Summary
Full Decision
ARBITRAL DECISION
The Arbitrator Regina de Almeida Monteiro, designated by the Ethics Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 06-11-2018, decides as follows:
I - Report:
On 24-08-2018 the commercial company A..., Lda, Collective Person Identification Number ..., with registered office at Rua ..., in ...–...–..., ... filed a request for constitution of an Arbitral Tribunal, in accordance with Decree-Law no. 10/2011, of 20 January, hereinafter RJAT.
The Respondent is the TAX AND CUSTOMS AUTHORITY
The Claimant seeks that the legality of the decision to dismiss the Hierarchical Appeal no. ...2017..., issued on 04 June 2018, notified to the Claimant on 11 June 2018, filed against the additional VAT assessment no. ..., issued on 09/01/2016 and the Account Settlement Statement no. 2016..., relating to the tax period of March 2014, in the amount of €5,585.54 (five thousand five hundred and eighty-five euros and fifty-four cents) be assessed, and further seeks the declaration of annulment of the additional VAT assessment no. ..., issued on 09/01/2016 and the account settlement statement no. ... relating to the period of March 2014.
The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and notified to the Tax and Customs Authority on 30-08-2018.
Pursuant to paragraph a) of section 2 of article 6 and paragraph b) of section 1 of article 11 of RJAT, the Ethics Council designated the undersigned as arbitrator, who communicated acceptance of the assignment within the applicable deadline and notified the parties of such designation.
On 15-10-2018, the parties were duly notified of this designation, and did not express any intent to challenge the designation of the arbitrator, in accordance with the combined provisions of article 11, section 1, paragraphs a) and b) of RJAT and articles 6 and 7 of the Ethics Code.
Thus, in accordance with the provision in paragraph c) of section 1 of article 11 of RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the single arbitral tribunal was constituted on 06-11-2018.
On 07-11-2018 the tribunal notified the parties of the waiver of the meeting provided for in art. 18 of RJAT and the waiver of the requirement to submit written submissions.
The arbitral tribunal was duly constituted, in accordance with the provisions of articles 2, section 1, paragraph a), and 10, section 1, of Decree-Law no. 10/2011, of 20 January.
The Parties are duly represented, have legal personality and capacity, are entitled to sue and are represented (articles 4 and 10, section 2, of the same legal instrument and article 1 of Order no. 112-A/2011, of 22 March).
The proceedings are not subject to any nullities.
II - Factual Matter
1. Proven Facts
The factual matter relevant to the decision of the case is as follows:
A. The Claimant is a limited liability company whose object is, among other activities, civil construction and public works, general contracting and the preparation of projects for industrial installation in the energy sector. It has been registered with the Tax Office of ..., code 2720, since 01-05-1980 for the principal activity of "Other specialized construction activities, N.E.", within CAE 43992 and the secondary activity of "Engineering and related technical activities", within CAE 71120.
B. For VAT purposes it is a taxable person in accordance with article 2, section 1, c) of the VAT Code (CIVA), and at the date of the facts was subject to the normal regime with monthly periodicity and subject to compliance with the declarative obligations set forth in paragraph c) of section 1 of article 29 of CIVA, namely the submission of periodic VAT returns.
C. In compliance with Service Order OI2015..., of 20 August 2015, the Tax Inspection Services (SIT) of the Finance Directorate of ... initiated an inspection action for the year 2014, beginning on 03-09-2015 and ending on 18 November 2015, motivated by "Action to control VAT regularizations in favor of TP - field 40 of DP"
D. Within the scope of this inspection action, the Tax and Customs Administration made corrections in VAT, resulting in the issuance of an additional VAT assessment no. ... relating to the period of March 2014, in the amount of €5,585.54, relating to the period
E. The Claimant on 21-06-2010 entered into a contract with B... NIPC ... for the provision of services, relating to the civil construction project of C..., in ..., which amounted, according to the budget proposal no. 2010..., to the value of €88,659.42, plus VAT at the legal rate in force (at that time, 21%), and with respect to payment terms, it was agreed to make a down payment corresponding to 30% of the total price.
F. The B..., made a down payment of 30% of the total price, corresponding to €32,183.37 (VAT included in the value of €5,585.54), which gave rise to the issuance of invoice no. 797/FA10, of 11-11-2010 and the remittance to the State, by the Claimant, of the VAT charged, in the value of €5,585.54.
G. On the date of issuance of the aforementioned invoice the B..., was exempt from VAT, under article 9 of CIVA, which is why reverse charge did not apply with respect to the taxable person.
H. Since 05-01-2014 the B..., customers of the Claimant became a mixed taxable person carrying out economic operations exempt and non-exempt from VAT.
I. To regularize the value of the down payment received in 2010, and for which the Claimant issued on 11-11-2010 invoice no. 797/FA10, in which it determined VAT in the amount of €5,585.54.
J. Upon invoicing of 30% of the services provided, which occurred on 28.03.2014, the Claimant proceeded to determine the tax, in the value of 5,585.54 EUR and recognized the provision of services in the amount of €26,597.83, recording a debit in the customer's current account the total value of the invoice, of 26,597.83 EUR. In the same document, it proceeded to regularize the down payment, recording in the VAT regularizations account the value of the tax, and crediting the customer's current account having issued invoice no. 3171001679, to cancel and replace invoice no. 797/FA10, of 11-11-2010.
K. In this invoice no. 3171002467 on 15-12-2015 the Claimant mentioned VAT, and did not refer to "VAT - Self-liquidation".
L. This invoice was reported by the Claimant in the periodic VAT return for March 2014, by entering a value of taxable base and VAT charged, in fields 3 and 4, of €26,597.83 and €5,585.54, respectively, and a VAT regularization in its favor, considered in field 40, in the value of €5,585.54 (VAT rate of 21%, rate in force on 11-11-2010).
M. The Claimant's customer, B..., purchaser of its services did not receive or record this invoice, did not become aware of the regularization of the aforementioned invoice.
N. The TA, within the scope of the inspection process states that "the regularization in favor of TP, carried out in field 40 of DP relating to the period 2014-03, based on invoice no. 317100679 dated 2014-03-28, in the value of 5,585.54 EUR, appears to be improper". And it considers that in invoice no. 3171001679, of 28-03-2014, the Claimant should have included the mention "VAT - self-liquidation", there being no place for the charging of VAT, but as the latter was improperly considered by it in the invoice, it should have delivered it to the State's coffers, by force of paragraph c) of section 1 of article 2 of CIVA;
O. Having the TA considered in the course of the Inspection Process that the regularization in favor of the taxable person effected on the basis of this invoice, considered in field 40 of the periodic VAT return for March 2014, of VAT in the value of €5,585.54, appears to be improper because the Claimant is not in possession of proof that the purchaser became aware of the rectification or that it was reimbursed the tax.
P. Then, and considering this understanding of the TA, on 15-12-2015 the Claimant proceeded to issue a new invoice with no. 3171002467, to cancel and replace invoice no. 3171001679 of 28-03-2014.
Q. The Claimant upon issuing this invoice with no. 3171002467 cancelled invoice no. 3171001679 of 28-03-2014. In this invoice the Claimant includes the description "VAT Self-liquidated". The Claimant did not issue a credit note in favor of customer B..., and chose to mention in the invoice itself the cancellation of invoice no. 3171001679.
R. The Claimant acted in accordance with FAQ 12-0957 - Down payments - tax exigibility, contained in the Tax Portal. It did not proceed, as mentioned, to issue a credit note for regularization of the down payment, upon completion of the operation because in the invoice itself it considered the existence of the down payment and the cancellation and replacement of invoice 3171001679 of 28-03-2014.
S. On the same date the Claimant proceeded to replace the DP relating to that period (March 2014) and reported this invoice with no. 3171002467 in the periodic VAT return for the month of March 2014, by entering a value of taxable base and VAT charged, in fields 3 and 4, of 26,597.83 EUR and 5,585.54 EUR, respectively, and a regularization in its favor, considered in field 40 of VAT in the value of 5,585.54 EUR.
T. The Claimant's customer, the Institute of B..., purchaser of its services did not receive or record this invoice, did not become aware of the rectification of the cancelled invoice.
U. In the Inspection Report, of 18-12-2015 the Inspection Services understood that "the regularization in favor of TP, carried out in field 40 of DP relating to the period 2014-03, based on invoice no. 317100679 dated 2014-03-28, in the value of 5,585.54 EUR, appears to be improper.
V. When the Inspection Report Project was notified, the Claimant exercised its respective right to a hearing, having for such purpose made known the facts relevant to the appreciation of the proposed correction, namely the description of the correction procedures undertaken by it regarding the invoicing and completion of the periodic VAT return of replacement.
W. The Inspection Services did not take into account the correction procedures carried out by the Claimant, maintaining in the Final Tax Inspection Report dated 18-12-2018, the proposed corrections and the additional assessment in the amount of the charged tax of €5,585.54 and issuing, consequently, the additional VAT assessment no. ... and the Account Settlement Statement no. 2016..., in that amount.
X. In May 2016, the Claimant filed a Tax Review against this additional assessment, having been notified of its dismissal, issued in the dismissal order of 24-11-2017, issued by the Head of Division of the Finance Directorate of ..., under delegation of authority.
In this dismissal the TA alleged, in summary, that "15. When correcting the VAT DP, by submitting a new DP, the claimant did not comply with the provisions set forth in section 5 of article 78 of CIVA, that is, when the taxable value of an operation or the respective tax undergo rectification for less, the regularization in favor of the taxable person can only be effected when this person has in their possession proof that the purchaser of services became aware of the rectification or of the reimbursement of the tax; as this fact did not occur, the tax deducted becomes improper; 16. The regularization carried out in field 40 of the replacement VAT DP thus appears to be improper."
Y. Disagreeing with this tax review dismissal order, the Claimant filed a Hierarchical Appeal, which was subject to dismissal, with the TA concluding that: "From the analysis of the submissions presented under this hierarchical appeal, it is found that no facts and/or documents were added relative to those that had previously been invoked and assessed by the Tax and Customs Authority (TA) under tax review and inspection; (...) Thus, it is proposed that this HIERARCHICAL APPEAL BE DISMISSED".
2. Unproven Facts
There are no facts relevant to the decision that have not been proven.
3. Grounds for the Determination of Factual Matter
The proven facts are based on documents submitted by the Claimant and on the Tax Inspection Process and documents attached to that process submitted by the Tax and Customs Authority.
There is no controversy regarding the factual matter.
4. Legal Matter
The essential issue that is the subject of this proceeding is to decide whether the decision issued by the TA in the hierarchical appeal Hierarchical Appeal no. ...2017..., issued on 04 June 2018 should or should not be considered annulled and whether the Additional VAT Assessment no. ..., issued on 09-01-2016 and the Account Settlement Statement no. 2016 ... should be annulled or, as the Respondent intends, should be maintained in the legal order.
The Claimant is a limited liability company whose object is, among other activities, civil construction and public works, general contracting and the preparation of projects for industrial installation in the energy sector. It has been registered with the Tax Office of ..., code 2720, since 1980-05-01 for the principal activity of "Other specialized construction activities, N.E.", within CAE 43992 and the secondary activity of "Engineering and related technical activities", within CAE 71120.
Article 2, section 1, j) of CIVA establishes: "Natural or legal persons referred to in paragraph a) that have a seat, permanent establishment or domicile in national territory and that carry out operations that confer the right to full or partial deduction of tax, when they are purchasers of civil construction services, including the remodeling, repair, maintenance, conservation and demolition of real property, on a contracting or subcontracting basis." This legal provision provides for the reversal of the taxable person, with the purchaser of services being responsible for the determination and payment of the VAT that is shown to be due, without prejudice to the right to deduction, in accordance with the general rules of the VAT Code, established in articles 19 to 26.
For that reason, the invoices issued by the providers of the aforementioned services must, in accordance with section 13 of article 36 of CIVA, contain the expression "VAT - self-liquidation".
However, in the case sub judice, in 2010, B..., customer of the Claimant was exempt from VAT, and thus the invoice issued by the Claimant, with the determination of VAT, is correct in light of the aforementioned rules applicable in this case. And this is because, although a civil construction service is in question, the mechanism for reversal of the taxable person does not operate, since the purchaser, on the date of issuance of that invoice, was exempt from VAT, and could not exercise the right to full or partial deduction of the tax, which is why the appellant proceeded to determine the tax in the invoice, in the amount of €5,585.54, complying with the provisions of article 8, section 1, c) and section 2 of CIVA, which we consider to be correct.
From 05-01-2014 onwards B... became a VAT taxable person, hence from that date onwards it will be the responsibility of that customer to determine and pay the VAT, and the invoices issued by the Claimant relating to construction services provided from that date onwards should contain the expression: "VAT - self-liquidation", in accordance with article 36, section 13 of CIVA, as amended by Decree-Law no. 197/2012, of 24 August, which entered into force on 1 January 2013.
The Claimant, having completed part of the contracted services, and to regularize the VAT charged relating to the value of the down payment received and mentioned in the invoice of 11-11-2010, chose to mention and deduct this value from the down payment in invoice no. 317100679, of 28-03-2014.
In accordance with article 2, section 1, c) of CIVA, what is relevant is that VAT be mentioned in an invoice, "Natural or legal persons who improperly mention VAT in an invoice;" in the version of Decree-Law no. 197/2012, of 24 August, entering into force on 1 January 2013).
In invoice no. 317100679, of 28-03-2014 the claimant mentioned VAT, its rate, the taxable base and the value of the tax and did not refer to "VAT - Self-liquidation". As verified, this invoice was reported by the Claimant in the periodic VAT return for March 2014, by entering a value of taxable base and VAT charged, in fields 3 and 4, of €26,597.83 and €5,585.54, respectively, and a VAT regularization in its favor, considered in field 40, in the value of €5,585.54 (VAT rate of 21%, rate in force on 11-11-2010).
Thus, we consider that if that invoice had not been subsequently cancelled as occurred, the Claimant by making reference to VAT would have presented itself as a VAT taxable person, in accordance with article 2, section 1, c) of CIVA, with the consequent occurrence of a new tax fact, constituting it in the obligation to pay the value of the Tax to the State.
In accordance with the provisions of article 78, section 5 of the VAT Code, "when the taxable value of an operation or the respective tax undergo rectification for less, the regularization in favor of the taxable person can only be effected when this person has in their possession proof that the purchaser became aware of the rectification or that it was reimbursed the tax, failing which the respective deduction is considered improper".
The invoice initially issued by the Claimant with no. 797/FA10 of 11-11-2010 to record the down payment of 30% of the value of the service, made by its customer, in light of the provisions of articles 29, section 1, b) and 36, section 1, c) of CIVA is correct insofar as it relates to a down payment for the contracted services.
The Claimant, being aware that its customer did not receive the regularization invoice, issued on 23-03-2014 with no. 317100679 chose to issue a new invoice, correcting the errors of the previous one and submitted a new VAT DP;
Thus, it issued the new invoice with no. 3171002467 on 15-12-2015 mentioning in that invoice the cancellation and replacement of invoice no. 317100679.
It then submitted the respective periodic VAT return of replacement for the period of March 2014, where it excluded from field 3 and 4, the values of €26,597.83 and €5,585.54, respectively, and from field 40, the value €5,585.54.
Once cancelled invoice 23-03-2014 with no. 317100679, where VAT had been improperly mentioned, consequently the additional VAT assessment no. 14454118 and the Account Settlement Statement no. 2016... become without legal effect.
In this invoice the value of VAT is the same as the cancelled invoice (zero). There being thus no place for the application of the provisions of section 5 of article 78 CIVA, maintaining the value of the mentioned VAT unchanged.
Regarding the question of the conditions for the application of the rule contained in article 78, section 5, which corresponds to the former article 71, section 5 of CIVA of mentioning the statements in the Court of Appeal Decision of 17-01-2019 issued in Proc. no. 698/04.0BESNT, CT: "the condition for the application of the requirement for proof provided for in section 5 of article 71 of CIVA is that tax has been deducted by the customer, and that, subsequently, following rectification for less of the taxable value of an operation or the respective tax, there is a need to proceed to regularization of tax. Only in those cases, where there may be risk of lack of regularization, by the customer, of Tax regularized by the supplier/service provider subject, does it make sense to require possession of the proof of receipt of communication that evidences the amount of rectified VAT. Thus, we would say that what is verified is that one cannot speak here of a situation in which there was rectification, for less, of the taxable value of an operation or the respective tax, since, as results from the evidence, the invoice in question was not even sent to the customer of the Appellant, by virtue of the fact that, meanwhile, the contract had been terminated.
Now, if the invoice was not charged to the customer, because it was no longer due, it makes no sense whatsoever to require of the Appellant proof of receipt of communication, by the customer, that evidences the amount of rectified VAT.
Thus, the conclusion reached is that the conditions for the application of the provisions of section 5 of article 71 of CIVA are not met."
Also in the case sub judice, we consider in the same manner that the conditions for the application of this rule are not met, since the invoice in which the Claimant improperly mentioned VAT was cancelled when the Claimant issued invoice no. 3171002467 on 15-12-2015, still before the TA issued the decision in the Hierarchical Appeal, (invoice cancelling the invoice in which VAT was improperly mentioned), and that the TA understands on the basis of this invoice should make the additional VAT assessment, for the reason that the Claimant's customer was not aware of the rectification for less effected in the cancellation invoice. Now what fails in the arguments of the Respondent is precisely the existence of rectification for less of the VAT amount, since this invoice under consideration merely proceeds to the regularization of the mention of VAT, replacing it with the expression: "VAT self-liquidated".
It is also worth mentioning that the regularization made by the Claimant of a down payment, within the scope of which, the VAT relating to the services mentioned either in the cancelled invoice or in the cancellation invoice, had already been correctly determined and paid and was correctly mentioned in the invoice of 11.11.2010, in accordance with the rules for VAT exigibility, at the time of receipt of the down payment.
In light of the foregoing we are led to conclude that the decision of the hierarchical appeal in question, the additional VAT assessment no. ..., issued on 09-01-2016 and the account settlement statement no. ... relating to the period of March 2014, are illegal because they suffer from error regarding the conditions of law and fact, due to incorrect interpretation and application of the provisions of articles 78, section 5 of CIVA.
This incorrect application of article 78, section 5 of CIVA by the TA constitutes a violation of law the which justifies its annulment, in accordance with article 163, section 1, of the Code of Administrative Procedure subsidiarily applicable in accordance with article 2, paragraph c), of the General Tax Law. Thus, these acts must be declared illegal and, consequently, must be annulled.
What has been stated is sufficient to support the decision that will be issued hereinafter.
III – Decision
Accordingly, the following is decided:
a) To declare the request for arbitral decision totally upheld, for violation of law, with the consequent declaration of annulment of the dismissal order of hierarchical appeal no. ...2017..., issued on 04 June 2018 by the TA;
b) To declare the request for annulment of the Additional VAT Assessment no. ..., issued on 09/01/2016 and the Account Settlement Statement no. 2016..., relating to the tax period of March 2014 in the value of €5,585.54 (five thousand five hundred and eighty-five euros and fifty-four cents) to be upheld;
c) To condemn the Respondent to pay the costs of the proceedings.
Value of the Case
The Claimant indicated as the value of the case the amount of €5,585.54 (five thousand five hundred and eighty-five euros and fifty-four cents) which was not contested by the Respondent, and corresponds to the value of the additional assessment that was sought to be opposed (article 97, section 1, a), of CPPT).
Costs
In accordance with articles 12, section 2, and 24, section 4, of RJAT, and article 3, section 2, of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached to that Regulation, the amount of costs is fixed at €612.00 (six hundred and twelve euros) which shall be borne by the Respondent.
Let notification be made.
Lisbon, 7 March 2019
The Arbitrator
(Regina de Almeida Monteiro)
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