VAT Exemption on Intra-Community Supply of Goods Under Article 14 RITI – CAAD 387/2015-T

ARBITRAL DECISION

I - REPORT

1. On 19 June 2015, A…, Lda., taxpayer no.…, hereinafter referred to as the Claimant, with registered office in Portugal, requested the establishment of an Arbitral Tribunal and filed a request for arbitral ruling, in accordance with the combined provisions of item (a) of section 1 of Article 2 and item (a) of section 1 of Article 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as LRAT), in which the Tax and Customs Authority (hereinafter referred to as TCA) is the Respondent.

2. The Claimant is represented, in these proceedings, by its representative, Dr. B…, and the Respondent is represented by the legal advisors Dr. C… and Dr. D….

3. The application for establishment of the Arbitral Tribunal was accepted by the Honorable President of CAAC and was notified to the Respondent on 25 June 2015.

4. By means of the application for establishment of the Arbitral Tribunal and request for arbitral ruling, the Claimant seeks the annulment of the assessment act for Value Added Tax (VAT) for the taxation period 05.2012, with no. 2013…, relating to the year 2012, in the amount of € 28,323.58 (twenty-eight thousand three hundred twenty-three euros and fifty-eight cents).

5. Having verified the formal regularity of the application presented, in accordance with the provisions of item (a) of section 2 of Article 6 of the LRAT and the Claimant not having proceeded with the appointment of an arbitrator, the undersigned was designated by the President of the Deontological Council of CAAC.

6. The Arbitrator accepted the designation, and the Arbitral Tribunal was constituted on 24 August 2015, at the headquarters of CAAC, located at Avenida Duque de Loulé, no. 72-A, in Lisbon, as evidenced by the minutes of its constitution which were recorded and are attached to these proceedings.

7. Notified for this purpose on 24 August 2015, the TCA filed its Response on 30 September, having attached the Administrative File on 21 October 2015.

8. By Order of 26 October 2015, the Tribunal scheduled the meeting referred to in Article 18 of the LRAT, as well as the hearing of witnesses called by the Claimant and the Respondent for 2 December 2015.

9. Notified of the date of the meeting referred to in Article 18 of the LRAT, the Claimant requested the use of evidence produced within Proc. 753/2014-T, which also proceeded before CAAC, with regard to witness E…, taking the opportunity to dispense with the testimony of witness F….

Notified to provide its response, in accordance with an arbitral order of 30 November 2015, the Respondent stated in the proceedings that it had no objection to the request.

For this reason, the following arbitral order was issued on 30 November:

"The Claimant proceeded in its initial application to indicate the evidence of testimony it intended to have produced, naming for this purpose the following two witnesses:

1. F…, Accountant, with professional domicile at Av.…, no.…, …-…Porto;

2. E…, Insurance Professional, with professional domicile at Rua…, …–…. Cor., Front, … …Vila Nova de Gaia.

The Respondent in its response opposed the production of witness evidence and, in the alternative, called the following witness:

• G…, Tax Inspector, with professional domicile at the Tax Department of….

The Tribunal, based on its understanding that witness evidence should be produced, designated the date and time for holding the meeting referred to in Article 18 of the LRAT, 'as well as for hearing the witnesses called by the Claimant and Respondent' (See the Tribunal's Order of 26 October 2015).

Notified of this Order, the Claimant comes to the proceedings to dispense, as unnecessary, with the questioning of the first witness called, F…, and to manifest its interest in the production of witness evidence by the second witness called—E….

It further requests the use of evidence produced within Proc. no. 753/2014-T, with regard to that witness, since the same was heard on 17 April 2015, within that identified proceeding, which proceeding has, in the words of the Claimant, identical essential factual and legal requirements as the present proceeding.

Invoking the principle of procedural expedition and economy, it states that the request finds legal coverage in the provisions of section 1 of Article 421 of the Code of Civil Procedure, applicable by virtue of item (e) of section 1 of Article 29 of the LRAT, where it is provided that testimony produced in a proceeding with contradictory hearing of the party may be invoked in another proceeding against the same party.

Notified to provide its response on the content of what was requested by the Claimant (See the Tribunal's Order of 30 October), the Respondent came to the proceedings on 6 November 2015 to state that it had no objection to the request presented by the Claimant regarding the use, in this proceeding, of witness evidence produced within Proc. no. 753/2014-T.

In view of the above, the Tribunal decides as follows:

i) To accept the request for dispensing with the production of evidence with respect to the first witness named in the initial application (F…), for the reasons invoked and in light of the absence of objection from the Respondent;

ii) In light of the arguments put forward by the Claimant, and in light of the express agreement of the Respondent, to accept, with respect to the testimony of E…, the use of evidence produced within Proc. no. 753/2014-T, which intends to establish the allegations in Articles 45, 46, 47, 70 and 71 of the initial application, requesting CAAC to transcribe for this proceeding the respective recording.

Given that the Respondent makes no reference to the witness it called (Tax Inspector G…), the same may, should it maintain interest in its hearing, do so on the next 2 December 2015 or dispense with its testimony, if it so chooses.

The parties are hereby notified of this Order."

1. The meeting referred to in Article 18 of the LRAT took place not on 2 December 2015, due to the absence of the Claimant's representative, but only on 11 January 2016. The witness called by the Respondent was heard, and the parties were notified to submit written arguments within 15 days, with the period for the Respondent starting from notification of the Claimant's arguments.

2. The Tribunal, in compliance with the provisions of Article 18, section 2 of the LRAT, designated 22 February 2016 for the rendering of the arbitral decision.

3. The Claimant presented its arguments on 26 January 2016, and the Respondent presented its arguments on 5 February 2016.

II – Request Presented by the Claimant

1. The Claimant filed its request for annulment of the VAT assessment act for the taxation period 05.2012, with no. 2013…, relating to the year 2012, in the amount of € 28,323.58 (twenty-eight thousand three hundred twenty-three euros and fifty-eight cents).

2. The request for arbitral ruling was presented, immediately concerning the legality of the assessment acts relating to VAT for the period 05 of 2012 and immediately concerning the rejection of the hierarchical appeal filed against the act rejecting the administrative complaint that preceded it.

3. This assessment resulted from an external inspection of limited scope, concerning information about a request for VAT refund, within which administrative cooperation between the Member States of the destination of the goods was requested.

4. The inspection was conducted by the Tax Inspection Services of the Tax Department… – Tax Inspection Division (VAT), which led to the issuance of the respective Report.

5. At issue are certain operations considered by the Claimant to be exempt from VAT, which the TCA's tax inspection services disagreed with, in light of the responses received from the tax authorities of the Member States in question, which led them to conclude as follows:

"- There is no evidence (sic) that the merchandise transferred (watches) did not enter the Member State that appears in the transport documents exhibited;

• The customer/acquiring companies are no more than mere documentary warehouses, with the Dutch operator being qualified as a missing trader."

III - The Position of the Claimant

1. The Claimant altered its corporate purpose from July 2010 onwards, coming to include, in addition to activity in the real estate area, the import, export and trade of jewelry and watchmaking articles.

2. The Claimant proceeds to export and sell high-end watchmaking items to individuals and companies registered for VAT purposes in the European Union, treating these sales as taxable transactions in the countries of destination, given the Regime of VAT on Intra-Community Transactions (RVAT).

3. The Claimant treats these operations as exempt from VAT in Portugal, while granting the right to deduct tax borne on inputs.

4. Given the nature of the operations conducted, the Claimant frequently finds itself in a situation of tax credit, a situation that occurred with respect to period 05/2012, in which the value of operations questioned by the TCA reached the amount of € 123,146.00, relating to acquisitions made by:

a) H… (Netherlands), in the amount of € 74,224.00;

b) J…STI (Latvia), in the amount of € 48,922.00.

1. Which led to the assessment of additional VAT by the TCA in the amount of € 28,323.58 (twenty-eight thousand three hundred twenty-three euros and fifty-eight cents).

2. Not agreeing with this assessment, the Claimant filed the application for establishment of the Arbitral Tribunal, in which it requests the "… declaration of illegality of the order rejecting the hierarchical appeal cited above and, likewise, the illegality of the VAT assessment act relating to period 05 of 2012 identified above, with all other legal effects, in particular the condemnation of the TCA to reimburse the costs incurred with the provision of guarantee for suspension of the enforcement process."

3. And it does so with the grounds set out below, this after the Claimant concluded that the TCA's Tax Inspection Services understood that the shipment of the goods in question to the respective Member State was not demonstrated, with regard to the transfers targeted in the Report.

All this, despite the Claimant having presented the following documentation:

a) Remittance notes, evidencing shipment via FedEx Carrier;

b) Documents evidencing the existence of a taxpayer identification number in VIES;

c) Evidence of payments made.

1. In turn, the Claimant invokes that for the assessments made, it was decisive that the expression "Documents" appeared in the Transport Documents, in addition to the information from the tax authorities of the Member States of the acquirers' domiciles, that they had not declared certain intra-community acquisitions.

2. However, the Claimant emphasizes the fact that this finding is contradicted by the tax inspection services themselves, when they state that "[t]he intra-community acquisitions corresponding to the TICB of A… were declared for tax purposes in the respective Member States, either by their own initiative or by initiative of the respective tax authority, in the exercise of its powers (…)" (See page 13 of the Substantiation of the Report of the TIS).

3. With regard to the acquisitions made by the Dutch company H…, the Claimant considered that the statement, by the Dutch company itself and transmitted without any additional commentary by the Dutch tax authorities, that that company had no business with the Claimant, which only had one fixed supplier in Portugal, was crucial for forming the conviction of the TCA (cf. Point 1 of the Substantiation of the Report of the TIS).

4. The Claimant invokes that, solely on the basis of this simple fact, the TCA could not have drawn the conclusion that the merchandise in question would not have been shipped to the Netherlands, and that the requirements provided for in Article 14 of the RVAT were not met for there to be an exempt transfer.

This, when the TCA did not even attach the Report prepared by the Dutch tax authorities, seeming to impute to the Claimant a complete simulation.

Which does not correspond to the truth, the Claimant invokes, in light of what results from all the documentation attached to the proceeding in its different phases, again referring to:

a) Remittance notes;

b) Document evidencing the existence and validity of the taxpayer number extracted from VIES (See Doc. no. 7 attached to p.i.).

1. Even more so since it was verified "by consulting the website of the Carrier" I… (WWW.I….com) that the note in question resulted from a confirmed delivery".

It is in that note that the content is declared as "documents", and which the TCA considers is not capable of proving the effective shipment of the watches in question here.

1. This, despite the Claimant having demonstrated that this mention was made because it was prohibited by the insurance institution to mention "watches".

This is what, in the Claimant's understanding, the document from the insurance broker demonstrates (Doc. no. 8) and is common practice among the watch brands themselves (See Doc. no. 9).

1. The Claimant finding it strange, as already mentioned, that the TCA did not attach to the proceeding the document from the Dutch tax authorities which states that:

"the taxable person H…, declared that he had no business with your taxable person A…, NIF PT….".

1. Next, the Claimant brings to bear Proc. no. 753/2014–T of CAAC (and not 7, as stated in the text of the p.i.), relating to another taxation period, in which intra-community transfers are equally at issue, in which the purchaser is the same H….

2. For the period covered by that proceeding, new information was obtained by the TCA from the Dutch authorities, which contradicts the information previously provided, and the TCA included in that proceeding that "further investigation showed that, after all, the invoices were found in the premises of taxpayer H… with VAT number… ( ) The invoices were paid by the Bank We found no shipping document Our taxable person did not declare these acquisitions as intra-community in its declaration We did not find the document d d10-10-2013 that you sent us in our taxable person's premises but the invoices and bank statements prove that the transactions occurred. We attach the relevant documents" (emphasis added by the Claimant in its initial petition).

3. And, on this matter, the Claimant concludes in its initial application as follows:

"It is undeniable that this new request for information is completely untimely and, as such, inadmissible, but it is illustrative of the deception in which the TCA allows itself to be drawn by seeking to find fire where there is not even smoke; that is, we are faced with an assessment based on information that proved to be consistent with the truth, and which demonstrates precisely the opposite of what were the TCA's inferences: that the transaction took place, notwithstanding the apparent omission of the declaration by H….".

1. To the carelessness of the TCA in the due diligence to ascertain the truth, the Claimant opposes, with diligence, in order to confirm that the transaction took place.

2. Witness the statement of the merchandise recipient, where this Dutch company confirms that it acquired the watches and that the same reached its hands by way of shipment made by the Claimant, as stated in the Statement of the company itself certified by a lawyer (See Doc. no. 9 attached to the Initial Application).

3. As for J…, the situation is similar to the foregoing and here a transfer in the amount of € 48,922.00 is at issue with the following support:

a) Invoice;

b) Remittance note;

c) Evidence of existence of validity of taxpayer number extracted from VIES (See Doc. no. 11 attached to the Initial Application).

1. Having been verified "By consulting the website of the carrier I… (www.I….com) that the notes in question resulted in confirmed deliveries".

2. Faced with the same argument presented by the TCA in its Report, regarding the use of the expression "Documents" in the remittance notes, the Claimant presents identical argument to that previously used with respect to the transfers of goods identified above and made to H….

3. In this situation, the TCA identified an inconsistency between the number of acquisitions declared by J… STI, as against those declared by the Claimant, as well as the fact that it had the same representative as K… Services.

4. The TCA further invokes in its Report that the Latvian tax authorities do not possess the respective invoices, transport documents and payment documents, and that the address is the same as K… Services, although it is not there that J… STI is headquartered.

The Claimant drew attention to the fact that the TCA requested this information from the Latvian tax authorities, with reference to the first quarter of 2012, and that it is the period 05 of 2012 that is at issue here.

1. The Claimant invokes that it provided full cooperation to the TCA services during the course of the inspection, having provided all documentation relating to the proceeding already mentioned here.

2. In its arguments presented, the Claimant reproduced and reinforced the arguments presented here in support of the merits of the request for arbitral ruling, having annexed a document, whose attachment is admitted.

III – The Response of the Respondent/TCA

1. The TCA in its Response begins by framing the additional VAT assessment here in dispute, in a refund request made in the total amount of € 68,084.07, which was only partially granted, on the grounds that it was understood that part of the operations carried out did not meet the conditions required for the application of the exemption of item (a) of Article 14 of the RVAT.

2. Characterizing the Claimant's activity in the wholesale trade of watches, the TCA specifies that these are acquired from company L…, for subsequent transfer exclusively in the community market, with VAT exemption, and monthly request for its refund, as in the settlement of tax on transfers here the Claimant benefits from the right to deduct VAT borne on acquisitions.

3. From the analysis of the documents proving transport of the watches, as well as the collection of information from the respective operators, the TCA harbored doubts which led to the request for intra-community administrative cooperation with the tax authorities of the Netherlands (operations with H…) and Latvia (J… STI).

4. With respect to H…, it appears that from the carrier I… note it is stated that the contents of the shipment consist of "Documents", which does not make it possible to prove the effective shipment of the watches to another Member State destined for the acquirer.

5. In turn, in response to that cooperation request, it was informed, with respect to the 1st quarter of 2012, that H… had no business with the Claimant.

6. As for the acquirer J..., the respective remittance note also contains the reference to "Documents", which leads the TCA to draw the same conclusion as that drawn in the operation previously described.

7. From the analysis of the information collected from the Latvian tax authorities, contradictory elements resulted from the data available from the analysis of the Claimant's accounting (See pp. 11 to 13 of the Final Report).

8. The Respondent concludes by the existence of a physical circuit of goods, not corresponding to reality, in which J… functions as mere invoicing center, for which reason it is stated that J… is not the real holder of the right to dispose of the goods as owner and that there is no evidence of the exit of the watches from Portugal, with destination to another identified Member State.

9. But the TCA adds in its Response that, because it was found that those operations were subject to declaration in the aforementioned Member States, either by their own initiative or by the respective tax authority, it was mentioned in the Final Report the community case law from which (judgment of the CJEU, 27/09/2007, PROC. C – 409/04, case Teleo) in accordance with which "even if the presentation by the acquirer of a tax return relating to an intra-community acquisition may constitute an indication of the effective transfer of goods outside the Member State of delivery, that declaration does not, however, assume a determining significance for the purpose of proof of an intra-community delivery exempt", which, although it may "constitute supplementary evidence to demonstrate that the goods actually left the territory of the Member State of delivery, but does not constitute determining evidence for the purpose of VAT exemption of an intra-community delivery".

10. In its counter-arguments presented, the Respondent reproduced and reinforced the arguments presented here in support of the legality of the tax assessment here in question and the lack of merit of the request for arbitral ruling.

11. There defending that the lack of correspondence between the merchandise and the description in the transport documentation is not made up for by the information provided by the Member States in question.

V – Procedural Sanation

1. The Arbitral Tribunal was duly constituted and is competent.

The parties have legal personality and capacity and are properly parties.

No irregularities are apparent.

VI - The Facts

1. The following facts are considered proven, with relevance to the assessment of the request:

a) The Claimant is a limited liability company that from July 2010 onwards altered its corporate purpose, coming to include, in addition to activity in the real estate area, the import, export and trade of jewelry and watchmaking articles;

b) The Claimant is a VAT taxable person, resident in Portugal, who is classified under the normal monthly periodicity regime for VAT purposes, since 01.01.2012;

c) The Claimant is part of the perimeter of companies that, for purposes of Corporate Income Tax (CIT) are taxed in accordance with the Special Regime for Group Taxation of the Companies Code (SRGT) and whose parent company is the company M…– Real Estate and Holdings S.A;

d) The Claimant proceeds to export and sell high-end watchmaking items to individuals and companies registered for VAT purposes in the European Union, treating these sales as taxable transactions in the countries of destination, given the Regime of VAT on Intra-Community Transactions (RVAT);

e) The Claimant, given the activity developed, frequently finds itself in a situation of tax credit, which occurred in the period 05/2012;

f) Following the Report drawn up by the Inspection Services of the Tax Department…, the acquisitions made by the following were questioned:

i) H… (Netherlands), in the amount of € 74,224.00;

ii) J… STI (Latvia), in the amount of € 48,922.00.

g) Which led to the assessment of additional VAT by the TCA with no. 2013…, in the amount of € 28,323.58 (twenty-eight thousand three hundred twenty-three euros and fifty-eight cents);

h) The Claimant filed, on 23.12.2013, a complaint against the VAT assessment, whose rejection, occurring on 07.04.2014, led it to file, on 07.05.2014, a hierarchical appeal, which was rejected on 23.03.2015;

i) After such rejection and not agreeing with the assessment in the amount of € 28,323.58, the Claimant filed, on 19.06.2015, the application for establishment of the Arbitral Tribunal, in which it requests:

"… declaration of illegality of the order rejecting the hierarchical appeal cited above …", seeking "... the illegality of the VAT assessment act relating to period 05 of 2012 identified above, with all other legal effects, in particular the condemnation of the TCA to reimburse the costs incurred with the provision of guarantee for suspension of the enforcement process."

j) In the month of May 2012 the Claimant sold merchandise in the amount of € 74,224.00 to a Dutch company called H…, documented by invoice no.…, of 02.05.2012;

l) The company H… is registered for VIES purposes as of the date of the facts;

m) By consulting the website of carrier I…, it is verified that the note in question (no.…) shows a successful delivery;

n) The remittance note in question states that it is "Docs"/"Documents";

o) The Dutch tax administration transmitted that "they obtained from the taxable person (i.e., the acquirer) the information that it would not have conducted any business with the now Claimant, having only one fixed supplier in Portugal" (in accordance with the uncertified translation attached to the inspection file);

p) In the month of May 2012, the Claimant sold merchandise in the amount of € 48,922.00 to the Latvian company J… STI, documented by invoice no.…, of 29.05.2012;

q) The company J… STI is a company engaged in wholesale trade in timber, construction materials and sanitary equipment;

r) The company J… STI is registered for VIES purposes since 14.04.2009, remaining so as of the date of the facts;

s) By consulting the website of carrier I…, it was verified that the note in question (no.…) shows a successful delivery;

t) The note in question states that it is "Docs"/"Documents";

u) The Latvian tax authorities informed the following: "the Latvian tax authority does not possess the respective invoices, transport documents and payment documents", also noting that the address for delivery and invoicing is the same as another company K… Services, an address that does not correspond to the registered office of J… STI;

v) This information from the Latvian tax authorities concerns the first quarter of 2012;

x) From 2011 onwards the Claimant altered the description of the transport documents by substituting the expression "precision instruments" with "documents";

z) The operations with H… and J… STI were subject to declaration in the Member States of the Netherlands and Latvia, either by their own initiative or by the respective tax authorities;

aa) From the testimony of witness E…, heard within Proc. no. 753/2015-T, it results that the insurer does not have means to assure itself that goods are effectively sent, basing itself on trust, on prior assessment of moral hazard and relying on good faith;

ab) The same witness attests that the insurer does not confirm that the good was received at the destination, which may be done through expert assessment.

1. It is noted that there is no unequivocal evidence that the payments made concern the merchandise supposedly involved in the transactions; the fact that only the reference to "Docs" is made in the remittance notes inherent to transport, without express reference to the contents; the inconsistencies detected between the Claimant's accounting and the elements collected with respect to J… STI by the Latvian tax authorities; the fact that J… STI is not headquartered at the supposed destination of the merchandise, which is where another company identified in the proceeding is headquartered; the fact that part of the operations involved here were only declared by the recipient companies, after being prompted to do so by their respective local tax authorities and the fact that the taxable person H… declared that it has no business with the Claimant, possessing only one fixed supplier in Portugal, without relation to the Claimant.

VII – The Issue to Be Decided

In light of what is presented in the proceeding, it is important to note that the contested issue is whether the sales made by the Claimant to the companies H… and J… STI, taxable persons registered for VAT purposes in the Netherlands and Latvia, respectively, in the year 2012, comply with the requirements provided for in item (a) of Article 14 of the Regime of VAT on Intra-Community Transactions, and whether the same may be qualified as Intra-Community Transactions in Goods and, therefore, exempt from VAT in Portugal.

VIII – The Law

Having said that, it is necessary to decide, following closely here, in this part, what appears in Proc. no. 43/2015-T of CAAC in which the undersigned was Arbitrator in a Single Tribunal.

1. First and foremost, and with relevance to the determination of the concept of Intra-Community Transactions in Goods, which is not defined in the Regime of VAT on Intra-Community Transactions (RVAT), it is important to determine from the outset what is meant by transfer of goods for VAT purposes, given that both concepts are interlinked, and this may serve as the basis for that one.

2. Pursuant to the provisions of section 1 of Article 3 of the Value Added Tax Code (VATIC), "transfer of goods" is defined as "the onerous transfer of tangible goods in a manner corresponding to the exercise of the right of ownership."

3. It follows from this legal norm that only transactions that meet the following requirements are considered transfers of goods for VAT purposes:

a) That they are onerous, since, in principle, transfers made free of charge are excluded from the scope of VAT;

b) That their object is tangible goods, movable or immovable, with the onerous transfer of intangible goods being excluded from this concept, since these are taxed as provision of services;

c) That they are conducted in a manner corresponding to the right of ownership. "It is not necessary that the transferor be the owner of the transferred goods. Thus, we have as taxable operations transfers of goods made by possessors or mere holders of the goods, who have the economic availability of the goods".[1]

1. Having said that, and as we intend to reach the concept of intra-community transaction in goods, it becomes useful to consult the RVAT regarding the concept of "intra-community acquisition of goods", as it is a corollary of that and the closest we find in this statute, notwithstanding that we must make an interpretation a contrario of the same, as we shall see.

2. Indeed, the notion of "intra-community acquisition of goods" finds its provision in Article 3 of the RVAT providing that: "an intra-community acquisition is generally understood to be the acquisition of the power to dispose, in a manner corresponding to the exercise of the right of ownership, of a tangible movable good whose dispatch or transport to national territory, by the seller, by the acquirer or on their account, destined for the acquirer, begins in another Member State."

3. Thus, it is safe to consider, as was done in the Decision of CAAC rendered in Proc. no. 323/2014-T, that an intra-community transaction in goods (ITG) corresponds "to the transfer of the power to dispose, in a manner corresponding to the right of ownership, of a tangible movable good whose dispatch or transport to the territory of another Member State, by the seller, by the acquirer or on their account, destined for the acquirer, was initiated in national territory."

4. Complementarily, consulting the RVAT, we find that Article 7, under the heading "operations assimilated to transfer of goods for onerous consideration" assumes special importance in delimiting the operations that may be classified under the concept of ITG, in that, on the one hand, it assimilates to the concept of intra-community transfer of goods other operations and, on the other, it proceeds to a negative delimitation of some operations not classifiable under the concept.

5. Thus, the positive delimitation of the concept finds its provision in section 1 of that norm, which is a general assimilation norm, according to which: "the following shall be considered a transfer of goods made for onerous consideration, in addition to those provided for in Article 3 of the VAT Code, the transfer of tangible movable goods dispatched or transported by the taxable person or on its account, destined for another Member State, for the needs of its business."

6. However, and considering the excessively broad scope of this norm regarding the assimilations it encompasses, the legislator understood that it should limit (negatively) the type of operations comprised by the concept of ITG, which it did in section 2 of Article 7 of the RVAT, which provides that:

"The following operations shall not, however, be considered transfers of goods, under the terms of the foregoing section:

a) Transfer of goods to be the subject of installation or assembly in another Member State under the terms of section 1 of Article 9 or of goods whose transfer is not taxable in national territory under the terms of sections 1 to 3 of Article 10;

b) Transfer of goods to be the subject of transfer aboard a vessel, aircraft or train, during a transport in which the places of departure and arrival are situated in the Community;

c) Transfer of goods that consists of export operations and assimilated operations provided for in Article 14 of the VAT Code or in transfers exempt under Article 14;

d) Transfer of gas, through a natural gas network or any network linked to it, and transfer of electricity, heat or cold through heating or cooling networks;

e) Transfer of goods to be the subject of expert assessment or any work consisting of provision of services to be carried out for the taxable person, materially executed in the Member State of arrival of the dispatch or transport of the goods, provided that, after execution of the said work, the goods are re-dispatched to national territory destined for the taxable person;

f) Transfer of goods to be temporarily used in provision of services to be carried out by the taxable person in the Member State of arrival of the dispatch or transport of the goods;

g) Transfer of goods to be temporarily used by the taxable person, for a period not exceeding 24 months, in the territory of another Member State in which the importation of the same good from a third country, for the purpose of temporary use, would benefit from the temporary import regime with total duty exemption."

1. "In these situations we have simple movement of goods that do not give rise to intra-EU transactions in goods, and may, at most, in some cases, give rise to taxation as internal transfers of goods or provision of services."[2]

2. Indeed, and as mentioned in the CAAC Decision cited above, "the main consequence of qualifying an operation as ITG is that this, like export operations, will in principle be exempt from VAT in the Member State of origin (i.e., in the Member State where the dispatch or transport of the good to another Member State began), granting the transferor the right to deduct VAT borne upstream for its performance, thus avoiding the double taxation of an operation that from an economic perspective constitutes a single whole and ensuring tax neutrality",

3. However, it must be borne in mind that, for an operation to be classified as ITG and to be able to benefit from VAT exemption, it is necessary that it cumulatively[3] meet the requirements provided for in item (a) of section 1 of Article 14 of the RVAT.

Thus,

1. Article 14, section 1, item (a), of the RVAT provides that the following are exempt from VAT: "transfers of goods, made by a taxable person, dispatched or transported by the seller, by the acquirer or on their account, from national territory to another Member State destined for the acquirer, when the latter is an individual or legal person registered for VAT purposes in another Member State, who has used the respective identification number to make the acquisition and is covered in that country by a regime for taxation of intra-community acquisitions of goods."

2. This means that, for the exemption provided for in item (a) of section 1 of Article 14 of the RVAT to operate, the following requirements must be met:

a) That the transfer in question has as its object movable or immovable goods, in a manner corresponding to the right of ownership, and that the same is made for onerous consideration;

b) That this transfer is made by an individual or legal person who conducts operations that confer, wholly or partly, the right to deduct VAT, i.e., that is made by a VAT taxable person of those referred to in item (a) of section 1 of Article 2 of the VATIC;

c) That the merchandise subject to the transfer is dispatched by the seller/transferor, by the acquirer or on their account, from national territory to another Member State destined for the acquirer, and

d) That the acquirer/buyer is a taxable person registered for VAT purposes in the Member State of destination of the merchandise; who has used the respective VAT identification number for the purpose of acquiring the merchandise and is covered in the State of destination by a regime for taxation of intra-community acquisitions of goods.

1. Now, considering that there are concepts used that reveal some complexity, namely in items (c) and (d) above, we propose to clarify them, which we do as follows:

2. As regards item (c) above, the concept of dispatch is mentioned. Indeed, this is a concept that is not legally defined, but which the CJEU has been interpreting by giving it the following contours: "an intra-community acquisition of a good only occurs and the exemption for intra-community delivery is only applicable when the right to dispose of the good as owner has been transferred to the acquirer and the supplier proves that that good was dispatched or transported to another Member State and that, as a result of that dispatch or transport, the same physically left the territory of the Member State of delivery."[4]

3. Thus and consequently, for "the intra-community acquisition of a good and the exemption of the intra-community delivery" to occur, it is necessary:

a) on the one hand, that the right to dispose of the good as owner has been transferred to the acquirer and,

b) on the other hand, that the supplier proves that that good was dispatched or transported to another Member State, and moreover,

c) on the other hand, that, as a result of that dispatch or transport, the good physically and effectively left the territory of the Member State of delivery, that is, in the case at hand, from national territory to the Netherlands and Latvia.

1. Complementarily, consulting the VATIC, we find that item (e) of section 2 of Article 1 defines the concept of "intra-community transport of goods", within the scope of VAT, revealing it as "the transport of goods whose places of departure and arrival are situated in the territory of different Member States." Furthermore, and of interest, the VATIC defines "place of departure" and "place of arrival" in its items (f) and (g) of the same section 2 of Article 1, as "the place where transport actually begins, not considering the journeys made to reach the place where the goods are located" and "the place where the actual transport of goods ends", respectively.

2. Thus, it may be considered that the concept of dispatch presupposes the physical movement of a good from one Member State to another. Indeed, this condition establishes the difference between an intra-community operation and a national/internal operation, "since it is only thus that the application of the principle of attribution of tax revenue to the Member State where final consumption occurs is possible, that is, the principle of taxation at destination, applicable to intra-community trade. Hence the significance given to the expression "from national territory to another Member State".[5]

3. Indeed, the transport of goods should, according to Article 14 of the RVAT, have as "destination its acquirer", with the importance of the concept of "place of arrival" being highlighted here, that is, the place where the transport of goods actually ends. Which must coincide with the location of the acquirer mentioned in the invoice, in accordance with Article 27, section 5, of the RVAT.

4. This means that, in addition to the elements provided for in Article 36 of the VATIC, namely: "a) The names, firm names or company designations and the seat or domicile of the supplier of goods or provider of services and the recipient or acquirer, as well as the corresponding tax identification numbers of taxable persons; b) The quantity and usual designation of the goods transferred or services provided, with specification of the elements necessary for the determination of the applicable rate; packaging not actually transacted must be subject to separate indication and with express mention that its return was agreed; c) The price, net of tax, and other elements included in the taxable amount; d) The applicable rates and the amount of tax due; e) The justifying reason for non-application of tax, if applicable; f) The date on which the goods were placed at the disposal of the acquirer, on which the services were performed or on which payments prior to the performance of operations were made, if that date does not coincide with the date of issuance of the invoice", invoices relating to intra-community transfers of goods must further contain "the tax identification number of the taxable person preceded by the PT prefix, the identification number for VAT purposes of the recipient or acquirer with the prefix of the Member State that assigned it and the place of destination of the goods."[6]

5. Furthermore, and as regards item (d), regarding the clarification of the concepts used there, for an intra-community transaction in goods to be qualified as such, it is necessary and essential that the acquirer be an entity registered for VAT purposes in the Member State of destination, for which reason and to that extent, the transferor should gather, prior to the completion of the sale of the goods, the necessary information that will enable it to confirm that registration for VAT purposes is in force, requesting its VAT identification number. If the acquirer does not provide the said number and the transferor cannot obtain it by other means, the latter should presume that the entity is not registered, calculating the tax due, since the intra-community transaction in goods in question does not meet the conditions imposed for it to be considered exempt.

6. Now, as mentioned, the indication of the tax identification number/VAT number is a fundamental element in transactions carried out between taxable persons of different Member States, making it possible, within the VIES system, to inform the tax administration of the country of destination of the goods of the value of intra-community acquisitions subject to taxation and the identification of acquirers registered there for VAT purposes.

7. Thus, obtaining confirmation of the validity of a taxable person's VAT number from another Member State may be done through the VIES system (VAT Information Exchange System). For security reasons, a record of the verification of the number's validity should be kept. VIES consists of an electronic means of transmitting information relating to VAT registration of companies registered in the EU, that is, it is a system updated by the tax administrations of each Member State, which sometimes records errors and omissions that may cause some valid operators to appear as invalid in the system and vice versa. Furthermore, information relating to ITGs is also transmitted, through the VIES system, between the administrations of Member States.

8. Furthermore, in the eventuality that the acquirer is registered for VAT purposes in more than one Member State, it is necessary that the transferor ensure that the VAT number provided by the acquirer belongs to the Member State of destination of the ITG and that it is covered by a regime for taxation of intra-community acquisitions of goods. Indeed, this condition allows the intra-community acquisition of the good by the acquirer to be taxed in the Member State of destination, except for some exceptions, such as the acquirer being covered by a possible subjective tax exemption. In this case, the intra-community transaction will not be exempt, for which reason the transferor should apply the corresponding VAT.

9. Nevertheless, regarding all the conditions described above, namely as to the condition of the acquiring taxable person and as to the transport of merchandise, with its physical exit from national territory, the truth is that the burden of proof of these requirements falls on the transferor, as defended by the Decision of the Supreme Administrative Court rendered in Proc. no. 01680/03, of 29.04.2004, which we agree with, according to which:

"I - In the absence of special rules, the Administration bears the burden of proving the existence of the legal requirements for its action, especially the proof of the existence of the tax facts on which it based the impugned additional assessment.

II - Thus, having the Administration verified, through examination of the records, the existence of inaccuracies or omissions in the declaration of the impugner, the additional assessment must be considered well-founded, since the Administration only had to prove the verification of the respective indications or requirements for taxation, that is, the legal requirements for its action.

III - Having made an intra-community transaction that benefits from exemption, it was incumbent on the impugner to prove the existence of the tax facts alleged as the foundation of its right, that is, the existence of the alleged intra-community transfer."

1. It follows from this that the verification and demonstration that there was a transfer of goods and that these were dispatched or transported from national territory by the seller, by the acquirer or on their account, destined for another Member State, is crucial for the latter to benefit from the VAT exemption provided for in Article 14 of the RVAT, with the burden falling on the transferor, it is emphasized, to make that proof.

2. But, considering that VAT legislation does not provide, nor does it indicate the means considered suitable to make that proof, then, how to make it?

3. The VAT Services Directorate responded to this matter through Circular Letter no. 30009/99, of 10.12.1999, supporting the understanding that:

"(...)

1. In the absence of a rule that, in VAT legislation, expressly indicates the means considered suitable to prove the occurrence of the requirements for the exemption provided for in item (a) of Article 14 of the RVAT, it shall be admitted that proof of the exit of goods from national territory may be made by resorting to the general means of proof, namely through the following alternative possibilities:

• transport documents evidencing the transport, which, depending on whether it is road, air or maritime, may be, respectively, the statement of dispatch (CMR), the air waybill ("Airwaybil I"-AWB) or the bill of lading ("Bill of landing"-B/L);

• transport contracts concluded;

• invoices from transport companies;

• remittance notes; or

• the declaration, in the Member State of destination of the goods, by the respective acquirer, of having conducted the corresponding intra-community acquisition there."

1. With regard to ITGs, in which the transport of goods is conducted by the acquirer or on their account, there may always be some specific problems regarding proof of transport or dispatch, as also occurs in the case at hand.

2. The CAAC Decision rendered in Proc. no. 323/2014 T gives examples of situations in which proof of transport or dispatch becomes complicated for the transferor. For example "the acquirer carries out the withdrawal of the goods directly from the seller's establishment, with its own means of transport or by hiring a third party for this purpose, the transfer of goods under the Incoterms FOB ('free on board') and FOT ('free on truck') and, among others, the cases in which the goods, after having left the seller's premises, are transported to a logistics platform located in the same territory, departing later for the Member State of destination without the seller being able to confirm its departure from national territory and arrival in the territory of destination. These are the so-called "takeaway" transactions.

3. Indeed, in a situation where the transport of merchandise is carried out by the acquirer by its own means, the seller cannot be satisfied merely with the simple indication that the goods will effectively be transported destined for another Member State, because a transport note or equivalent document presented upon the exit of the merchandise does not establish the complete reality of transport. In these situations, the transferors end up seeing their responsibility questioned and the exemption of the transfer rejected upon audit.

4. Concretely, in the case at hand, it is urgent to verify whether the commercial transactions conducted by the Claimant with H… and J… STI, subject to the additional VAT assessment of May 2012 here in dispute, are or are not capable of being considered as "transfers of goods, made by a taxable person, dispatched or transported by the seller, by the acquirer or on their account, from national territory to another Member State destined for the acquirer, when the latter is an individual or legal person registered for VAT purposes in another Member State, who has used the respective identification number to make the acquisition and is covered in that country by a regime for taxation of intra-community acquisitions of goods" and consequently capable of benefiting from the VAT exemption provided for in item (a) of section 1 of Article 14 of the RVAT.

Let us see, with respect to each of the transfers made to the Dutch and Latvian companies.

1. As for the ITG in the amount of € 74,224.00 made destined for H…:

I) As to the 1st Requirement: it is considered established that "the Claimant, in the month of May 2012, sold merchandise in the amount of € 74,224.00 to a Dutch company, called H…", therefore we may conclude that there is a transfer of goods, because it was:

a) made for onerous consideration, in the amount of € 74,224.00;

b) the transferred goods were movable;

c) and was conducted in a manner corresponding to the right of ownership.

II) As to the 2nd Requirement: it is considered established that "the Claimant is a commercial company, limited liability, which is classified under the normal monthly regime for VAT purposes, since 01.01.2012", therefore the requirement is met relating to the transferor, as a legal person who conducts operations that confer, wholly or partly, the right to deduct VAT;

III) Regarding the 3rd Requirement: it is considered established that the Claimant states it has confirmed through the VIES system that the Dutch company was registered in May 2012 for VAT purposes in the Netherlands, therefore the requirement is met that "the acquirer be a taxable person registered for VAT purposes in the Member State of destination of the merchandise; who has used the respective VAT identification number for the purpose of acquiring the merchandise and is covered in the State of destination by a regime for taxation of intra-community acquisitions of goods."

IV) Regarding the 4th Requirement: the Claimant succeeded in proving that the merchandise was dispatched on behalf of the acquirer, from national territory, having nonetheless failed to formally prove, as was incumbent upon it, that the merchandise physically left national territory destined for the Netherlands and that it entered there, because it failed to rebut the information contained in the reports drawn up by the Dutch tax authority and the evidence carried to the administrative proceeding presented by the Respondent.

1. Let us now look at the transfer made to the Latvian company J… STI.

I) As to the 1st Requirement: it is considered established that "the Claimant, in the month of May 2012, sold merchandise in the amount of € 48,922.00 to a Latvian company, called J… STI", therefore we may conclude that there is a transfer of goods, because it was:

a) made for onerous consideration, in the amount of € 48,922.00;

b) the transferred goods were movable;

c) and was conducted in a manner corresponding to the right of ownership.

II) As to the 2nd Requirement: it is considered established that "the Claimant is a commercial company, limited liability, which is classified under the normal monthly regime for VAT purposes, since 01.01.2012", therefore the requirement is met relating to the transferor, as a legal person who conducts operations that confer, wholly or partly, the right to deduct VAT;

III) Regarding the 3rd Requirement: it is considered established that the Claimant states it has confirmed through the VIES system that the Latvian company was registered in May 2012 for VAT purposes in Latvia, therefore the requirement is met that "the acquirer be a taxable person registered for VAT purposes in the Member State of destination of the merchandise; who has used the respective VAT identification number for the purpose of acquiring the merchandise and is covered in the State of destination by a regime for taxation of intra-community acquisitions of goods."

IV) Regarding the 4th Requirement: the Claimant succeeded in proving that the merchandise was dispatched on behalf of the acquirer, from national territory, having nonetheless failed to prove, as was incumbent upon it, that the merchandise physically left national territory destined for Latvia, because it failed to rebut the information contained in the reports drawn up by the Latvian tax authority and the evidence carried to the administrative proceeding presented by the Respondent.

It is noted that there is no unequivocal evidence that the payments made concern the merchandise supposedly involved in the transactions; the fact that only the reference to "Docs" is made in the remittance notes inherent to transport, without express reference to the contents; the inconsistencies detected between the Claimant's accounting and the elements collected with respect to J… STI by the Latvian tax authorities; the fact that J… STI is not headquartered at the supposed destination of the merchandise, which is the headquarters location of another company identified in the proceeding; the fact that part of the operations involved here were only declared by the recipient companies, after being prompted to do so by their respective local tax authorities and the fact that the taxable person H… declared that it has no business with the Claimant, possessing only one fixed supplier in Portugal, without relation to the Claimant.

All this, among other facts stated above, allowed the Tribunal to form the conviction that the Claimant has not made out its case, because sufficient evidence of the exit of merchandise from national territory was not produced.

We are not, therefore, faced with intra-community transfers of goods, thus the operations in question cannot benefit from VAT exemption.

In these terms, and to the extent that a conforming application is made of Article 14, section 1, item (a), of the RVAT, the additional VAT assessment in dispute should be upheld, with regard to acquisitions made both by H… and by J… STI.

DECISION

1. In accordance with the above, it is decided:

2. To find that the request for arbitral ruling presented by the Claimant is without merit, not having been proven.

3. To uphold in the legal order the tax assessment act for Value Added Tax, relating to the period 05/2012, with no. 2013…, in the amount of € 28,323.58 (twenty-eight thousand three hundred twenty-three euros and fifty-eight cents), thereby absolving the Respondent of the request.

Value of the Proceeding

The value of the proceeding is fixed at € 28,323.58 (twenty-eight thousand three hundred twenty-three euros and fifty-eight cents) in accordance with Article 97-A, section 1, (a), of the Tax Procedure Code, applicable by virtue of items (a) and (b) of section 1 of Article 29 of the LRAT and section 2 of Article 3 of the Regulations on Costs in Tax Arbitration Proceedings.

Costs

Costs to be borne by the Claimant in accordance with Article 22, section 2 of the LRAT, Article 4 of the Regulations on Costs in Tax Arbitration Proceedings, and Table I attached thereto, which are fixed in the amount of € 1,530.00.

Let parties be notified.

Lisbon, 22 February 2016

The Arbitrator

(Jorge Carita)

[1] VAT Code and RVAT, Notes and Commentaries, coordination and organization by Clotilde Celorico Palma and António Carlos dos Santos, Almedina 2014, p. 58.

[2] Work cited, p. 575.

[3] See Decision of the South Administrative Court rendered in Proc. no. 04434/10, of 07.06.2011, according to which:

"1. The requirements provided for in Article 14 of the RVAT are cumulatively to be verified for the Portuguese taxable person to benefit from the right to tax exemption, within the scope of intra-community transactions;

1. On the basis that the additional VAT assessment on two requirements, each of which is in itself sufficient to support it, if one of them is set aside, the assessment made continues to remain valid, based only on the other which was upheld;

2. Failing to prove the taxpayer, by any means of proof admitted in law, the effective dispatch and delivery of the merchandise sold to another VAT taxable person situated in another Member State, the same cannot benefit from the regime of tax exemption as intra-community transactions."

[4] Decision of the CJEU rendered in Proc. C-409/04, of 29.09.2007

[5] Decision of CAAC cited above

[6] Work cited, p. 644