CAAD 364/2015-T: VAT Exemption & Intra-Community Supplies CJEU

Process: 364/2015-T

Date: February 16, 2017

Tax Type: IVA

Summary

CAAD Process 364/2015-T addresses a critical VAT exemption dispute involving intra-community supplies between Portugal and Spain. A Dutch company's Portuguese branch challenged VAT assessments totaling €1,857,192.76 for 2010-2012, relating to tire sales to Spanish customers. The Portuguese Tax Authority denied the VAT exemption under Article 14(a) of RITI (Regime for VAT in Intra-Community Transactions) because the Spanish purchaser, despite holding a valid VAT identification number, was not registered in VIES (VAT Information Exchange System) nor covered by an intra-community acquisition taxation scheme at the time of transactions. The arbitral tribunal made a preliminary reference to the Court of Justice of the European Union under Article 267 TFEU, questioning whether Articles 131 and 138(1) of Directive 2006/112 permit such refusal. The CJEU ruled in case C-21/16 (February 9, 2017) that tax authorities cannot refuse the exemption solely based on non-registration in VIES when material requirements are met, no fraud indicators exist, and goods physically left Portugal for another Member State. The Court emphasized that the principle of proportionality prevents denial of exemption even when the supplier knew of the purchaser's registration status but expected retroactive registration. This landmark decision reinforces that formal administrative requirements cannot override substantive compliance with intra-community supply conditions, ensuring VAT exemptions are granted when actual cross-border movement of goods between taxable persons is proven, aligning Portuguese tax practice with EU law principles of fiscal neutrality and proportionality.

Full Decision

ENGLISH TRANSLATION

The Arbitrators Counselor Jorge Lopes de Sousa (designated by the other Arbitrators), Dr. Emanuel Augusto Vidal Lima and Prof. Dr. Clotilde Celorico Palma and, designated, respectively, by the Claimant and the Respondent, to form the Arbitral Tribunal, constituted on 08-09-2015, agree to the following:

1. Report

A..., BRANCH IN PORTUGAL (hereinafter designated as "Challenger" or "Claimant"), Legal entity with tax identification number..., and registered office at..., Plot... to..., ...-..., Municipality of..., District of ... (hereinafter abbreviated as "Claimant"), came to request, under the provisions of Articles 2, no. 1, subparagraph a) and 10, no. 1, subparagraph a), of Decree-Law no. 10/2011, of January 20 (Legal Framework for Tax Arbitration, hereinafter "RJAT"), the constitution of a Collective Arbitral Tribunal with a view to the declaration of illegality, and consequent annulment, of the tax assessments for Value Added Tax (VAT) and compensatory interest, relating to the years 2010, 2011 and 2012, with the numbers..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ... and...; and numbers..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ... and..., all in the total amount of €1,857,192.76.

The Claimant intends that a preliminary reference be made to the CJEU, pursuant to Article 267 of the TFEU, with the consequent suspension of these proceedings, pursuant to Article 272, no. 1 of the CPC.

The Respondent is the TAX AND CUSTOMS AUTHORITY (AT).

The Claimant designated as Arbitrator Dr. Emanuel Augusto Vidal Lima, under the provisions of Article 6, no. 2, subparagraph b) of the RJAT.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 16-06-2015.

Pursuant to the provisions of subparagraph b) of no. 2 of Article 6 and no. 3 of the RJAT, and within the period established in no. 1 of Article 13 of the RJAT, the head of the Tax Administration service designated as Arbitrator Prof. Dr. Clotilde Celorico Palma.

The Arbitrators designated by the Parties agreed to designate Counselor Jorge Lopes de Sousa as presiding arbitrator, who accepted the designation.

Pursuant to and for the purposes of the provisions of no. 7 of Article 11 of the RJAT, the President of CAAD informed the Parties of this designation on 24-08-2015.

Thus, in accordance with the provision of no. 7 of Article 11 of the RJAT, the period established in no. 1 of Article 13 of the RJAT having expired without the Parties raising any objection, the Collective Arbitral Tribunal was constituted on 08-09-2015.

The Tax and Customs Authority filed a Response, in which it opposes the request for preliminary reference and argues for the dismissal of the claim.

On 09-11-2015, the meeting provided for in Article 18 of the RJAT was held, in which testimonial evidence was produced and it was decided that the proceedings continue with successive written submissions.

The Parties filed submissions.

The arbitral tribunal was duly constituted and is competent and no obstacles were raised to the examination of the merits of the case, although it is necessary to assess whether it is necessary to make a preliminary reference.

The parties have legal personality and capacity and are legitimate (Articles 4 and 10, no. 2, of the same statute and Article 1 of Ordinance no. 112-A/2011, of March 22) and are duly represented.

The proceedings are not affected by any nullities.

By decision of 30-11-2015, it was decided to make a preliminary reference to the CJEU having as its subject matter the following questions:

i) Articles 131 and 138, no. 1, of Directive no. 2006/112 should be interpreted as opposing a Tax Administration of a Member State refusing to grant a VAT exemption in an intra-community supply by a supplier established in that Member State, on the ground that the purchaser, established in another Member State, is neither registered in VIES nor covered by a scheme for the taxation of intra-community acquisitions of goods, although it has, at the time of the transaction, a valid VAT identification number in that other Member State, a number which was used in the invoices of the transactions, when the material requirements of an intra-community supply are cumulatively satisfied, that is, when the right to dispose of the goods as owner has been transferred to the purchaser and the supplier proves that such goods were dispatched or transported to another Member State and that, as a result of that dispatch or transport, the goods physically left the territory of the Member State of supply to a taxable person or legal entity acting as such in a Member State other than the State of departure of the goods?

ii) Does the principle of proportionality oppose an interpretation of Article 138, no. 1, of Directive no. 2006/112/EC to the effect that the exemption be refused in a situation where a supplier established in a Member State knew that the purchaser, established in another Member State, although holding a valid VAT identification number in that other Member State, was neither registered in VIES nor covered by a scheme for the taxation of intra-community acquisitions of goods, but had the expectation that registration as an intra-community operator would be granted to it retroactively?

The CJEU ruled on these questions in its decision of 09-02-2017, handed down in case no. C-21/16, in the following terms:

Articles 131 and 138, no. 1, of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax should be interpreted as opposing a Tax Administration of a Member State refusing to exempt from value added tax an intra-community supply for the sole reason that, at the time of that supply, the purchaser, established in the territory of the destination Member State and holding a valid value added tax identification number for operations in that State, is not registered in the VAT Information Exchange System nor is covered by a scheme for the taxation of intra-community acquisitions, even though there exists no serious indication suggesting the existence of fraud and it is demonstrated that the material requirements of the exemption are met. In this case, Article 138, no. 1, of this directive, interpreted in the light of the principle of proportionality, equally opposes such refusal when the supplier had knowledge of the circumstances characterizing the situation of the purchaser having regard to the application of value added tax and had the expectation that, subsequently, the purchaser would be registered, retroactively, as an intra-community operator.

2. Facts

2.1. Established Facts

a) The Claimant is a branch in Portugal of a Dutch entity, B...;

b) The Claimant is engaged in the importation, exportation of tires and commercialization of tires of various brands for retailers in national territory and in Spain;

c) The Claimant, for VAT purposes, is classified under the normal monthly periodicity regime;

d) Sales to the Spanish market can be carried out by the Claimant directly to its customers or through "C..., SL", a commercial company established in Spain, which functions as a distributor in Spain for smaller clients;

e) In intra-community transfers of tires to taxable persons under VAT in the Spanish market, the Challenger has been applying the VAT exemption provided for in Article 14, subparagraph a), of the Regime for VAT in Intra-Community Transactions ("RITI");

f) The Claimant was subject to an external inspection procedure, which was carried out under service order no. OI2013..., of partial scope in VAT and which covered the years 2010, 2011 and 2012;

g) In that inspection, the Tax Inspection Report was prepared, which is attached to the request for arbitration, whose content is reproduced herein, in which reference is made, among other things, to the following:

III.1.1. - VALUE ADDED TAX

III.1.1.1 - NON-ASSESSMENT OF VAT

III.1.1.1.1 - DESCRIPTION OF FACTS

From the analysis carried out, it was found that the company A... - Portugal Branch made intra-community transfers of goods, exempt from VAT under subparagraph a) of Article 14 of the RITI, to various Spanish entities, which are in the following conditions:

i) C... SL. NIF ... - Only from 19/03/2013, with effects retroactive to 01/07/2012, is it registered for the purposes of conducting intra-community operations (Document no. 01);

ii) D... SL, NIF ... - Ceased as of 21/06/2012 (Document no. 02);

iii) E... NIF: ... - Ceased as of 15/12/2010 (Document no. 03);

iv) F... SL. NIF: ... - Ceased as of 14/02/2011 (Document no. 04);

v) G... NIF ... - Ceased as of 09/08/2012 (Document no. 05);

vi) H..., NIF ... - Ceased as of 10/07/2012 (Document no. 06);

vii) I... SL. NIF ... - Ceased as of 31/08/2012 (Document no. 07);

viii) J..., NIF ... - Ceased as of 05/09/2012 (Document no. 08).

The irregular situation in which these entities find themselves makes it impossible for the transfers made to them by the Portuguese company A... - Portugal Branch to be carried out under the exemption provided for in subparagraph a) of Article 14 of the RITI, inasmuch as the purchasers do not comply with that legal provision, since a transfer of goods may only benefit from the exemption therein provided, when a set of conditions relating to the operation carried out, to the purchaser and to the transport of the goods transferred are cumulatively met, which are set out as follows:

a) Being a transfer of goods, within the meaning of Article 3 of the CIVA,

b) The transferor being a taxable person under tax in national territory, pursuant to Article 2 of the CIVA.

c) The purchaser being a natural or legal person duly registered for VAT purposes in another Member State, covered by a scheme for the taxation of intra-community acquisitions of goods, and having used the identification number assigned by the Member State of registration to effect the acquisition:

d) Finally, the goods being dispatched or transported from national territory, by the seller, by the purchaser, or on their behalf, destined for another Member State.

Nevertheless, in the intra-community transfers that the Portuguese company A... - Portugal Branch made to some intra-community customers, notably one of them a company with links to the same group, it exempted them under the provisions of subparagraph a) of no. 1 of Article 14 of the RITI, without having verified the validity of the tax identification number and/or its assignment to these intra-community customers, as well as their situation in terms of actual registration for the conduct of activity, in particular whether they are ceased or are not registered to conduct intra-community operations in the respective country (Document no. 09).

The amounts invoiced to customers who are not registered to conduct intra-community operations or who have ceased operations, according to current account extracts (Document no. 10), were as follows.

Economic period 2010
[Tables omitted for brevity]

Economic period 2011
[Tables omitted for brevity]

Economic period 2012
[Tables omitted for brevity]

III.1.1.1.2 - CALCULATION OF TAX OWED

Given the legislation and facts mentioned, corrections are required concerning the failure to assess VAT as follows.

Economic period 2010
[Tables omitted for brevity]

Economic period 2011
[Tables omitted for brevity]

Economic period 2012
[Tables omitted for brevity]

III.1.1.1.3 - CONCLUSIONS

The tax owed, resulting from the improper non-assessment of tax in the intra-community transfers made by the Portuguese company A... - Portugal Branch to the Spanish entities, not registered or ceased for the purpose of conducting intra-community operations, amounts to €1,881,995.76, as follows:

[Table omitted for brevity]

Whereby, for VAT purposes, the amount of merely arithmetical corrections to be made to value added tax (VAT), in the economic periods of 2010, 2011 and 2012, amount respectively to 46,025.79, 826,800.60 and 1,009,176.27, totaling 1,881,995.76.

h) Following the inspection, the following VAT and interest assessments were issued:

VAT Assessments

– no. ..., in the amount of €2,953.74, relating to period 1009;

– no. ..., in the amount of €5,755.05, relating to period 1010;

– no. ..., in the amount of €14,499.36, relating to period 1011;

– no. ..., in the amount of €22,817.64, relating to period 1012;

– no. ..., in the amount of €94,390.53, relating to period 1110;

– no. ..., in the amount of €84,591.17, relating to period 1109;

– no. ..., in the amount of €63,061.83, relating to period 1108;

– no. ..., in the amount of €57,693.09, relating to period 1107;

– no. ..., in the amount of €49,656.63, relating to period 1106;

– no. ..., in the amount of €47,596.85, relating to period 1105;

– no. ..., in the amount of €40,894.69, relating to period 1104;

– no. ..., in the amount of €45,221.25, relating to period 1103;

– no. ..., in the amount of €35,588.32, relating to period 1102;

– no. ..., in the amount of €33,023.81, relating to period 1101;

– no. 2013..., in the amount of €5,548.00, relating to period 1111, referred to in the settlement statement no. 2013...;

– no. 2013..., in the amount of €42,266.17, relating to period 1112, referred to in the settlement statement no. 2013...;

– no. 2013..., in the amount of €35,798.89, relating to period 1201, referred to in the settlement statement no. 2013...;

– no. 2013..., in the amount of €259,535.42, relating to period 1205, referred to in the settlement statement no. 2013...;

– no. 2013..., in the amount of €193,119.46, relating to period 1206, referred to in the settlement statement no. 2013...;

– no. 2013..., in the amount of €193,119.46, relating to period 1207, referred to in the settlement statement no. 2013...;

– no. 2013..., in the amount of €150,400.96, relating to period 1208, referred to in the settlement statement no. 2013...;

– no. 2013..., in the amount of €122,103.21, relating to period 1209, referred to in the settlement statement no. 2013...,

– no. 2013..., in the amount of €184,009.99, relating to period 1210, referred to in the settlement statement no. 2013...;

– no. 2013..., in the amount of €60,029.62, relating to period 1211, referred to in the settlement statement no. 2013...;

– no. 2013..., in the amount of €102,895.39, relating to period 1212, referred to in the settlement statement no. 2013...;

Compensatory Interest Assessments

– no. ..., in the amount of €308.16, relating to period 1009;

– no. ..., in the amount of €581.50, relating to period 1010;

– no. ..., in the amount of €1,415.77, relating to period 1011;

– no. ..., in the amount of €2,150.48, relating to period 1012;

– no. ..., in the amount of €3,014.67, relating to period 1101;

– no. ..., in the amount of €3,123.97, relating to period 1102;

– no. ..., in the amount of €3,825.84, relating to period 1103;

– no. ..., in the amount of €3,307.43, relating to period 1104;

– no. ..., in the amount of €3,703.43, relating to period 1105;

– no. ..., in the amount of €3,700.44, relating to period 1106;

– no. ..., in the amount of €4,090.68, relating to period 1107;

– no. ..., in the amount of €4,277.84, relating to period 1108;

– no. ..., in the amount of €5,450.92, relating to period 1109;

– no. ..., in the amount of €5,751.36, relating to period 1110;

– no. 2013..., in the amount of €320.41, relating to period 1111, referred to in the settlement statement no. 2013...;

– no. 2013..., in the amount of €2,297.42, relating to period 1112, referred to in the settlement statement no. 2013...;

– no. 2013..., in the amount of €1,824.27, relating to period 1201, referred to in the settlement statement no. 2013...;

– no. 2013..., in the amount of €9,812.57, relating to period 1205, referred to in the settlement statement no. 2013...;

– no. 2013..., in the amount of €6,645.42, relating to period 1206, referred to in the settlement statement no. 2013...;

– no. 2013..., in the amount of €4,169.91, relating to period 1207, referred to in the settlement statement no. 2013...;

– no. 2013..., in the amount of €4,170.02, relating to period 1208, referred to in the settlement statement no. 2013...;

– no. 2013..., in the amount of €2,943.85, relating to period 1209, referred to in the settlement statement no. 2013...;

– no. 2013..., in the amount of €3,871.77, relating to period 12100, referred to in the settlement statement no. 2013...;

– no. 2013..., in the amount of €1,059.15, relating to period 12-11, referred to in the settlement statement no. 2013...;

– no. 2013..., in the amount of €1,371.08, relating to period 1212, referred to in the settlement statement no. 2013....

i) The Claimant voluntarily regularized its tax situation with respect to the corrections proposed, with reference to Spanish customers who had ceased their activity (namely, D..., S.L., E..., F..., G..., H..., I... and J...), paying the sum of €107,844.91 (document no. 5 attached to the request for arbitration, whose content is reproduced herein);

j) On 27-01-2014, the Claimant filed a discretionary review claim of the assessments, which was given no. ...2014... at the Tax Authority Office of... and was dismissed by decision of 20-05-2014;

k) On 26-6-2014, the Claimant filed an administrative appeal of the decision dismissing the discretionary review claim, which was dismissed by decision of 26-02-2015, which is attached to the request for arbitration, whose content is reproduced herein, in which reference is made, among other things, to the following:

2 - Assessment of the Administrative Appeal

The disputed question amounts to whether, for purposes of the tax exemption provided in subparagraph a) of Article 14 of the RITI, it is required that the purchaser of goods with registered office in another Member State be registered in VIES.
The Appellant contends that it is not, it being sufficient that the purchaser be a taxable person under VAT and possess a valid identification number, for purposes of the tax, through which to effect the acquisition of the goods, as it understands to be the regime established by the VAT Directive.
Or, even if the purchaser is not a taxable person under the tax, that it be "covered by a scheme for the taxation of intra-community acquisitions of goods", which should be the meaning of subparagraph a) of Article 14 of the RITI.
From the analysis of subparagraph a) of Article 14 of the RITI it results that, regarding the quality of the purchaser, the intra-community transfer of goods is only exempt if it concerns a natural or legal person: (i) registered for purposes of value added tax in another Member State; (ii) having used the respective tax identification number to effect the acquisition; and (iii) covered by a scheme for the taxation of intra-community acquisitions of goods in that State.
In the case in question, the purchaser C..., although registered in Spain for tax purposes, was not, in that country, covered by a scheme for the taxation of intra-community acquisitions of goods, not being registered in VIES. Registration in VIES was only effected on 2013-03-19, with effects retroactive to 2012-07-01.
The Appellant begins by invoking that this latter requirement of Portuguese law, inclusion in a scheme for the taxation of intra-community acquisitions of goods, constitutes an abusive transposition of the VAT Directive, arguing for an interpretation according to which it would only be applicable in exceptional situations where the purchaser is not a taxable person.
However, Portuguese law is absolutely clear in the sense that the exemption depends on the circumstance that the taxable person is "covered by a scheme for the taxation of intra-community acquisitions of goods", appearing no possibility whatsoever, given its literal terms, that the norm be interpreted in the manner advocated in the appeal petition.
Much less could this interpretation or the unnecessary nature of the aforementioned registration result from the preamble of Decree-Law no. 290/92, of December 28, which approves the RITI. Indeed, as is well known, preamble considerations do not have normative character, and may eventually serve for purposes of clarification of norms contained in the articles of the legislative statute.
On the other hand, as results from no. 2 of Article 265 of the Constitution of the Portuguese Republic, "administrative organs and agents are subordinate to the Constitution and to law", being bound by the principle of legality, on which the Portuguese State is founded, in accordance with no. 2 of Article 3 of the fundamental law.
This means that it does not fall to administrative agents, in the exercise of those functions, to assess whether the laws are in conformity with the Constitution or with statutes to which such laws are subject, as is the case with the VAT Directive. On the contrary, in a situation where the meaning of the law offers no doubt whatsoever, as is the case in question, the Public Administration is bound by the application of the law.
Thus, it would not be within the scope of this administrative appeal, or of any other administrative procedure, that the Appellant would obtain acceptance of its perspective that the transposition of the Directive was not correctly effected to its detriment.
In fact, only in case of interpretative doubts may the interpretation of the national norm be effected in conformity with the VAT Directive. However, as stated, such does not occur in the case in question, given the clarity of subparagraph a) of Article 14 of the RITI.
On the other hand, it should be noted that no. 1 of Article 138 of the Directive appears limited to enunciating the principle of tax exemption in the intra-community transfer of goods, without caring to specify the conditions under which this exemption applies.
As results from the decision under appeal, in accordance with Article 131 of the Directive, such conditions are "fixed by the Member States in order to ensure the correct and simple application of said exemptions and to avoid any possible fraud, evasion or abuse".
In reality, the CJEU has repeatedly stated that Community Law does not impose specific obligations regarding the requirements applicable to the exemption and, moreover, remits to the judicial instances of the Member States the assessment of compliance by taxable persons with the obligations concerning evidence provided in their internal legislation.
In that sense, for example, the decision of 2012-09-06, case no. C-273-11, in which it was stated, in the conclusion, that "Article 138, no. 1, of Council Directive 2006/112/EC, of 28 November 2006, on the common system of value added tax, as amended by Council Directive 2010/88/EU, of 7 December 2010, should be interpreted as not opposing that, in circumstances such as those in the main proceedings, the right to exemption of an intra-community supply be refused to the seller, if it is concluded, in light of objective elements, that the latter did not comply with the obligations incumbent on it regarding evidence (...)."
Now, it is through inclusion in VIES that a taxable person of another Member State declares itself to be a recipient of intra-community acquisitions, such operations being taxed at the destination and not at the origin, by way of application of the exemption in the intra-community transfer.
Thus, the need for inclusion in VIES for purposes of the exemption of the intra-community transfer appears as an indispensable mechanism with a view to the prevention and combat of tax fraud and evasion, ensuring, together with the other requirements embodied in subparagraph a) of Article 14 of the RITI, that the exemption applies only in situations where taxation at the destination is assured.
Which means that the requirement for inclusion of the purchaser in VIES, as provided in subparagraph a) of Article 14 of the RITI, as a condition for the exemption of the intra-community transfer, appears to find full legitimacy within the scope of the margin of discretion of Member States provided for in Article 131 of the Directive, which is directed at the objectives of correct and simple application of exemptions and the prevention of fraud, evasion and abuse.
In fact, registration in VIES does not constitute any obstacle to the simplicity of the exemption regime, being, however, fundamental for the objectives of prevention and oversight of tax fraud and evasion. It being well known that the exemption of intra-community transfers is, in the Community regime of the tax, one of the solutions most prone to tax evasion and crime.
In this manner, confining the requirements provided in subparagraph a) of Article 14 of the RITI to the objectives provided in Article 131 of the Directive, a condition required by the jurisprudence emanating from the CJEU in this respect, it appears there is no problem of conformity with Community Law, with the principles of proportionality and legal certainty being safeguarded.
There are not at stake here formal accessory or instrumental requirements for the application of the exemption, but, on the contrary, a fundamental requirement for the proper functioning of the regime for taxation of intra-community transfers of goods.
Having said this, applying subparagraph a) of Article 14 of the RITI to the situation in question, there is nothing to point out regarding the conduct of the Tax Inspection, it being jurisprudence of the SAC that only exempt from VAT will be the transfers of goods effected by a taxable person to another Member State, provided that, cumulatively:

1 - the transfer of goods is effected by a taxable person of those referred to in subparagraph a) of no. 2 of Article 2, that is, covered in the country of origin by a scheme for the taxation of intra-community acquisitions of goods;

2 - the purchaser is a natural or legal person registered for VAT purposes in another Member State;

3 - the purchaser uses the respective identification number to effect the acquisition;

4 - and is covered by a scheme for the taxation of intra-community acquisitions of goods in that other Member State.

As results from the decisions of the Central Administrative Court South (TCAS), of 2006-02-14, case no. 01000/06 and 2006-02-21, case no. 00902/05, "if the active subject of the operation only concerns itself with the existence of a number (whatever it may be) and does not ascertain whether the purchaser is covered by a scheme for the taxation of intra-community acquisitions of goods (Article 14/a, RITI, final part) it only complies with half the rule, subjecting itself to taking as exempt an operation that is not".
Being that, as acknowledged in the written submissions, the Appellant knew that the purchaser was not covered by a scheme for the taxation of intra-community acquisitions of goods in Spain, alleging an expectation that it would be granted a registration with effects at a moment prior to the carrying out of the transfers in question.
It should further be noted that the assessment of the fulfillment of the cited requirements has a strictly objective character. That is, the exemption applies if they are verified, regardless of what may be the understanding of the parties concerning their verification and the terms set out in the commercial documents that evidence those operations.
This objectivity of the requirements of subparagraph a) of Article 14 of the RITI has been confirmed by national jurisprudence, and the following conclusions therefrom may be indicated:

• "The good faith of the Appellant appears unquestionable, and the Public Treasury does not even put it in issue. But to speak of good faith is, in this case, to displace the problem, because the question is whether the operation is or is not exempt, or in other words, whether it meets or does not meet the requirements provided in Article 14 RITI. And it does not meet them, as was seen."

• "Even if it is admitted that the Appellant acted in good faith, resulting from the appearance that the facts took on in light of the guarantee given by "..." to the transaction and the number provided to it by the Spanish purchaser, the question is only whether the operation is or is not exempt, or in other words, whether it meets or does not meet the requirements provided in Article 14 RITI."

Indeed, it is repeated, the Appellant knew that the purchaser was not registered in VIES and, as such, could not be unaware that all the requirements of subparagraph a) of Article 14 of the RITI were not met.
Yet, it applied the exemption therein provided, in the expectation that registration in VIES would be admitted with effects prior to the date of the carrying out of the intra-community transfers, which did not occur.
It cannot, given these facts, be considered to have acted in good faith, since one acts in good faith only if, based on objectively considered facts, one acts in the conviction that the requirements of the exemption are met when, in reality, they are not. On the contrary, the Appellant knew that at the date of carrying out the transfers it did not have the conditions to apply the exemption provided in the RITI, but had expectations that this situation would be rectified with retroactive effects.
And, in truth, the exemption would be applied if the Spanish State had admitted registration in VIES with effects prior to carrying out the intra-community transfers. That decision contrary to the interests of the Appellant is not the responsibility of the Portuguese State, and it is not incumbent on the AT to pronounce itself on its legality or interfere with the reasons that determined it.
However, the AT cannot fail to draw the proper conclusions from that decision of the Spanish authorities, which amounts to concluding that, in fact, at the date of carrying out the intra-community transfers that gave rise to the tax corrections the Appellant was not covered by a scheme for the taxation of intra-community acquisitions of goods in Spain.
Thus, any illegality of the decision of the Spanish authorities to the detriment of the Appellant is pending assessment in the Spanish courts, and cannot be imputed to the conduct of the Portuguese Tax Administration. Indeed, the requirement for registration in VIES is far from being a specificity of the Portuguese legal order.
If the Appellant's claim to the effect that registration should be considered with effects retroactive to a moment prior to the carrying out of the intra-community transfers were to be confirmed, the required assessment of tax in the State of origin of the goods would constitute damage resulting from the performance of that administrative act performed by the Spanish State, possibly recoverable under extracontractual civil liability, which is reinforced by the fact that the AT, despite the contrary argument, refused the tax exemption in these circumstances.

V - RIGHT TO BE HEARD

As results from the administrative instructions contained in Circular no. 13/99, of 1999-07-08, of the Justice Service Directorate, subparagraph a) of no. 3, the right to be heard may be waived "when the tax authority only assesses the facts that were given to it by the taxpayer, limiting itself in its decision to making the interpretation of the legal norms applicable to the case; All decisions are in this situation on petitions, requests, reviews and appeals where the administration limits itself to concluding, in light of the facts and arguments raised by the taxpayer and the applicable law, to the dismissal of the taxpayer's claim".
In the situation in question there is no place for the right of participation of the Appellant, by force of what is determined in this subparagraph a) of no. 3 of Circular no. 13/99, because the assessment was limited to the known facts, applying the legal norms to the case. In essence, there was not properly an instruction phase of the proceedings and it is the instruction of the proceedings that gives rise to the right to be heard, as results from no. 1 of Article 100 of the Administrative Procedure Code, which has been considered applicable to the tax procedure by way of subparagraph c) of Article 2 of the LGT.

VI - CONCLUSION

In conclusion, without prejudice to prior hearing of the Appellant, the dismissal of the administrative appeal filed against the decision of the Tax Authority Director of..., of 2014-05-20, which dismissed the discretionary review claim ...2014..., relating to VAT assessments, settlement statements and compensatory interest relating to periods 2010-09 to 2012-12, in the amounts of €1,881,995.76 and €83,041.91, respectively, is proposed.

l) The tires which the Tax Inspection Report refers to having been the subject of operations carried out with C..., SL, were dispatched to Spanish territory;

m) C..., SL was registered in Spain for VAT purposes, with no. ..., as of June 2010 (Article 9.2 of the submissions of the Tax and Customs Authority);

n) In all sales effected by the Claimant to C..., SL, the number ... was indicated in the respective invoices;

o) C..., SL was not, in Spain, covered by a scheme for the taxation of intra-community acquisitions of goods, only becoming registered in VIES on 19-03-2013, with effects retroactive to 01-07-2012;

p) At the time of the sales effected, the Claimant knew that C..., SL was not yet registered as an intra-community operator, but was aware that this company had the status of taxable person and had the expectation that registration as an intra-community operator would be granted to it, retroactively, by the Spanish tax authorities (Article 210 of the request for arbitration);

q) C..., SL filed recapitulative statements of intra-community operations with the Claimant in the 3rd quarter of 2010 and in the 2nd quarter of 2012 (document no. 11 attached to the request for arbitration, whose content is reproduced herein);

r) The Claimant included the tax number of C..., SL in the recapitulative statements relating to periods 2010/09, 2012/04, 2012/05 and 2012/06 (document no. 11 attached to the request for arbitration, whose content is reproduced herein);

s) The Tax and Customs Authority understood that there is not in question in the proceedings any situation of fraud or tax evasion by the Claimant (Article 26 of the submissions of the Tax and Customs Authority);

t) On 05-06-2015, the Claimant filed the request for arbitration that gave rise to these proceedings.

2.2. Facts Not Established

2.3. Rationale of the Decision on Facts

The facts established as proven are based on the documents attached to the request for arbitration and the administrative file and on testimonial evidence.

The witness examined appeared to testify with impartiality and with knowledge of the facts to which reference was made.

3. Legal Matters

The Claimant accepted the corrections effected by the Tax and Customs Authority with respect to purchasers of tires who had ceased their activity, discussing in these proceedings only the corrections effected with respect to operations carried out with C..., SL.

This company was registered in Spain for tax purposes, but was not, in that country, covered by a scheme for the taxation of intra-community acquisitions of goods, not being registered in VIES, with registration in VIES only being effected on 19-03-2013, with effects retroactive to 01-07-2012.

The Tax and Customs Authority understood that the last requirement provided in subparagraph a) of Article 14 of the Regime for VAT in Intra-Community Transactions (RITI) was not met with respect to C..., SL, namely that the purchaser be "covered by a scheme for the taxation of intra-community acquisitions of goods", on the dates when the operations underlying the corrections effected were carried out, and therefore understood that the Claimant could not benefit from the exemption provided in this norm.

Article 14, subparagraph a), of the Regime for VAT in Intra-Community Transactions (RITI), establishes the following:

Article 14

Exemptions in supplies

Are exempt from the tax:

a) Supplies of goods effected by a taxable person of those referred to in subparagraph a) of no. 1 of Article 2, dispatched or transported by the seller, by the purchaser or on their behalf, from national territory to another Member State destined for the purchaser, when the latter is a natural or legal person registered for purposes of value added tax in another Member State, who has used the respective identification number to effect the acquisition and is covered by a scheme for the taxation of intra-community acquisitions of goods;

The Claimant contends, in sum, that this Article 14, subparagraph a), of the RITI constitutes an incorrect transposition of Directive no. 2006/112/CE of the Council, of 28-11-2006, in particular of its Article 138, no. 1.

The Claimant argues that the first requirement imposed by Article 14, subparagraph a), of the RITI, which is the use of the respective identification number to effect the acquisition, although not referred to in Article 138 of Directive no. 2006/112/CE, has support in its Article 226, no. 4), by establishing as one of the mandatory entries on invoices, for VAT purposes, "the VAT identification number of the purchaser or recipient, referred to in Article 214, under which a supply of goods or provision of services was made for which the latter is liable to tax or a supply of goods referred to in Article 138".

But, according to the Claimant, the second requirement imposed by the RITI (the placement of the purchaser, in the Member State of acquisition, under a scheme for the taxation of intra-community acquisitions of goods) appears not to find a parallel in the VAT Directive, and constitutes an imposition of a formal nature established, in an innovative manner, by the Portuguese State.

Thus, the Claimant contends that, in order for the VAT exemption enshrined in Article 138 of the VAT Directive to apply, it is sufficient to demonstrate that the purchaser is a taxable person under VAT who uses its VAT identification number to conduct the operation and that the verification of identification numbers in VIES is not necessary to justify the exemption in question, and therefore is not required, in light of the principle of proportionality.

Articles 131 and 138, no. 2, subparagraph a), of Council Directive no. 2006/112/CE, of 28-11-2006, establish the following:

Article 131

The exemptions provided in Chapters 2 to 9 apply without prejudice to other community provisions and under the conditions fixed by Member States in order to ensure the correct and simple application of said exemptions and to avoid any possible fraud, evasion or abuse.

Article 138

Member States exempt supplies of goods dispatched or transported, outside their respective territory but within the European Union, by the seller, by the purchaser or on their behalf, made to another taxable person or to a legal entity that is not a taxable person acting as such in a Member State different from the Member State of departure of the dispatch or transport of the goods.

It is incumbent upon the legislator, as creator of the norms, but also upon the interpreter and upon the judge, as overseers of the proper application of Law, the responsibility of minutely scrutinizing the admissibility of national norms, and, among them, tax norms, so that Member States pursue the objectives listed in the Treaty on the Functioning of the European Union (TFEU).

As has been peacefully understood by jurisprudence and is a corollary of the requirement of preliminary reference provided in Article 267 of the TFEU (which replaced Article 234 of the Treaty of Rome, the former Article 177), the jurisprudence of the CJEU has binding character for the national Courts, when it concerns questions connected with European Union Law.

In the case in question, a preliminary reference was made and the CJEU ruled in its decision of 09-02-2017, handed down in case no. C-21/16, attached to the record, whose content is reproduced herein, stating, among other things, the following:

First of all, it is to be recalled that Article 138, no. 1, of the VAT Directive provides for the obligation for Member States to exempt supplies of goods that satisfy the conditions there enumerated (decision of 9 October 2014, Traum, C-492/13, EU:C:2014:2267, no. 46).
Pursuant to this provision, Member States exempt supplies of goods dispatched or transported, outside their respective territory but within the European Union, by the seller, by the purchaser or on their behalf, made to another taxable person or to a legal entity that is not a taxable person acting as such in a Member State different from the Member State of departure of the dispatch or transport of the goods.
According to consistent jurisprudence of the Court of Justice, the exemption of the intra-community supply of a good applies only when the right to dispose of the good as owner has been transferred to the purchaser and the seller proves that such good was dispatched or transported to another Member State and that, as a result of that dispatch or transport, the good physically left the territory of the Member State of supply (decision of 6 September 2012, Mecsek-Gabona, C-273/11, EU:C:2012:547, no. 31 and jurisprudence cited).
In the case in question, it results from the elements in the order for preliminary reference that the questions submitted are based on the premise that the material requirements of an intra-community supply within the meaning of Article 138, no. 1, of the VAT Directive, as recalled in nos. 24 and 25 of this decision, were satisfied. The exemption from VAT was refused solely because, at the time of the supplies in question in the main proceedings, the purchaser was not registered for the purpose of conducting intra-community operations in Spain nor enrolled in the VIES system. In that Member State, the purchaser only had a VAT identification number valid for conducting operations in that State and not for conducting intra-community operations.
In this respect, it should be noted that, in fact, within the scope of the transitional VAT system governing trade in the Union, the identification of taxable persons through individual numbers is intended to facilitate the determination of the Member State where the final consumption of the supplied goods occurs (decisions of 6 September 2012, Mecsek-Gabona, C-273/11, no. 57, and 14 March 2013, Ablessio, C-527/11, EU:C:2013:168, no. 19). Indeed, Article 214, no. 1, subparagraph b), of the VAT Directive requires Member States to take all necessary measures so that all taxable persons or legal entities that are not taxable persons that make intra-community acquisitions are identified through an individual number.
The registration of taxable persons conducting intra-community operations in the VIES system also presents undisputed importance in this context. This system is intended to allow operators to obtain confirmation of the VAT identification number of their business partners and national Tax Administrations to oversee intra-community operations and detect any irregularities. The said system thus responds to the requirement, provided in Article 27 of Regulation no. 1798/2003 and, from 1 January 2012, in Article 17 of Regulation no. 904/2010, that Member States have an electronic database containing a register of persons to whom they have assigned a VAT identification number.
However, neither Article 138, no. 1, of the VAT Directive nor the jurisprudence of the Court of Justice refer, among the material requirements of an intra-community supply enumerated exhaustively, to the obligation for the purchaser to have a VAT identification number (see, in this sense, decision of 6 September 2012, Mecsek-Gabona, C-273/11, EU:C:2012:547, no. 59) or, a fortiori, the obligation for the latter to be registered for the purpose of conducting intra-community operations and to be enrolled in the VIES system.
Contrary to what the Governments of Portugal and Poland substantially argued before the Court of Justice, those obligations cannot be deduced from the requirement that the purchaser must be a taxable person acting as such in a Member State different from the Member State of departure of the dispatch or transport of the goods (see, by analogy, decision of 27 September 2012, VSTR, C-587/10, EU:C:2012:592, no. 40).
Indeed, the definition of taxable person, set out in Article 9, no. 1, of the VAT Directive, concerns only a person who carries out, independently and in any place, an economic activity, whatever the purpose or result of that activity, without making this status dependent on the fact that that person has a VAT identification number (see, in this sense, decision of 27 September 2012, VSTR, C-587/10, EU:C:2012:592, no. 49 and jurisprudence cited), specific, if applicable, for conducting intra-community operations, or on that person being enrolled in the VIES system. Moreover, it results from the jurisprudence of the Court of Justice that a taxable person acts in that capacity when conducting operations within the scope of its taxable activity (see, in this sense, decision of 27 September 2012, VSTR, C-587/10, EU:C:2012:592, no. 49 and jurisprudence cited).
Consequently, neither the obtention, by the purchaser, of a VAT identification number valid for conducting intra-community operations nor its registration in the VIES system constitute material requirements of the VAT exemption of an intra-community supply. They are only formal requirements that cannot impinge upon the right of the seller to the VAT exemption, to the extent that the material requirements of an intra-community supply are satisfied (see, by analogy, decisions of 6 September 2012, Mecsek-Gabona, C-273/11, EU:C:2012:547, no. 60; 27 September 2012, VSTR, C-587/10, EU:C:2012:592, no. 51; and 20 October 2016, Plöckl, C-24/15, EU:C:2016:791, no. 40).
In this respect, it is to be recalled that, in the absence of a concrete provision in the VAT Directive concerning the evidence that taxable persons must provide in order to benefit from the VAT exemption, it is for the Member States to establish, in accordance with Article 131 of this directive, the requirements for exemption of intra-community supplies to ensure the correct and simple application of such exemptions and prevent any fraud, evasion and abuse. However, in exercising their powers, Member States must respect the general principles of law that form part of the legal order of the Union (see decisions of 6 September 2012, Mecsek-Gabona, C-273/11, EU:C:2012:547, no. 36 and jurisprudence cited, and 9 October 2014, Traum, C-492/13, EU:C:2014:2267, no. 27).
According to jurisprudence of the Court of Justice, a national measure goes beyond what is necessary to ensure the correct collection of the tax if it makes the right to VAT exemption depend, in essence, on the fulfillment of formal obligations, without taking into account the substantive requirements and, in particular, without inquiring whether these have been met. Indeed, operations must be taxed taking into consideration their objective characteristics (decision of 20 October 2016, Plöckl, C-24/15, EU:C:2016:791, no. 37 and jurisprudence cited).
Now, as regards the objective characteristics of an intra-community supply, it results from nos. 23 to 25 of this decision that if a supply of goods meets the requirements provided in Article 138, no. 1, of the VAT Directive, that supply is exempt from VAT (see, in this sense, decision of 20 October 2016, Plöckl, C-24/15, EU:C:2016:791, no. 38 and jurisprudence cited).
From this it follows that the principle of tax neutrality requires that the VAT exemption be granted if the substantive requirements are met, even if taxable persons have neglected certain formal requirements (decision of 20 October 2016, Plöckl, C-24/15, EU:C:2016:791, no. 39).
Consequently, the Administration of a Member State cannot, in principle, refuse the VAT exemption of an intra-community supply for the sole reason that the purchaser is not enrolled in the VIES system nor covered by a scheme for the taxation of intra-community acquisitions.
Thus, it should be noted that, according to jurisprudence of the Court of Justice, there are only two cases in which the disrespect of a formal requirement may imply the loss of the right to VAT exemption (see, in this sense, decision of 20 October 2016, Plöckl, C-24/15, EU:C:2016:791, no. 43).
On the one hand, the principle of tax neutrality cannot be invoked, for purposes of VAT exemption, by a taxable person who intentionally participated in tax fraud that endangered the functioning of the common VAT system (see decision of 20 October 2016, Plöckl, C-24/15, EU:C:2016:791, no. 44 and jurisprudence cited).
It should be noted that, according to the jurisprudence of the Court of Justice, it is not contrary to Union law to require that an operator act in good faith and take all measures that can reasonably be required of it to ensure that the operation it conducts does not involve its participation in tax fraud (decision of 6 September 2012, Mecsek-Gabona, C-273/11, EU:C:2012:547, no. 48 and jurisprudence cited). In the event that the taxable person in question knows or should know that the operation it conducted was implicated in fraud committed by the purchaser and has not taken all reasonable measures at its disposal to prevent such fraud, the right to VAT exemption should be denied to it (decision of 6 September 2012, Mecsek-Gabona, C-273/11, EU:C:2012:547, no. 54).
In the case in question, the mere circumstance, raised by the referring court, that the seller, on the one hand, knew that, at the time of the operations, the purchaser was not enrolled in the VIES system nor covered by a scheme for the taxation of intra-community acquisitions and, on the other, had the expectation that, subsequently, the purchaser would be registered, retroactively, as an intra-community operator cannot allow the national tax authority to refuse the VAT exemption. Indeed, it results from the elements of the case file transmitted by the referring court and highlighted in no. 20 of this decision that, in the case in question, there was no fraud nor tax evasion on the part of B....
On the other hand, the breach of a formal requirement may lead to a refusal of VAT exemption if that breach has the effect of preventing the production of conclusive evidence of the fulfillment of the substantive requirements (see decision of 20 October 2016, Plöckl, C-24/15, EU:C:2016:791, no. 46 and jurisprudence cited).
In this case, as results, in substance, from no. 26 of this decision, the questions submitted are based on the premise that the material requirements of an intra-community supply within the meaning of Article 138, no. 1, of the VAT Directive were fulfilled. Moreover, no element of the case file transmitted to the Court of Justice indicates that the breach of the formal requirement in question in the main proceedings prevented concluding that it was so. However, it is for the referring court to carry out the necessary verifications in this respect.
In light of the foregoing considerations, the answer to the questions submitted is that Articles 131 and 138, no. 1, of the VAT Directive should be interpreted as opposing a Tax Administration of a Member State refusing to exempt from VAT an intra-community supply for the sole reason that, at the time of that supply, the purchaser, established in the territory of the destination Member State and holding a valid VAT identification number for operations in that State, is not enrolled in the VIES system nor covered by a scheme for the taxation of intra-community acquisitions, even though there exists no serious indication suggesting the existence of fraud and it is demonstrated that the material requirements of the exemption are met. In this case, Article 138, no. 1, of the VAT Directive, interpreted in the light of the principle of proportionality, equally opposes such refusal when the seller had knowledge of the circumstances characterizing the situation of the purchaser having regard to the application of VAT and had the expectation that, subsequently, the purchaser would be registered, retroactively, as an intra-community operator.

(...)

By the grounds set out, the Court of Justice (Ninth Chamber) declares:

Articles 131 and 138, no. 1, of Council Directive 2006/112/EC, of 28 November 2006, on the common system of value added tax, should be interpreted as opposing a Tax Administration of a Member State refusing to exempt from value added tax an intra-community supply for the sole reason that, at the time of that supply, the purchaser, established in the territory of the destination Member State and holding a valid value added tax identification number for operations in that State, is not enrolled in the System for the Exchange of Information on Value Added Tax nor is covered by a scheme for the taxation of intra-community acquisitions, even though there exists no serious indication suggesting the existence of fraud and it is demonstrated that the material requirements of the exemption are met. In this case, Article 138, no. 1, of this directive, interpreted in the light of the principle of proportionality, equally opposes such refusal when the seller had knowledge of the circumstances characterizing the situation of the purchaser having regard to the application of value added tax and had the expectation that, subsequently, the purchaser would be registered, retroactively, as an intra-community operator.

In the case in question, it is acknowledged by the Tax and Customs Authority itself that "there is no question in these proceedings of any situation of fraud or tax evasion by the Claimant" (Article 26 of its submissions).

On the other hand, the Claimant had knowledge of the circumstances characterizing the situation of the purchaser having regard to the application of VAT and had the expectation that, subsequently, the purchaser would be registered, retroactively, as an intra-community operator, which did occur, although the registration did not have retroactive effect to the date on which the alienations underlying the assessments at issue took place.

In this context, as understood in the CJEU decision, the fact that the purchaser was not enrolled in the VIES ("VAT Information Exchange System") nor covered by a scheme for the taxation of intra-community acquisitions is not grounds for refusal of the exemption.

The disputed assessments had as their basis the understanding that only the failure of the last requirement provided in subparagraph a) of Article 14 of the Regime for VAT in Intra-Community Transactions (RITI), namely that the purchaser be "covered by a scheme for the taxation of intra-community acquisitions of goods", on the dates when the operations underlying the corrections effected were carried out, constituted an obstacle to the application of the exemption.

As concluded from the decision by the CJEU, in the factual context referred to, this obstacle to the exemption is not compatible with Articles 131 and 138, no. 1, of Council Directive 2006/112/EC, of 28-11-2006.

Thus, in light of the supremacy of European Union law over internal national norms, when fundamental principles of the democratic rule of law are not at stake, it is concluded that the disputed VAT assessments are illegal on grounds of breach of law, which justifies their annulment, pursuant to Article 136, no. 1, of the Administrative Procedure Code of 1991 (in force at the time the assessments were issued), subsidiarily applicable pursuant to Article 2, subparagraph c), of the LGT.

The assessments of compensatory interest and the settlement statements have as their basis the VAT assessments, and are therefore affected by the illegality thereof, and therefore also justify their annulment.

4. Decision

For these reasons, the members of this Arbitral Tribunal agree to:

– declare the request for arbitration well-founded;

– annul the following VAT assessments and compensatory interest assessments and settlement statements: