Process: 394/2018-T

Date: April 29, 2019

Tax Type: IVA

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 394/2018-T) addresses the controversial issue of VAT taxation on colored and marked diesel fuel (gasóleo colorido e marcado) sold in violation of regulatory requirements. The Portuguese Tax Authority assessed additional VAT at the standard rate of 23% following an inspection that identified two irregularities: selling 27,249.27 liters without proper invoicing to electronic card holders, and selling 14,525.93 liters to entities lacking the mandatory electronic microchip card, both violations of Article 93(5) of the Code on Excise Duties (IEC) and Regulation 361-A/2008. The claimant challenged assessments totaling €2,778.39, arguing that while the IEC Code establishes consequences for irregular colored diesel sales, no equivalent regime exists in the VAT Code. The company contended that Regulation 234/97, which previously addressed both Excise Tax and VAT implications, was declared unconstitutionally invalid, and subsequent legislation only remedied the Excise Tax framework without establishing a VAT basis. The claimant emphasized that Excise Tax does not form part of the VATable base under Article 16(5)(a) of the VAT Code, as the taxable events are distinct. Furthermore, the taxpayer argued that applying different VAT treatment based on regulatory non-compliance violates the tax legality principle and constitutional tax law reserve under Articles 165(1)(i) and 103(2) of the Portuguese Constitution. The case highlights the critical intersection between excise duties and VAT on petroleum products, and whether tax consequences can be imposed without explicit legal basis in the respective tax code.

Full Decision

ARBITRAL DECISION

The Arbitrator Raquel Franco, appointed by the Deontological Council of the Administrative Arbitration Centre ("CAAD") to form the Arbitral Tribunal constituted on 19.09.2018, decides in the terms and on the grounds that follow:

I – REPORT

A..., LDA., a commercial company with the single corporate identification number and registration number in the Commercial Register n.º..., with registered office at Rua ..., ...-... ..., hereinafter referred to as the Claimant, filed a request for constitution of an Arbitral Tribunal and for arbitral decision on 20.08.2018, which was accepted and automatically notified to the Tax and Customs Authority ("AT"), in the capacity of Respondent.

The Claimant contests the VAT assessment notices and respective compensatory interest, issued following the tax inspection action that complied with Service Orders n.ºs OI2018..., OI2018..., OI2018... and OI2018..., and referring to the periods 201412T, 201512T, 201612T and 201706T. Since, with respect to the period 201412T, only € 187.02 concerns the subject matter of the present proceedings, the contested value does not correspond to the sum of the total value of those assessments, which would be € 5,045.02, but rather to the value of € 2,778.39, which is the amount that the Claimant seeks to have annulled as a consequence of the annulment of the tax acts that are the subject of the request for arbitral decision.

The tax acts of assessment of tax and interest referred to above result from two corrections:

  • Marketing of 27,249.27 litres of coloured and marked diesel fuel, without invoices being issued in the name of the holders of the electronic card, in violation of article 93, subsection 5 of the Code on Excise Duties and subsection 8 of Regulation n.º 361-A/2008, of 12.05;

  • Marketing of 14,525.93 litres of coloured and marked diesel fuel to entities not holding the mandatory electronic microcircuit card, in violation of article 93, subsection 5 of the Code on Excise Duties and subsections 5 and 6 of Regulation n.º 361-A/2008, of 12.05.

The Claimant did not appoint an arbitrator, and therefore under the provisions of article 6, subsection 2, paragraph a) and article 11, subsection 1, paragraph a) of the RJAT, the President of the Deontological Council of CAAD appointed the undersigned as arbitrator of the Singular Arbitral Tribunal, who communicated acceptance of the appointment within the applicable period.

On 09.10.2018, the parties were notified of this appointment and did not express any intention to challenge it.

In accordance with the provision of article 11, subsection 1, paragraph c) of the RJAT, the Singular Arbitral Tribunal was constituted on 29.10.2018.

On 27.11.2018, the Respondent, having been duly notified to do so, filed its response defending itself by way of exception and by way of challenge.

With respect to the matter of the exception, relating to the alleged incorrectness of the value of the case as indicated in the request for arbitral decision, a period of 10 days was granted to the Claimant to comment, which it did on 10.12.2018.

Following its comment, the Respondent also submitted additional elements to the proceedings on 27.12.2018.

On this matter, this Tribunal issued a ruling on 15.03.2019, through which it notified the Claimant to re-submit the request for arbitral decision with the value of the case duly rectified. The parties were further notified, under the provisions of paragraphs c) and e) of article 16 and subsection 2 of article 29 of the RJAT, of the exemption from the meeting referred to in article 18 of the RJAT, as well as of the possibility of submitting written submissions, and that the final decision would be issued by 29/04/2019.

The parties submitted written submissions, in which they maintained the positions expressed in the initial pleadings.

Summary of the Claimant's Position

Following the tax inspection of the Claimant, the AT issued additional VAT assessments for the years 2014 to 2017, whereby the AT intends to apply the standard rate of 23% to the value of the Tax on Oil Products and Energy and the Contribution for the Road Sector calculated by the Anti-Fraud Customs Service.

The Claimant petitions for annulment of the tax act identified above, alleging:

(i) That the Code on Value Added Tax does not contain a regime similar to that of the Code on Excise Duties, with the absence of any rule regulating the use of that product;

(ii) As regards coloured and marked diesel fuel, the same never appeared in the VAT Code except in the list of products to which the intermediate rate applies;

(iii) Such a regime was contained in Regulation n.º 234/97, of 4 April, which established the obligation to assess Excise Tax and VAT for the differences in rates applicable to the two types of diesel fuel, the Code on Excise Duties incorporated in its article 93, subsection 5 the regime contained in that Regulation, with the difference being that it eliminated any reference to VAT. However, Regulation n.º 234/97 was already declared to be organically unconstitutional, both by the Plenary of the STA and by the Constitutional Court. In the period between the publication and repeal of Regulation n.º 234/97, of 4 April, there never existed a legal regime that – with constitutional validity – provided for the regime of Excise Tax and VAT in cases of non-compliance with the rules for the sale of coloured and marked diesel fuel and, if it is true that such fact was, for purposes of Excise Tax, remedied with the entry into force of the State Budget Law of 2007, this did not occur in the sphere of VAT;

(iv) Excise Tax does not form part of the VATable base, not being subsumed in art. 16, subsection 5, paragraph a), since the taxable events are distinct, with Excise Tax being upstream of VAT;

(v) The position of the AT is contradictory since it did not make any alteration to the VAT rate included in the invoice issued by the Claimant to its clients, maintaining the rate of 13% here, only applying the rate of 23% to the positive difference between the level of taxation of road diesel and the level of taxation applied to coloured and marked diesel, in the context of Excise Tax.

In light of the applicable legal framework in the present case, the Claimant concludes that at the date of the events, in our legal system, there was no rule that, in a similar manner to what occurs in the context of the Code on Excise Duties, imposes in the context of value added tax an identical consequence to that imposed in that tax. Such a rule existed only within the scope of Regulation n.º 234/97, of 4 April, subsequently came to be contained in the Code on Excise Duties, but was not created within the scope of the Code on Value Added Tax. Therefore, the consequence provided for in the context of the tax on oil products and energy, under the terms of art. 93, subsection 5 of the Code on Excise Duties, that the owner or the legal person responsible for the operation of authorized fuel stations be made responsible for payment of the amount of tax resulting from the difference between the tax rate applicable to road diesel and the rate applicable to coloured and marked diesel, in relation to the quantities they sell and which are not duly recorded in the computer system underlying the microcircuit cards assigned, is not applicable in the context of VAT due to the absence of legal basis for doing so.

For these reasons, the Claimant considers that the taxation of coloured and marked diesel at a VAT rate different from that provided by law, as a consequence of the irregular marketing of such product, lacks prior legal basis, in accordance with the tax law reserve, under the terms of articles 165, subsection 1, paragraph i) and 103, subsection 2, of the Constitution of the Portuguese Republic. Even if it were understood that there is a lacuna here, the tax law reserve would always prohibit analogical integration, thus preventing the application in the context of VAT of art. 93, subsection 5 of the Code on Excise Duties.

The Claimant also refers to the proceedings P58/2018-T, in which the legality of the Excise Tax and Road Contribution assessments resulting from the inspection carried out by the AT for the years 2014 to 2017 is discussed, arguing that, if it is proven, as the Claimant intends, that the litres referred to in that case – and consequently the tax assessments – were not correctly calculated, the amount of VAT allegedly lacking will also have to be corrected.

On this point, it may be noted from the outset that, within the scope of proceedings P 58/2018-T, a decision was issued on 19/11/2018, partially granting the Claimant's claim, on the grounds of the disapplication on grounds of unconstitutionality of article 93, subsection 5 of the Code on Excise Duties to the segments identified by it. The AT filed an appeal to the Constitutional Court (P 1147/18).

Summary of the AT's Position

From the analysis of the legal framework applicable to "green diesel", the AT sustains that the legislator intended that the tax benefit of the application of reduced rates, granted exclusively for the uses legally provided for in subsection 3 of article 93 of the Code on Excise Duties, be subject to the conditions established in the respective tax regime, namely, that:

  • The coloured and marked diesel can only be supplied or sold to holders of properly licensed fuel stations that are holders of automatic payment terminals - point of sale, TPA-POS (TPA Terminals);

  • The coloured and marked diesel can only be sold at fuel stations to beneficiaries of an exemption or reduction of the Excise Tax rate who are holders of microcircuit/electronic cards, which are personal and non-transferable and through which all transactions of coloured and marked diesel are recorded in the computer system managed by the Interbank Services Company (SIBS);

  • Such electronic cards were instituted for purposes of controlling the allocation of coloured and marked diesel to the legally provided purposes/uses;

Such sales are mandatorily recorded in the computer system, through the TPA Terminals, at the moment they occur;

  • The recording in the computer system, through the TPA Terminals, of each refill made, does not dispense with the issuance of the respective invoice or equivalent document, issued in the name/with identification of the holder of the respective microcircuit card;

  • The owner or the legal person responsible for the operation of the authorized fuel stations for the sale of coloured and marked diesel is responsible for payment of the amount of tax resulting from the difference between the level of taxation applicable to road diesel and the rate applicable to coloured and marked diesel (direct and objective responsibility):

i) In relation to the quantities they sell and which are not duly recorded in the electronic control system,

ii) As well as in relation to the quantities for which the corresponding invoices in the name of the card holder are not issued.

In this context, it considers that the sale of 27,249.27 litres of coloured and marked diesel in 2015, 2016 and 2017 without the invoice that documents the sales operation identifying the buyer (without name and/or tax identification number), violates the legal provision that results from subsection 5, in fine, of article 93 of the Code on Excise Duties, in the wording given by the State Budget Law of 2015, and with the consequences clearly specified in law.

Similarly, the invoiced sale of 14,525.94 litres of coloured and marked diesel to non-holders of microcircuit card/beneficiary for their use constitutes a violation of the provision of subsection 5 of article 93 of the Code on Excise Duties and of article 5 of Regulation n.º 361-A/2008, of 12 May and constitutes grounds for the exigibility of the tax (differential between the level of taxation of coloured and marked diesel and road diesel).

Finally, the sale of 19,814.32 litres of coloured and marked diesel, without the operator having recorded the POS of those quantities in the electronic control system, violates the provision of subsection 5 of article 93 of the Code on Excise Duties and of articles 5 and 6 of Regulation n.º 361-A/2008 and constitutes grounds for the exigibility of the Excise Tax.

Overlapping with the Excise Tax, the tax relief established for coloured and marked diesel also encompasses the application of the intermediate rate in VAT in the supply of this product. Given what is described in List II of the table annexed to the VAT Code, relating to "Goods and services subject to intermediate rate", coloured and marked diesel is taxed in VAT at the rate of 13%:

"List II

Goods and services subject to intermediate rate

(…)

2.3 - Petroleum and diesel, coloured and marked, marketed under the conditions and for the legally defined purposes, and fuel oil and their blends"

(…)"

From which it follows that the application of the intermediate rate of VAT to the supplies of coloured and marked diesel presupposes that they are made in compliance with the provisions of law relating to the benefit of the reduction of the Excise Tax rate, as established in the Code on Excise Duties and complementary legislation. And to the extent that the intermediate rate of VAT can only be applied when the legally defined purposes and the respective conditions for marketing of coloured and marked diesel are satisfied, the disrespect of such rules confers upon the AT the faculty to proceed with the additional assessment of the tax, applying to the sale price the difference between the VAT rate that was applied (13%) and the normal rate (23%).

Regarding the Claimant's argument that there is no legal basis for the AT to correct the application of the rate of 13% to the rate of 23%, the AT defends itself by saying that, with the repeal of the special regime contained in Decree-Law n.º 521/85, and the introduction of the new special regime in the VAT Code, resellers of liquid fuels became taxable persons, and the assessment and obligation to remit to the State the tax due by the supplies of this type of goods became applicable throughout the distribution chain, under the terms contained in articles 2, subsection 1, paragraph a), 3, subsection 1 and 27 and 37 of the VAT Code.

With respect to Regulation n.º 234/97, which was the object of various judicial decisions that judged it to be organically unconstitutional, and following those same decisions, the legislator amended article 74, subsection 5 of the previous Code on Excise Duties (Code on Excise Duties/99), approved by Law n.º 53-A/2006, of 29 December, this rule being complemented by rules of a regulatory nature, namely contained in Regulations n.ºs 117-A/2008, of 8 February, and 361-A/2008, of 12 May, both approved while the previous Code on Excise Duties was in force, and having as enabling reference its article 74, but maintained in force when the new Code on Excise Duties was approved, by force of article 5 of Decree-Law n.º 73/2010, which approved this latter Code.

With the approval of the new Code on Excise Duties by Decree-Law n.º 73/2010, of 21 June, the matter came to be contained in its article 93, which provides for the direct and objective responsibility of the holders of fuel stations for payment of the amount of tax resulting from the difference between the level of taxation applicable to road diesel and the rate applicable to coloured and marked diesel, in relation to the quantities sold in disregard of the purpose and conditions for marketing of coloured and marked diesel.

As for VAT, it would not even make sense for the legislator to provide, in the VAT Code, a special rule similar to the one that existed in Regulation n.º 234/97 and came to be contained in subsection 5 of article 74 of the previous Code on Excise Duties and subsection 5 of article 93 of the current Code on Excise Duties: because in the context of VAT it became unnecessary to provide by law a special provision for the tax liability of resellers holding fuel stations for the tax arising from the difference in taxation between road diesel and coloured and marked diesel, since that liability results, since the repeal of Decree-Law n.º 521/85, directly from the general rules on objective and subjective scope of application provided for in the VAT Code, as well as the exigibility of the tax.

Thus, for the AT there are no doubts that the additional tax assessments for improper use of the intermediate rate set out in entry 2.3 of List II annexed to the VAT Code find their general tax legitimation, in particular in the VAT Code, lacking additional legitimation or the overlay of a specific rule of responsibility of the taxable persons of VAT linked to the marketing of fuel. The tax correction is not only legitimate but mandatory, as results from article 63 of the General Tax Law and, as regards the tax, from article 87 of the VAT Code. A tax correction that, qualitatively, is not different from any other in which the taxable person assesses a tax at a lower rate than that which was legally due, which, moreover, is independent of the reasons that gave rise to the adoption of that rate, the additional assessment being due, even in situations of error.

The Respondent further adds that the wording of entry 2.3 of List II annexed to the VAT Code, as amended by Law n.º 82-B/2014, of 31 December, at which time it came to refer not only to coloured and marked diesel but also to "its marketing conditions and legally defined purposes", had, precisely, the purpose of clarifying the scope of that entry, evidencing the interpretive character of the amendment, in the sense that the intermediate rate applies only in situations where the marketing respects the conditions and purposes legally and regulatorily defined, as well as by the prerogative of the AT to make the appropriate tax corrections under the general terms of the VAT Code. There is, thus, no lacuna or omission, since currently that rule makes the taxation at the intermediate rate of VAT subject to the condition established in article 93 of the Code on Excise Duties and other rules for marketing to which coloured and marked diesel is subject, transposing to the domain of that tax the rules specifically applicable in the domain of excise duties.

Finally, the AT refers to various systematic arguments and relating to the integration of VAT into a common European system to say that admitting the non-inclusion of the Excise Tax and Road Contribution, additionally assessed following the a posteriori detection of irregularities in the marketing of coloured and marked diesel, in the value subject to VAT, corresponds to favouring tax fraud and evasion and will result in a loss of VAT revenue to the State that finds no justification.

For the reasons set out, the AT concludes for the dismissal of the arbitral claim.

II. PROCEDURAL REQUIREMENTS

The Arbitral Tribunal is materially competent and is regularly constituted, under the terms of articles 2, subsection 1, paragraph a), 5 and 6, subsection 1, of the RJAT.

The parties have legal personality and legal capacity, are legitimate and are legally represented, as provided in articles 4 and 10 of the RJAT and article 1 of Regulation n.º 112-A/2011, of 22.03.

The action is timely and the proceedings do not suffer from any irregularities.

III. REASONING

A. FACTUAL MATTERS

A.1. Proven Facts

  • The Claimant's principal activity is the distribution and marketing of liquid fuels in the Portuguese market, among which is the distribution of coloured and marked diesel, commonly referred to as "green diesel";

  • On 05/05/2017 the Northern Operational Division, of the Anti-Fraud Customs Service (NOD/AFCS), initiated an inspection action (n.º OI2017...) with the Claimant, aimed, in the context of the Tax on Oil Products and Energy, at verifying compliance with the rules for marketing coloured and marked diesel at the fuel station identified as POS station n.º..., in the period between 01/01/2014 and 05/05/2017.

  • During the course of that inspection by NOD/AFCS, situations of irregular marketing of coloured and marked diesel were identified, embodied in: sales of coloured and marked diesel without the invoice that documents the sales operation identifying the buyer (name and/or tax identification number); sales of coloured and marked diesel to customers not holding the microcircuit card (beneficiary); and recordings in the POS terminal in a quantity lower than the amount refilled (invoiced).

  • Specifically, it was determined that allegedly 27,249.27 litres of coloured and marked diesel fuel were marketed without customer identification on the invoice and that allegedly 14,525.93 litres were marketed to non-holders of the electronic coloured and marked diesel card.

  • During the course of the inspection action n.º OI2017..., it was determined and ultimately proposed for assessment a total amount of Excise Tax and Road Contribution of € 19,508.23, for non-compliance with the rules for marketing coloured and marked diesel established in the Code on Excise Duties and in the regulation pertaining to the regulation of applicable rules.

  • The Claimant, not agreeing with the content of the Final Report, contested its conclusions, as well as and consequently the assessments resulting from it, which came to give rise to the proceedings that took place before the CAAD – Tax Arbitration Centre under case number P58/2018-T.

  • With respect to VAT owed, the NOD/AFCS sent the inspection report to the Finance Department of ..., for purposes of assessing the tax owed.

  • Based on the conclusions of the inspection action report carried out by the NOD/AFCS, the Tax Inspection Service of the Finance Department of ... initiated the internal inspection procedure concerning Service Orders n.ºs OI2018..., OI2018..., OI2018... and OI2018..., having determined that the normal VAT rate (art. 18, subsections 1 and 9) should be applied to the supplies in question, and the values of Excise Tax and Road Contribution included in the VATable base, under the terms of art. 16, subsection 5, paragraph a) of the VAT Code.

  • From the internal analysis carried out by IT of DFG, with respect to the irregular sales identified in the report of NOD/AFCS, documented in the list of invoices that was annexed to the IT report, a VAT shortfall was determined in the amount of € 2,630.76.

  • Subsequently the AT services proceeded with notification of the respective assessment, which gave rise to the present proceedings.

A.2. Facts Not Proven

With relevance for the decision there are no alleged facts that should be considered as not proven.

A.3. Reasoning for the Proven and Not Proven Factual Matters

The facts relevant for the judgment of the case were selected and delimited according to their legal relevance, in light of the plausible solutions of the legal questions, under the terms of the combined application of articles 123, subsection 2, of the Tax Procedure and Process Code ("CPPT"), and 596, subsection 1 and 607, subsection 3 of the Code of Civil Procedure ("CPC"), by referral of article 29, subsection 1, paragraphs a) and e) of the RJAT.

No assertions made by the parties and presented as facts, consisting of strictly conclusive statements, incapable of proof and whose truthfulness must be assessed in relation to the concrete factual matter consolidated, were given as proven or not proven.

With respect to the facts proven, the conviction of the arbitrators was based on the positions assumed by the parties and on the critical analysis of the documentary evidence joined to the case file.

B. ON THE LAW

B.1. Normative Framework

The matter under discussion invokes the legal-tax regime for coloured and marked diesel contained in the Code on Excise Duties, in particular the provision of its article 93, which is transcribed in the applicable part:

"Article 93

Reduced Rates

1 - Diesel, heating oil and petroleum coloured and marked with the additives defined by regulation of the member of the Government responsible for the finance area are taxed with reduced rates.

2 - Coloured and marked petroleum can only be used for heating, lighting and for the uses provided for in subsection 3.

3 - Coloured and marked diesel can only be consumed by:

a) Stationary motors used in irrigation;

b) Vessels referred to in paragraphs c) and h) of subsection 1 of article 89;

c) Agricultural tractors, combine harvesters, cultivators, motor hoes, motor reapers, self-propelled potato harvesters, pea harvesters, silage forage harvesters, tomato harvesters, hay conditioners, grape harvesting machines, olive and fruit harvesting tree shakers, as well as other equipment, including those used for aquaculture activity and fishing with the dragnet, approved by regulation of the members of the Government responsible for the areas of finance, agriculture and the sea; (Wording given by article 211, of Law n.º 42/2016, of 28.12)[1]

d) Passenger and goods railway transport vehicles;

e) Fixed motors;

f) Autonomous refrigerating motors, installed in heavy transport vehicles for perishable goods, powered by separate fuel tanks, and which have ATP (Perishable Goods Transport Agreement) certification, under the terms to be defined in a regulation of the members of the Government responsible for the areas of finance, agriculture and transport.

4 - Heating oil can only be used as fuel for industrial, commercial or domestic heating.

5 - Coloured and marked diesel can only be purchased by holders of the electronic card instituted for purposes of controlling its allocation to the destinations referred to in subsection 3, and is responsible for payment of the amount of tax resulting from the difference between the level of taxation applicable to road diesel and the rate applicable to coloured and marked diesel, the owner or the legal person responsible for the operation of authorized fuel stations for public sale, in relation to quantities they sell and which are not duly recorded in the electronic control system, as well as in relation to quantities for which the corresponding invoices in the name of the card holder are not issued. (Wording given by article 207 of Law n.º 82-B/2014, of 31.12)[2]

6 - The sale, purchase or consumption of the products referred to in subsection 1 in violation of the provisions of subsections 2 to 5 are subject to the sanctions provided for in the General Tax Infringement Regime and in special legislation.

7 - For purposes of this article, fixed motors are understood as motors intended for energy production and which, cumulatively, are installed on unmovable platforms.

[…]"

The Code on Excise Duties is further complemented by a set of regulatory rules. With relevance to the case in question, it is important to mention those contained in Regulation n.º 117-A/2008, of 08.02, which updates and reviews the process for prior recognition of exemptions and reduced rates of Excise Tax, and Regulation n.º 361-A/2008, of 12.05, relating to coloured and marked diesel, approved while the previous Code on Excise Duties was in force and having as enabling reference its article 74, the maintenance of which results from the provision of article 5 of Decree-Law n.º 73/2010, of 21.06, which approved the new Code on Excise Duties.

Regulation n.º 361-A/2008, of 12.05, merits special mention, which, in this regard, establishes rules for marketing coloured and marked diesel and control mechanisms, namely:

"[…]

  1. Coloured and marked diesel can only be sold at fuel stations to beneficiaries of an exemption or reduction of the Excise Tax rate who are holders of microcircuit cards issued for this purpose by the DGADR, through which all transactions of coloured and marked diesel are recorded in the computer system managed by the Interbank Services Company (SIBS).

  2. The sales referred to in the preceding number are mandatorily recorded in POS terminals at the moment they occur.

  3. Refills to equipment authorized to consume coloured and marked diesel that cannot be carried out at the location of the fuel station, in particular some agricultural and forestry equipment and fixed motors, may be recorded in a mobile POS terminal, at the time and at the location of the respective refill.

  4. The recording in the computer system, through POS terminals, of each refill carried out, does not dispense with the issuance of the respective invoice or equivalent document, issued in the name of the holder of the respective microcircuit card.

  5. The records of the transactions referred to in subsection 5 are sent in computer format by SIBS to DGADR, which, in addition to the national coordination functions incumbent upon it, manages the database relating to coloured and marked diesel and is responsible for the issuance, suspension or cancellation of cards.

  6. Coloured and marked diesel can only be refilled to the equipment provided for in subsection 3 of article 74 of the Code on Excise Duties, after verification, by the competent entity, of the presuppositions and conditions required under the applicable legislation and the assignment to the respective beneficiaries of the card referred to in subsection 5.

  7. In case of typing errors or other anomalies found in the use of POS terminals, these must be immediately communicated, in writing, preferably by electronic mail, to DGADR, so that the respective corrections can be made.

[…]"

Additionally, the provision of article 2 of Regulation n.º 117-A/2008, of 08.02, should be mentioned, according to which:

"2. May benefit from exemption or application of a reduced rate of the tax natural or legal persons that, provably, use petroleum and energy products subject to Excise Tax in the activities or equipment provided for in the legal provisions referred to in the preceding number, provided that they comply with the following conditions:

a) That activity is duly declared, under the terms of applicable tax legislation, except when dispensed by law or by the nature of the exemption;

b) They have their tax and contributory situation regularized;

c) They have complied with their declarative obligations in respect of income taxes and value added tax.".

Article 5 of Regulation n.º 117-A/2008 further provides that the "tax benefits concretized through the use of coloured and marked diesel are carried out mandatorily through the use of a microcircuit card".

With respect to the Road Contribution or Road Sector Contribution, it was created by Law n.º 55/2007, of 31.08, and, according to the provision of its article 1, aims to finance the national road network under the responsibility of EP – Portuguese Roads, E.P.E.. This contribution constitutes the counterpart for the use of the national road network, as verified by the consumption of fuels (article 3, subsection 1). Under the terms of article 4, subsections 1 and 2 of Law n.º 55/2007, the Road Sector Contribution "applies to gasoline and road diesel subject to the tax on oil products and energy and not exempt from it", varying in amount depending on the petroleum product used (gasoline or road diesel).

The Road Sector Contribution is due by taxable persons of Excise Tax (article 5, subsection 1) and, although it constitutes income for EP – Portuguese Roads (article 6), its assessment and collection is the responsibility of the Directorate-General of Customs and Excise Duties (today the AT), the provisions of the Code on Excise Duties applying to its assessment, collection and payment. In summary, we are dealing with a tax due by taxable persons of Excise Tax that applies to road diesel subject to Excise Tax and not exempt from it.

B.2. Consequences of the Irregular Practices Attributed to the Sales Carried Out by the Claimant in the Context of VAT

In the present case, it is not disputed whether the allegedly irregular practices attributed to the Claimant correspond or not to facts that actually occurred. Neither the Claimant nor the Respondent alleged facts intended to prove the legality or illegality of the Claimant's practices in proceeding with the sale of coloured and marked diesel.

It is a matter, in the present proceedings, of determining whether it is legal or illegal the conduct adopted by the Respondent in correcting the VAT assessed in such operations from the rate of 13% provided for in List II annexed to the VAT Code to the general VAT rate applicable, under the terms of the provision of paragraph c) of subsection 1 of article 18 of the VAT Code, whenever the reduced rate provided for in paragraph a) does not apply in the present case nor the intermediate rate provided for in paragraph b).

Now, for purposes of VAT, since 1 January 2015, coloured and marked diesel that is not marketed under the conditions and for the legally defined purposes does not benefit from the exceptional application, within the framework of that tax, of the intermediate rate. Conversely, coloured and marked diesel that is marketed without respect for those conditions and for those purposes is subject to the normal rate of tax, applicable whenever one is not in a situation to which the reduced rate or the intermediate rate of tax applies. In those situations, if an incorrect rate is assessed to the consumer (the intermediate or reduced – for this purpose it is absolutely irrelevant), the owner or the legal person responsible for the operation of the authorized fuel station for public sale will be responsible for payment of the amount of tax resulting from the difference between the level of taxation applicable to road diesel (23%) and the rate applicable to coloured and marked diesel (13%), in relation to the quantities sold that were not sold under the conditions provided for in the rule that provides for the application of the intermediate VAT rate.

Given the foregoing, it is, in the understanding of this tribunal, legal, the VAT assessments made with respect to the sales of coloured and marked diesel relating to 2015, 2016 and 2017 (identified by the SIT in the RIT), as well as the corresponding assessments of compensatory interest, if it is concluded that the respective sales did not comply with the conditions and the legally defined purposes and upon which the application of the VAT rate of 13% depends.

As to the VAT assessment relating to the year 2014, being prior to the legislative amendment from which resulted the express provision that the intermediate rate of tax applied only to the sales of "petroleum and diesel, coloured and marked, marketed under the conditions and for the legally defined purposes" (emphasis ours), this tribunal considers that it does not have a legal basis to the extent that, at the date of the events (2014) there was no express provision that the intermediate rate applied only when the products were marketed under certain conditions and for certain purposes, nor was there in the national legal system a rule that imposed, in the context of VAT, in a similar manner to what occurred for purposes of Excise Duties, an identical consequence to that imposed in that Code for purposes of Excise Tax, that is, the responsibility of the owner or the legal person responsible for the operation of the authorized fuel station for public sale, in relation to quantities sold that were not sold under the conditions provided for by law. Indeed, until 31 December 2014, the wording of entry 2.3 of List II annexed to the VAT Code referred only to "Petroleum, diesel and heating oil, coloured and marked (…)".

On this point, this Arbitral Tribunal disagrees with the position of the Respondent when it states, in articles 48º and 49º of its Response, that the legislative amendment introduced by Law n.º 82-B/2014, of 31 December had an interpretive character ("however, such wording of entry 2.3 of List II annexed to the VAT Code, would be amended by Law n.º 82-B/2014, of 31 December, then coming to refer not only to coloured and marked diesel, but also to its marketing conditions and legally defined purposes (…)" being that "such legislative intervention had, precisely, the purpose of clarifying the scope of that entry, evidencing the interpretive character of the amendment, in the sense of the application of the intermediate rate only in situations in which the marketing respects the conditions and purposes legally and regulatorily defined, as well as by the prerogative of the AT to proceed with the appropriate tax corrections under the general terms of the VAT Code") for the reason that, in addition to the argument of the retroactive nature of that amendment, the law itself that introduced that rule into the Portuguese legal system did not provide for its interpretive nature, contrary to what it frequently does.

IV – DECISION

Therefore, this Arbitral Tribunal decides:

  1. To partially uphold the arbitral claim for annulment of the tax acts identified above, relating to VAT and compensatory interest, with respect to the tax assessed for the year 2014 in the amount of € 187.02;

  2. To dismiss the claim in the remaining part, which refers to the VAT assessed and respective compensatory interest, by reference to the years 2015, 2016 and 2017, in the amount of € 2,591.37.

V – Value of the Case

The value of the case is fixed at € 2,778.39 (two thousand, seven hundred and seventy-eight euros and thirty-nine cents), under the terms of article 97-A, subsection 1, a), of the Tax Procedure and Process Code, applicable by force of paragraphs a) and b) of subsection 1 of article 29 of the RJAT and subsection 2 of article 3 of the Regulation on Costs in Tax Arbitration Proceedings.

VI – COSTS

The arbitration fee is fixed at € 612.00 under the terms of Table I of the Regulation on Costs in Tax Arbitration Proceedings, to be borne in proportion to the respective loss, namely € 571.00, to be borne by the Claimant, and € 41.00, to be borne by the Respondent.

Lisbon, 29 April 2019

The Arbitrator

(Raquel Franco)

[1] The previous wording, which covers the facts relating to the years 2014, 2015 and 2016, is not significantly different, having only been modified in the final segment relating to fishing:

"c) Agricultural tractors, combine harvesters, cultivators, motor hoes, motor reapers, self-propelled potato harvesters, pea harvesters, silage forage harvesters, tomato harvesters, hay conditioners, grape harvesting machines, olive and fruit harvesting tree shakers, as well as other equipment, including those used for aquaculture activity, approved by regulation of the members of the Government responsible for the areas of finance, agriculture and the sea;"

[2] The previous wording, relevant for the facts occurring in the year 2014, did not provide for the responsibility of the owner or person responsible for the operation of the establishment, in the event that invoices with the tax identification of the card holder are not issued. The rule provided:

"5 - Coloured and marked diesel can only be purchased by holders of the electronic card instituted for purposes of controlling its allocation to the destinations referred to in subsection 3, and is responsible for payment of the amount of tax resulting from the difference between the level of taxation applicable to road diesel and the rate applicable to coloured and marked diesel, the owner or the legal person responsible for the operation of authorized fuel stations for public sale, in relation to quantities they sell and which are not duly recorded in the electronic control system."

Frequently Asked Questions

Automatically Created

What are the VAT implications of selling colored and marked diesel (gasóleo colorido e marcado) without proper invoicing to electronic card holders in Portugal?
Selling colored and marked diesel without proper invoicing to electronic card holders triggers regulatory violations under Article 93(5) of the Portuguese IEC Code and Regulation 361-A/2008. The Tax Authority may assess the difference between road diesel taxation and colored diesel taxation on the improperly sold quantities. However, the VAT implications are legally contested, as taxpayers argue that unlike the Excise Duties regime, the VAT Code lacks specific provisions imposing different VAT treatment for such regulatory violations. The Tax Authority has attempted to apply the standard 23% VAT rate on the tax differential, but this practice faces constitutional challenges based on the tax legality principle requiring explicit legal basis for taxation.
What does Article 93(5) of the Portuguese IEC Code require for the commercialization of colored and marked diesel?
Article 93(5) of the Portuguese Code on Excise Duties requires that colored and marked diesel fuel be sold exclusively through an electronic control system using microchip cards. Fuel station operators must issue invoices in the name of the electronic card holders and ensure all transactions are properly recorded in the computer system underlying the microcircuit cards. When these requirements are not met, the law holds the fuel station owner or operator responsible for payment of the tax difference between the rate applicable to road diesel and the preferential rate for colored diesel on the quantities sold without proper registration. This regime was established following the constitutional invalidity of Regulation 234/97 and incorporated into the IEC Code through the 2007 State Budget Law.
What are the consequences of selling colored marked diesel to entities without the mandatory microchip electronic card under Portaria 361-A/2008?
Under Regulation 361-A/2008 (subsections 5 and 6) and Article 93(5) of the IEC Code, selling colored and marked diesel to entities without the mandatory electronic microchip card constitutes a serious regulatory violation. The fuel distributor becomes liable for the excise tax differential between road diesel and colored diesel rates on the improperly sold quantities. The Tax Authority may impose compensatory interest on unpaid amounts. However, the automatic application of different VAT treatment remains legally controversial, as the VAT Code does not contain parallel provisions to those in the Excise Duties framework. Taxpayers can challenge such assessments on constitutional grounds, arguing lack of legal basis under the tax law reserve principles established in Articles 165(1)(i) and 103(2) of the Portuguese Constitution.
How does the CAAD arbitral tribunal handle disputes involving petroleum products tax (ISP) corrections that result in additional VAT assessments?
CAAD arbitral tribunals handle disputes involving petroleum products tax (ISP) corrections that generate additional VAT assessments by examining whether the Tax Authority has proper legal basis for both tax components. The tribunal first analyzes procedural matters, including case valuation and jurisdiction. On substantive issues, the tribunal distinguishes between excise duty consequences explicitly provided in the IEC Code and VAT implications that may lack specific legislative authorization. The tribunal applies strict interpretation of tax legislation, respecting the constitutional tax law reserve principle that prohibits analogical application or gap-filling in tax law. The arbitrator examines whether VAT assessments based on excise duty violations have independent legal foundation in the VAT Code, or whether they improperly extend excise duty consequences to a different tax without constitutional authorization. Taxpayers may challenge the legal basis, calculation methodology, and constitutional validity of such combined assessments.
Can a taxpayer challenge VAT liquidation assessments and compensatory interest arising from tax inspection orders related to fuel commercialization irregularities?
Yes, taxpayers can challenge both VAT liquidation assessments and compensatory interest arising from tax inspection orders related to fuel commercialization irregularities through CAAD arbitration. The challenge can be based on multiple grounds: (1) lack of legal basis for applying different VAT treatment to colored diesel sold in violation of regulatory requirements, (2) constitutional violation of the tax law reserve under Articles 165(1)(i) and 103(2) of the Portuguese Constitution, (3) improper inclusion of excise taxes in the VATable base contrary to Article 16(5)(a) of the VAT Code, (4) procedural irregularities in the inspection or assessment process, and (5) incorrect calculation of tax amounts or interest. The taxpayer must specify the contested amount and clearly identify which portion relates to each tax period and type of violation. CAAD provides an alternative dispute resolution mechanism with shorter timeframes than administrative courts for resolving such petroleum product tax controversies.