Process: 401/2015-T

Date: February 11, 2016

Tax Type: IVA

Source: Original CAAD Decision

Summary

Process 401/2015-T addresses the controversial application of VAT exemptions for occasional events under Portuguese tax law. Company A challenged multiple additional VAT assessments totaling over €152,000 plus compensatory interest for tax periods from March 2011 to September 2013. The core dispute centers on whether festivities organized by the claimant qualify for VAT exemption under Article 9(20) of the VAT Code as 'occasional manifestations' by entities whose habitual activities are exempt under Article 9(19). The claimant raised a constitutional challenge against Normative Dispatch 118/85, arguing it unconstitutionally restricts the scope of the statutory exemption in violation of the principle of legal reserve, as regulatory norms cannot lawfully impose limits beyond those established by law. The Tax Authority countered that strict interpretation applies to VAT exemptions as derogations from the general taxability rule, and that the claimant failed to demonstrate habitual engagement in exempt activities, making the occasional manifestation exemption inapplicable. Additionally, the Authority argued that an entity cannot simultaneously claim an activity as both habitual and occasional, creating a logical inconsistency in the claimant's position. The arbitral tribunal, constituted under Decree-Law 10/2011 (RJAT), held hearings including witness examination and oral arguments. The case illustrates critical principles governing VAT exemptions: the requirement for restrictive interpretation, compliance with EU fiscal neutrality principles, the relationship between primary and accessory tax obligations (compensatory interest), and the constitutional limits on regulatory powers in tax matters. The outcome determines whether organizers of periodic festivities can benefit from exemptions designed for genuinely occasional activities.

Full Decision

ARBITRAL DECISION

I. REPORT

  1. On 29 June 2015, company A..., taxpayer no. ..., hereinafter identified as the Claimant, submitted a request for arbitral decision with intervention of the collective arbitral tribunal, pursuant to the provisions of Articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to as RJAT), in conjunction with Article 102 of the Code of Tax Procedure and Process (CPPT).

  2. In the said request for arbitral decision with collective intervention, the Claimant requests that the Arbitral Tribunal declare:

a) the illegality of the additional assessment act of Value Added Tax no. ..., in the amount of € 248.10, relating to period 1103T;

b) the illegality of the assessment act of Compensatory Interest no. ..., in the amount of € 35.29, relating to period 1103T;

c) the illegality of the additional assessment act of Value Added Tax no. ..., in the amount of € 11,217.31, relating to period 1106T;

d) the illegality of the assessment act of Compensatory Interest no. ..., in the amount of € 1,482.53, relating to period 1106T;

e) the illegality of the additional assessment act of Value Added Tax no. ..., in the amount of € 33,344.07, relating to period 1109T;

f) the illegality of the assessment act of Compensatory Interest no. ..., in the amount of € 4,070.72, relating to period 1109T;

g) the illegality of the assessment act of Value Added Tax no. 2015 ..., in the amount of € 7,088.96, relating to period 1112T;

h) the illegality of the assessment act of Interest in the amount of € 800.17, corresponding to the Collection Document - 2nd Copy 2015 ...;

i) the illegality of the additional assessment act of Value Added Tax no. 2015 ..., in the amount of € 3,124.66, relating to period 1203T;

j) the illegality of the additional assessment act of Compensatory Interest, in the amount of € 321.88, corresponding to the Collection Document - 2nd Copy 2015 ...;

k) the illegality of the additional assessment act of Value Added Tax no. 2015 ..., in the amount of € 36,759.91, relating to period 1206T;

l) the illegality of the additional assessment act of Compensatory Interest, in the amount of € 3,412.12, corresponding to the Collection Document - 2nd Copy 2015 ...;

m) the illegality of the additional assessment act of Value Added Tax no. 2015 ..., in the amount of € 5,398.23, relating to period 1209T;

n) the illegality of the assessment act of Compensatory Interest, in the amount of € 447.23, corresponding to the Collection Document - 2nd Copy 2015 ...;

o) the illegality of the additional assessment act of Value Added Tax no. 2015 ..., in the amount of € 5,363.60, relating to period 1212T;

p) the illegality of the assessment act of Compensatory Interest no. 2015..., in the amount of € 390.29, corresponding to the Collection Document - 2nd Copy 2015 ...;

q) the illegality of the additional assessment act of Value Added Tax no. 2015 ..., in the amount of € 14,338.38, relating to period 1306T;

r) the illegality of the additional assessment act of Compensatory Interest no. 2015..., in the amount of € 757.32, corresponding to the Collection Document - 2nd Copy 2015 ...;

s) the illegality of the additional assessment act of Value Added Tax no. 2015 ..., in the amount of € 35,533.22, relating to period 1309T;

t) the illegality of the assessment act of Compensatory Interest, in the amount of € 1,522.57, corresponding to the Collection Document - 2nd Copy 2015 ....

  1. The request for constitution of the arbitral tribunal was accepted on 11 July 2015, by His Excellency the President of CAAD and, subsequently, notification of the Tax and Customs Authority (hereinafter identified as the Respondent Entity) was carried out.

  2. Pursuant to the provisions of Article 6, no. 2, paragraph a) and Article 11, no. 1, paragraph b) of the RJAT, the Deontological Council appointed as arbitrators the signatories, who communicated acceptance of the office within the applicable time period.

  3. On 27 August 2015, the Parties were notified of this appointment, and did not manifest the intention to refuse the appointment of the arbitrators, pursuant to the combined provisions of Article 11, no. 1, paragraphs a) and b) of the RJAT and Articles 6 and 7 of the Deontological Code.

  4. Thus, in accordance with the provision of Article 11, no. 1, paragraph c) of the RJAT, the collective arbitral tribunal was constituted on 11 September 2015.

  5. On 21 October 2015, the Respondent Entity submitted its Response and attached the administrative file.

  6. On 19 November 2015, the meeting of Article 18 of the RJAT took place.

  7. On 15 December 2015, witness examination was conducted and the parties presented their oral arguments.

  8. The Claimant supports its request for annulment of the tax assessment acts of additional VAT and the respective Compensatory Interest contested on the basis of the unconstitutionality of the Normative Dispatch no. 118/85, of 31 December, and also on the grounds that the activities in question are exempt pursuant to Article 9 of the VAT Code;

  9. The Claimant argues that Normative Dispatch no. 118/85 constitutes a mere regulatory norm which, as such, must be limited to the bounds imposed by the law it purports to interpret and regulate, and therefore number 4 of the dispatch is unconstitutional as it establishes limits to the scope of application of the exemption laid down in no. 20 of Article 9 of the VAT Code, in violation of the principle of legal reserve;

  10. The Claimant further argues that the activities it carries out are exempt from VAT pursuant to no. 20 of Article 9 of the VAT Code, given that they involve transfers of goods and provision of services effected by an entity whose habitual activity is exempt pursuant to no. 19 of the same provision.

  11. The Claimant alleges that the two festivities it organizes, given their nature, should be considered as a "single and indivisible whole". Thus it qualifies the festivities "..." and "..." as "occasional manifestations", pursuant to no. 20 of Article 9 of the VAT Code.

  12. The Claimant also petitions, and as a consequence of the annulment of the said assessments, the recognition of the right to compensatory interest, in its favour, pursuant to Article 43 of the General Tax Law (LGT), and reimbursement of the amounts paid.

  13. The Respondent Entity considers that the Claimant cannot benefit from the laid-down exemption, as it does not habitually exercise any of the activities to which the norm refers – "entities whose habitual activities are exempt pursuant to nos. 2, 6, 7, 8, 9, 10, 12, 13, 14 and 19 of this article" and because it cannot have as its habitual and primary activity an activity coinciding with an occasional activity;

  14. Notwithstanding the Respondent Entity's view that the assessment of the defects imputed by the Claimant to Normative Dispatch no. 118/85 is prejudiced by the above, it adds that this Dispatch merely serves to specify the concept of occasional manifestations present in no. 20 of Article 9 of the VAT Code, and also that the Claimant did not make any communication to the Tax Authority pursuant to that same dispatch;

  15. Furthermore, the Respondent Entity considers that, where VAT exemptions are concerned, a general principle of strict interpretation applies, insofar as exemptions constitute derogations from the general rule of subjection to tax, interpretation must be carried out in conformity with the objectives pursued by the said exemptions and respecting the requirements of the principle of fiscal neutrality, which was not verified given that the exemption in question was not intended to exempt the primary activities of the taxpayers.

II. SANITATION

The Tribunal is materially competent and is duly constituted, pursuant to Articles 2, no. 1, paragraph a), 5, and 6, all of the RJAT.

The parties have legal personality and capacity, are legitimately constituted and are represented, pursuant to Articles 4 and 10 of the RJAT and Article 1 of Ordinance no. 112-A/2011, of 22 March.

No nullities are present, and therefore it is necessary to adjudicate the merits of the request.

III. OBJECT OF THE ARBITRAL DECISION

The following questions are raised before the Tribunal, pursuant to the above description:

i. classification of a set of services provided and transfers of goods effected by the Claimant in the exemption provided for in number 20 of Article 9 of the VAT Code and the consequent annulment of the acts of additional VAT assessment and the respective compensatory interest contested;

ii. reimbursement of the amounts paid and recognition of the right to compensatory interest.

IV. FACTUAL MATTER

Proven Facts

  1. The following facts are considered proven:

i) The Claimant has as its object "the organization and promotion of parties and other recreational cultural events, namely, the organization and realization of municipal festivities, traditionally denominated "..." and, additionally also has, as its function the carrying out of recreational, cultural and sports activities, designated as "..." (cf. p. 146 of the Tax Inspection Report attached to the administrative file and Articles 28 and 31 of the arbitral request);

ii) The Claimant was constituted by public deed executed at the Notary's Office of ..., on 16 January 2001 (cf. p. 146 of the Tax Inspection Report attached to the administrative file);

iii) The Claimant annually organizes the festivities of "...", which take place in September and "..." which takes place in June (cf. testimony of witnesses B..., C... and D...);

iv) The "..." are an old tradition of the municipality of ... and consist of a multiplicity of recreational, cultural and sports events, all, notwithstanding their diversity, integrated in the said festivities;

v) The "..." consists of a multiplicity of recreational, cultural and sports activities;

vi) The Claimant's revenues include (cf. pp. 146 and 147 of the Tax Inspection Report attached to the administrative file):

a) membership fees and contributions, the amount of which shall be fixed at the General Assembly;

b) any donations or subsidies granted to it;

c) fees charged for the provision of services;

d) proceeds from the sale of publications, pamphlets and other objects and promotional materials;

e) collection of tickets for entry to performances and/or activities promoted by the association;

f) donations or testamentary bequests and of movable or immovable property or any other goods.

vii) The members of the Claimant are the Municipal Chamber of ... and E... (cf. p. 147 of the Tax Inspection Report attached to the administrative file);

viii) The Claimant was subject to an inspection action in compliance with Service Order no. OI2014..., of 17 June 2014, initiated on 2 September 2014 and completed on 13 November 2014 (cf. p. 146 of the Tax Inspection Report attached to the administrative file);

ix) The inspection action was of general scope and concerned the years 2011, 2012 and 2013 (cf. p. 146 of the Tax Inspection Report attached to the administrative file);

x) The Claimant is classified, for VAT purposes, under the Normal Quarterly Regime (cf. p. 151 of the Tax Inspection Report attached to the administrative file);

xi) In the course of the inspection procedure, the Finance Service of ... informed by e-mail that "(…) that A... NIPC ..., made no communication pursuant to Normative Dispatch no. 118/85, of 31 December, periods from 2008 to 2013" (cf. p. 153 of the Tax Inspection Report attached to the administrative file);

xii) The adjustments in the VAT context resulted from the consideration by the inspection services of the following income which they qualified as income subject to VAT and not exempt (the items for which the Claimant proceeded with the assessment of VAT are identified with the designation "with VAT assessment" - cf. pp. 161, 168 and 177 of the Inspection Report attached to the administrative file):

With reference to the year 2011

[Table content preserved from original]

With reference to the year 2012

[Table content preserved from original]

With reference to the year 2013

[Table content preserved from original]

xiii) The inspection action resulted in adjustments to VAT and CIT for the years 2011, 2012 and 2013, in the following amounts (cf. p. 179 of the Inspection Report attached to the administrative file):

[Tables preserved from original with same data]

xiv) In implementation of the adjustments determined within the scope of the inspection action, the following acts of additional VAT assessment and Compensatory Interest were issued:

a) act of additional assessment of Value Added Tax no. ..., in the amount of € 248.10, relating to period 1103T;

b) act of assessment of Compensatory Interest no. ..., in the amount of € 35.29, relating to period 1103T;

c) act of additional assessment of Value Added Tax no. ..., in the amount of € 11,217.31, relating to period 1106T;

d) act of assessment of Compensatory Interest no. ..., in the amount of € 1,482.53, relating to period 1106T;

e) act of additional assessment of Value Added Tax no. ..., in the amount of € 33,344.07, relating to period 1109T;

f) act of assessment of Compensatory Interest no. ..., in the amount of € 4,070.72, relating to period 1109T;

g) act of assessment of Value Added Tax no. 2015 ..., in the amount of € 7,088.96, relating to period 1112T;

h) act of assessment of Interest in the amount of € 800.17, corresponding to the Collection Document - 2nd Copy 2015 ...;

i) act of additional assessment of Value Added Tax no. 2015 ..., in the amount of € 3,124.66, relating to period 1203T;

j) act of additional assessment of Compensatory Interest, in the amount of € 321.88, corresponding to the Collection Document - 2nd Copy 2015 ...;

k) act of additional assessment of Value Added Tax no. 2015 ..., in the amount of € 36,759.91, relating to period 1206T;

l) act of additional assessment of Compensatory Interest, in the amount of € 3,412.12, corresponding to the Collection Document - 2nd Copy 2015 ...;

m) act of additional assessment of Value Added Tax no. 2015 ..., in the amount of € 5,398.23, relating to period 1209T;

n) act of assessment of Compensatory Interest, in the amount of € 447.23, corresponding to the Collection Document - 2nd Copy 2015 ...;

o) act of additional assessment of Value Added Tax no. 2015 ..., in the amount of € 5,363.60, relating to period 1212T;

p) act of assessment of Compensatory Interest no. 2015..., in the amount of € 390.29, corresponding to the Collection Document - 2nd Copy 2015 ...;

q) act of additional assessment of Value Added Tax no. 2015 ..., in the amount of € 14,338.38, relating to period 1306T;

r) act of additional assessment of Compensatory Interest no. 2015..., in the amount of € 757.32, corresponding to the Collection Document - 2nd Copy 2015 ...;

s) act of additional assessment of Value Added Tax no. 2015 ..., in the amount of € 35,533.22, relating to period 1309T;

t) act of assessment of Compensatory Interest, in the amount of € 1,522.57, corresponding to the Collection Document - 2nd Copy 2015 ....

xv) The Claimant made payment of the tax assessed by the acts whose legality it contests on 2 April 2015 (cf. Documents 1 to 8, 10, 11, 13, 14, 16, 17, 19, 20, 22, 23, 25 and 26 attached to the arbitral request);

The factual matter given as proven is based on documentary evidence produced and the testimony of witnesses B..., C... and D..., who as members of the festivities committee testified regarding the manner of organization of the Claimant and the nature and characteristics of the events organized by it, designated as "..." and "...".

Unproven Facts

Of the facts with interest for the decision of the case, contained in the arbitral decision request and the response, all objects of concrete analysis, those not contained in the factuality above described were not proven.

V. ON THE LAW

  1. The first question under consideration in the present proceedings concerns the classification of the services and transfers of goods effected by the Claimant and subject to adjustment by the Inspection Services, in the exemption provided for in number 20 of Article 9 of the VAT Code.

The Tax Inspection Services considered taxable the following operations: sale of goods (stall), provision of services related to performances, registration of sports activities, provision of space/rental of terrain, stands, parking lot, and also sponsorships.

The performance of the said operations is not questioned in the present proceedings, being only in issue their tax classification.

Whereas the Tax Authority considers that the said provision of services and transfers of goods are operations subject to tax, in general terms, the Claimant argues that they are operations exempt from VAT, pursuant to number 20 of Article 9 of the VAT Code because they are transfers of goods and provision of services effected by an entity whose habitual activity is exempt pursuant to no. 19 of the same provision.

According to number 20 of Article 9 of the VAT Code, the following are exempt from this tax: "Transfers of goods and provision of services effected by entities whose habitual activities are exempt pursuant to nos. 2), 6), 7), 8), 9), 10), 12), 13), 14) and 19) of this article, on the occasion of occasional manifestations intended to raise funds for their exclusive benefit, provided that this exemption does not cause distortions of competition;".

This provision, which corresponds to paragraph o) of Article 132 of Council Directive 2006/112/EC, exempts the "provision of services and transfers of goods intended to raise funds, on the occasion of manifestations held for that purpose, by taxable persons who carry out activities exempt pursuant to paragraphs b) (hospital establishments), g) (assistance and social security establishments), h) (child and youth protection establishments), i) (education, teaching and vocational training establishments), l) (non-profit organizations with political, union, religious, patriotic, etc. objectives), n) (sports clubs or associations), n) (cultural organizations)" (DE BASTO, José Guilherme Xavier - Consumption Taxation and Its International Coordination, Cahiers de Science et Technique Fiscale (164), Lisbon, 1991, p. 239).

Thus, exempt from VAT are the provision of services and transfers of goods:

i) effected by entities whose habitual activities are exempt pursuant to the identified numbers of Article 9 of the VAT Code;

ii) on the occasion of occasional manifestations intended to raise funds for their exclusive benefit;

iii) provided that this exemption does not cause distortions of competition.

It is therefore necessary to first verify whether the habitual activities carried out by the Claimant are exempt pursuant to the identified numbers of Article 9 of the VAT Code, more specifically pursuant to number 19 of the same provision, as invoked by the Claimant.

  1. Indeed, the Claimant argues in its petition that its habitual activity is exempt pursuant to no. 19 of Article 9 of the VAT Code, a provision which exempts the activities of certain non-profit organizations in the collective interest of its members.

Exempt from VAT, pursuant to the said number 19 are: "The provision of services and transfers of goods connected therewith carried out in the collective interest of its members by non-profit organizations, provided that those organizations pursue objectives of a political, union, religious, humanitarian, philanthropic, recreational, sports, cultural, civic nature or representation of economic interests and the sole consideration is a contribution fixed in accordance with the statutes".

This exemption has its basis in turn in paragraph l) of Article 132 of Council Directive 2006/112/EC, according to which exempt from VAT are "the provision of services, as well as the transfers of goods closely connected therewith, carried out to the respective members in the collective interest by non-profit organizations that pursue objectives of a political, union, religious, patriotic, philosophical, philanthropic or civic nature through contributions fixed in the statutes, provided that such exemption is not likely to cause distortions of competition".

For the exemption to apply, three requirements must be met:

i) that the provision of services or transfers of goods are effected by a non-profit organization, in pursuit of one of the identified purposes;

ii) that the operations be carried out in the collective interest of the members of that organization;

iii) that the sole consideration be a contribution fixed in accordance with the statutes.

The definition of non-profit organization for VAT purposes is specified in Article 10 of the VAT Code. The analysis carried out in the inspection report regarding the classification of the Claimant for VAT purposes presupposes that the Tax Authority does not challenge the qualification of the Claimant as a non-profit organization for this purpose. As for the purposes pursued, which are materialized in the organization of municipal festivities, it resulted clearly from the evidence produced, in particular from the testimony given, the religious, sports, recreational, cultural and civic nature of the said festivities.

As to the condition that the services be provided in the collective interest of the members, this concept was specified, as already advanced, in the cited Directive as operations carried out by the organization to its respective members in the collective interest.

This condition "refers to categories of provision of services that ensure the pursuit of the purposes of the organizations, considering the circumstances that led to their creation and the reasons which, in average and objectively considered terms, led the set of beneficiaries of the services to become members of or to become a member of a given organization." (LAIRES, Rui – VAT Exemptions in Cultural, Educational, Recreational, Sports Activities and Medical or Social Assistance, IDEFF, no. 14, p. 290).

The present Claimant has only two members, the Municipal Chamber of ... and E... (cf. p. 147 of the Tax Inspection Report attached to the administrative file).

It has as its object "the organization and promotion of parties and other recreational cultural events, namely, the organization and realization of municipal festivities, traditionally denominated "..."", which are materialized in the annual organization of the festivities of "..." and of "..." (cf. p. 146 of the Tax Inspection Report attached to the administrative file).

No concrete services provided by the Claimant are identified in the case which could be classified under this provision.

The provision of services and transfers of goods related to the holding of the above-mentioned festivities constitute operations that are not effected for the members, but for the general public.

Now, as results from the above, in order for the second of the requirements for application of this exemption to be considered met, the services provided must be for the respective members, a requirement which cannot be considered met when the beneficiaries of the services are not the members of the organization (in this case, the Claimant's members), but rather the participants and visitors at the festivities.

Without prejudice to the above, neither could the third of the requirements be considered met in the present case, from which results as a condition that the sole consideration be a contribution fixed in accordance with the statutes. It is important to note that this condition does not establish that "the organization in question, in relation to all its activity, could only obtain consideration in the form of contributions, but rather that only are exempt the provision of services whose sole consideration is the contribution" (LAIRES, Rui – VAT Exemptions in Cultural, Educational, Recreational, Sports Activities and Medical or Social Assistance, IDEFF, no. 14, p. 290).

This understanding appears also to be endorsed by the Tax Authority which pursuant to Dispatch P ..., of 19 October 2015 concludes that in order to benefit from the exemption under review "it is an essential condition that the taxable person be a non-profit organization, in accordance with the definition provided for in Article 10 of the VAT Code, and that by pursuit of such activities, the sole consideration be a contribution fixed in accordance with the respective Statutes. Thus, any activity that goes beyond the contribution is not contemplated in the exemption"(in Inforfisco).

In sum, at no time are any services provided by the Claimant identified in the case, in the collective interest of its members, covered solely by contributions that guarantee access to those same services.

Only this identification would allow the conclusion that the Claimant habitually carries out activities that are exempt pursuant to number 19 of Article 9 of the VAT Code.

The operations carried out by the Claimant within the scope of the festivities of "..." and of "..."- which constitute its object - are consequently not occasional, do not have as beneficiaries its members, and do not have as sole consideration the contributions of those same members.

Thus, it is not demonstrated that the Claimant performs operations covered by the exemption provided for in number 19 of Article 9 of the VAT Code, which is in turn a condition for the application of the exemption provided for in number 20 of the same legal provision.

  1. Furthermore, the requirements for application of the exemption laid down in number 20 of Article 9 of the VAT Code are not met in the present case, given that the festivities in question do not constitute occasional manifestations but rather the main object of the Claimant's activity.

This exemption contemplates "the holding of events, with exceptional character, which have as their purpose the obtaining of financial resources for the entities in question, events susceptible of taking various types of initiatives, among these the organization of parties, performances, fraternizations, exhibitions and other manifestations of a cultural, recreational or sports character, which sometimes include the sale or service of foodstuffs, the holding of bazaars or raffles" (cf. LAIRES, Rui – VAT Exemptions in Cultural, Educational, Recreational, Sports Activities and Medical or Social Assistance, IDEFF, no. 14, p. 293).

The holding of municipal festivities – "..." and "..." – do not constitute exceptional events for the obtaining of funds, but rather, and as results from the proven facts, the ultimate purpose of the Claimant's activity.

Against the above, the argument invoked by the Claimant does not hold that the two festivities it organizes, given their nature, should be considered as a "single and indivisible whole", which in its view allows it to classify the festivities "..." and "..." as "occasional manifestations", pursuant to and for the purposes of number 20 of Article 9 of the VAT Code.

The concept of occasional manifestations presupposes that they have a sporadic and eventual character, that they are extraordinary events, and cannot be confused with the activity itself of the taxable person.

The concept of occasional manifestations cannot encompass the activities that the Claimant carries out every year and for which it was constituted, namely to ensure the holding and promotion of municipal festivities, even if each festivities only takes place once per year.

In sum, the concept of occasional manifestations cannot be interpreted as encompassing the primary (and only) activity of the Claimant.

It is thus concluded that the festivities "..." and "..." do not constitute "occasional manifestations" pursuant to and for the purposes of number 20 of Article 9 of the VAT Code, as they constitute the object of the Claimant.

We are not required to assess the alleged unconstitutionality of Normative Dispatch no. 118/85, of 31 December.

In the context of constitutionality, it is not for this tribunal to exercise abstract review, which is reserved as it is by the Constitution of the Portuguese Republic (Article 281) to the Constitutional Court.

What the tribunal cannot do is apply norms that are not in conformity with the Constitution of the Portuguese Republic (Article 204). Nor, naturally, can it fail to censure the action of the Tax Authority when this is founded on unconstitutional norms, or applies norms interpreting them in a manner as to bring them into collision with the Constitution of the Portuguese Republic.

Which is not the case, as the Tax Authority did not base the impugned acts on the mentioned Normative Dispatch, did not apply it, merely made reference to it from which it then drew no consequences.

Nor, it should be said in passing, could it draw them, already because there were not in question transfers of goods and/or provision of services as provided for in number 20 of Article 9 of the VAT Code, and because the Claimant, by not being exempt pursuant to number 19 of the same article, could never benefit from the provision of number 20.

In sum, the Tax Authority, although referencing the Normative Dispatch and the absence of communication by the Claimant, what it did was assess the missing tax as it relates to operations subject and not exempt, already that the Claimant does not enjoy the exemption of number 19 of Article 9 and, consequently, neither the exemption of number 20 of the same article, it being certain that it was proven that the operations carried out do not fall within the provision of the said number 20.

In light of the above, the requests for annulment of the VAT and Compensatory Interest assessment acts contested are judged to be without merit.

  1. The last question that must be assessed concerns the right to reimbursement of the amounts paid, increased by compensatory interest.

As the illegality of the tax and interest assessments contested was not recognized, the payment of undue tax performance was not demonstrated pursuant to Article 43 of the General Tax Law, and therefore there is no basis for the requested reimbursement, nor for the payment of compensatory interest pursuant to law.

In light of the above, it is concluded that the arbitral decision request is wholly without merit.

VI. DECISION

Whereupon the Arbitral Tribunal hereby agrees to:

i) judge without merit the requests for annulment of the VAT and Compensatory Interest assessment acts contested;

ii) judge without merit the request for reimbursement of the amounts paid by the Claimant; and

iii) judge without merit the request for condemnation of the Tax and Customs Authority in the payment of compensatory interest.

The value of the case is fixed at € 165,656.56 (one hundred sixty-five thousand, six hundred and fifty-six euros and fifty-six cents), pursuant to Article 97-A of the Code of Tax Procedure and Process, applicable by virtue of the provisions of paragraphs a) and b), of number 1 of Article 29 of the RJAT, and number 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

Costs, in the amount of € 3,672.00 (three thousand six hundred and seventy-two euros), pursuant to Table I of the RCPAT, at the charge of the Claimant given that the present request was judged without merit, and in compliance with the provisions of number 2 of Article 12, and number 4 of Article 22, both of the RJAT, and the provisions of number 4 of Article 4 of the aforementioned Regulation.

Notify.

Lisbon, 11 February 2016

[Text prepared by computer, pursuant to Article 131, number 5 of the Code of Civil Procedure (CPC), applicable by referral of Article 29, no. 1, paragraph e) of the RJAT, with blank lines and reviewed by the signatories].

The Arbitrators

(José Baeta Queiroz)
(arbitrator-president)

(Susana Maria Afonso Claro)
(arbitrator-rapporteur)

(Ana Moutinho Nascimento)
(arbitrator-rapporteur)

Frequently Asked Questions

Automatically Created

What are the legal grounds for challenging additional VAT (IVA) assessments before the CAAD arbitral tribunal?
Legal grounds for challenging additional VAT assessments before the CAAD arbitral tribunal include filing a request under Articles 2 and 10 of Decree-Law 10/2011 (RJAT - Legal Regime for Arbitration in Tax Matters) in conjunction with Article 102 of the Code of Tax Procedure and Process (CPPT). Claimants can contest the illegality of assessment acts based on incorrect application of VAT exemptions, unconstitutionality of regulatory norms (such as normative dispatches), violation of fundamental tax principles including legal reserve and fiscal neutrality, and procedural irregularities. The arbitral tribunal has competence to review both the substantive legality of tax assessments and the validity of underlying regulatory instruments, providing taxpayers an alternative dispute resolution mechanism to traditional court litigation.
How does the VAT exemption regime apply to services under Portuguese tax law?
The VAT exemption regime for services under Portuguese tax law is codified primarily in Article 9 of the VAT Code, which lists specific exempt activities. Exemptions are interpreted strictly as derogations from the general rule of taxability, consistent with EU law principles. Article 9(20) provides exemption for occasional manifestations (transfers of goods and provision of services) by entities whose habitual activities are exempt under specified paragraphs including Article 9(19). Normative Dispatch 118/85 attempts to define 'occasional manifestations' but faces constitutional challenges for allegedly exceeding regulatory authority. Exemptions must respect fiscal neutrality principles, meaning similar economic activities should receive similar tax treatment. The exemption regime requires entities to demonstrate both habitual engagement in exempt activities and that contested transactions constitute genuine occasional events rather than primary business operations.
Can compensatory interest be annulled together with the underlying additional VAT assessment?
Yes, compensatory interest can be annulled together with the underlying additional VAT assessment. Under Article 43 of the General Tax Law (LGT), compensatory interest constitutes an accessory obligation dependent on the principal tax debt. When the principal assessment is declared illegal and annulled by the arbitral tribunal, the legal basis for compensatory interest simultaneously disappears. In Process 401/2015-T, the claimant specifically requested annulment of both the additional VAT assessments and corresponding compensatory interest acts for all contested periods. Each tax period involved separate assessment acts for principal VAT and compensatory interest, but both are challenged jointly as the interest lacks independent legal foundation without the underlying tax obligation. Upon successful annulment, taxpayers are entitled to reimbursement of amounts paid plus compensatory interest in their favor calculated from payment date.
What is the procedure for filing an arbitral claim under Decree-Law 10/2011 (RJAT) for VAT disputes?
The procedure for filing an arbitral claim under Decree-Law 10/2011 (RJAT) for VAT disputes involves several stages: (1) submission of a request for arbitral decision to CAAD identifying contested acts and legal grounds; (2) acceptance by the CAAD President and notification of the Tax and Customs Authority as respondent; (3) appointment of arbitrators by the Deontological Council under Article 6(2)(a) and Article 11(1)(b) of RJAT, with parties notified and given opportunity to refuse appointments; (4) constitution of the arbitral tribunal after the refusal period expires; (5) submission of the Tax Authority's response with the administrative file; (6) an Article 18 RJAT meeting for procedural organization; (7) evidence gathering including witness examination if necessary; (8) oral arguments by both parties; and (9) issuance of the arbitral decision. The tribunal must be materially competent and duly constituted, with parties having proper legal personality, capacity, and legitimate standing.
What are the time limits and periods covered when contesting multiple VAT additional assessments in a single arbitral proceeding?
Portuguese tax arbitration law permits taxpayers to contest multiple VAT additional assessments covering different tax periods within a single arbitral proceeding when the assessments arise from the same factual circumstances and legal issues. In Process 401/2015-T, the claimant challenged assessments spanning from period 1103T (March 2011) through 1309T (September 2013), encompassing approximately 2.5 years across multiple quarterly tax periods. Each period involved separate assessment acts for additional VAT and compensatory interest, totaling over 20 individual contested acts consolidated in one arbitration. This procedural economy is permitted when all assessments share common legal grounds—here, the application of VAT exemptions under Article 9(20) and constitutionality of Normative Dispatch 118/85. Time limits for filing arbitration requests are governed by general administrative procedure rules, and consolidation prevents contradictory decisions while reducing litigation costs and duration for both taxpayers and tax administration.