisions already rendered by the Arbitral Tribunal – cases 59/2012 and 31/2013.

IV - DECISION

In view of the foregoing, the tribunal declares:

1 - That compensatory interest is due on the amount of € 8,083.95 of the assessment revoked by the AT, calculated at the legal rate from the date of its payment to the date of its repayment.

2 - The request for pronouncement is dismissed, absolving the respondent of the request for illegality of the correction made by the AT in the amount of € 9,359.64, concerning the regularization concerning the month of December 2009.

3 – To fix the value of the proceeding at € 19,341.54 for purposes of costs, in accordance with the provisions contained in article 299 no. 1 of the CPC, article 97-A of the CPPT[12] and article 3, no. 2 of the RCPAT[13].

Costs in the total amount of € 1,224.00, of which € 631.69 is charged to the respondent AT and € 592.31 is charged to the claimant.

Text prepared by computer, in accordance with article 131, no.5 of the CPC, applicable by reference from article 29, no.1 subsection e) of the RJAT, with blank lines and reviewed by the tribunal.

The preparation of this decision is governed by the orthography prior to the orthographic agreement.

Lisbon, 18 December 2014

The sole arbitrator,

Arlindo Francisco

[1] Acronym for Individual Identification Number for Legal Persons.
[2] Acronym for Legal Framework for Arbitration in Tax Matters.
[3] Acronym for Value Added Tax.
[4] Acronym for Center for Administrative Arbitration.
[5] Acronym for Tax and Customs Authority.
[6] Acronym for Value Added Tax Code.
[7] Acronym for Constitution of the Portuguese Republic.
[8] Acronym for Decree-Law.
[9] Acronym for General Tax Law.
[10] Acronym for Taxpayer.
[11] Acronym for Civil Procedure Code.
[12] Acronym for Tax Procedure and Process Code.
[13] Acronym for Regulation on Costs in Tax Arbitration Proceedings.

Frequently Asked Questions

Automatically Created

What were the grounds for challenging the VAT liquidation in CAAD process 361/2014-T?
The taxpayer challenged the VAT liquidation on grounds that it violated Articles 6, 7, 8, 14, 18, and 78 of the Portuguese VAT Code (CIVA), as well as Article 268 of the Portuguese Constitution (CRP). The specific dispute concerned a €9,359.64 assessment related to an invoice issued to B... in January 2010, with the taxpayer arguing that the Tax Authority incorrectly applied Article 6(4) CIVA by treating a December 2009 accounting correction under legislative provisions that only became effective on January 1, 2010.
How did the partial revocation of the VAT assessment affect the arbitration proceedings?
The partial revocation of €9,981.90 before tribunal constitution created supervening futility regarding those revoked amounts, as the tribunal cannot annul acts removed from the legal order. However, the revocation did not eliminate the tribunal's jurisdiction over the remaining disputed amount (€9,359.64) or over compensatory interest claims. The tribunal explicitly rejected the Tax Authority's argument that revocation destroyed the connection between the tax act and compensatory interest requests, maintaining its material competence under Article 24(5) RJAT to decide all interest claims.
Which articles of the Portuguese VAT Code (CIVA) were allegedly violated in this decision?
The allegedly violated articles of the Portuguese VAT Code (CIVA) were: Article 6 (chargeability rules), Article 7 (taxable amount), Article 8 (tax rates), Article 14 (exemptions), Article 18 (right to deduct), and Article 78 (obligations). Additionally, the taxpayer invoked Article 268 of the Portuguese Constitution (CRP) regarding fundamental principles of administrative procedure and taxpayer rights.
Can a taxpayer claim indemnity interest under Article 43 LGT after paying VAT under DL 151-A/2013?
Yes, a taxpayer can claim compensatory interest under Article 43 LGT after paying VAT under DL 151-A/2013. In this case, the taxpayer paid the assessed tax pursuant to DL 151-A/2013 on December 5, 2013, which resulted in annulment of the compensatory interest it owed to the Tax Authority. Subsequently, the taxpayer requested compensatory interest on amounts it should receive if the assessment illegality were declared. The tribunal confirmed its jurisdiction under Article 24(5) RJAT to recognize compensatory interest claims, establishing that payment under special settlement regimes does not waive the right to receive compensatory interest if the underlying assessment is found illegal.
How are VAT corrections on intra-community service acquisitions handled under Article 6 of the CIVA?
VAT corrections on intra-community service acquisitions under Article 6 CIVA involve adjustments when services are acquired from other EU member states. In this case, €1,897.95 of the partial revocation related to corrections in intra-community service acquisitions. The case highlighted the importance of timing regarding legislative changes to Article 6 CIVA that became effective January 1, 2010. The Tax Authority maintained that accounting corrections dated December 2009 were not subject to these legislative amendments, even when the tax period in question was January 2010, demonstrating that the chargeability and correction rules depend on when the underlying taxable event occurred, not merely the tax period under inspection.