CAAD 411/2014-T: VAT Service Contracts vs Employment

Process: 411/2014-T

Date: March 27, 2015

Tax Type: IVA

Summary

CAAD arbitration case 411/2014-T addressed critical procedural and substantive VAT issues arising from a tax inspection of a Portuguese IT consulting company for tax years 2009-2012. The taxpayer challenged additional VAT and IRS assessments totaling €459,875.34, claiming formal defects (violation of the right to prior hearing under Article 59 LGT), substantive violations (erroneous reclassification of service income as dependent employment), and non-compliance with invoice requirements under Article 36(5) of the Portuguese VAT Code (CIVA). The Tax Authority raised two key procedural exceptions: first, that IVA and IRS claims cannot be cumulated in a single arbitration proceeding under Article 3(1) RJAT, as they do not depend on application of the same legal rules; second, challenging the tribunal's material competence regarding certain VAT assessments not properly notified. In its first interlocutory decision of October 21, 2014, the CAAD tribunal dismissed the competence exception but upheld the illegal cumulation objection, requiring the taxpayer to choose between pursuing IVA or IRS claims. The applicant elected to proceed with VAT issues. The second interlocutory decision of November 14, 2014, formally absolved the Tax Authority from IRS-related claims and limited the proceedings to VAT assessment legality. This case establishes important precedent regarding CAAD's jurisdictional limits, confirming that different taxes require separate arbitration proceedings even when arising from the same factual inspection. The substantive issues remain to be decided, including whether the tax authority properly reclassified independent service contracts as employment relationships for VAT purposes and whether invoices met statutory requirements for VAT deduction under Article 36(5) CIVA.

Full Decision

ARBITRAL DECISION

I – REPORT

On 3 June 2014, A…, Ltd., taxpayer no. …, with headquarters at …, filed a request for constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking the declaration of illegality of the acts of additional assessment of withholdings at source of personal income tax (IRS) and value-added tax (IVA) and respective compensatory interest, relating to the years 2009, 2010, 2011 and 2012, in the amount of € 459,875.34 (four hundred and fifty-nine thousand, eight hundred and seventy-five euros and thirty-four cents).

To substantiate its request, the Applicant alleges, in summary, that such acts are vitiated by the following defects:

of form, by violation of the duty of hearing, and of No. 1 and of para. f) of No. 3 of Article 59 of the LGT;
violation of law, by duplication of tax inspection procedures concerning the facts of the year 2008;
vicio of violation of law, by erroneous qualification of the income as dependent employment and consideration that the invoices issued by the service-providing entities do not meet the requirements of Article 36, No. 5, of the IVA Code.

On 3 June 2014, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).
The Applicant did not proceed to appoint an arbitrator, wherefore, pursuant to the provision in para. a) of No. 2 of Article 6 and para. a) of No. 1 of Article 11 of the RJAT, the President of the Deontological Council of CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the assignment within the applicable period.
On 21 July 2014, the parties were notified of these appointments, having manifested no intention to refuse any of them.
In accordance with the provision in para. c) of No. 1 of Article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 5 August 2014.
On 2 October 2014, the Respondent, duly notified for that purpose, presented its reply defending itself by exception and by impugnation.
By exception, the Respondent alleged the obstacle to the cumulation of requests concerning distinct taxes, IRS and IVA, derived from the special regime provided for in Article 3, No. 1, of the RJAT, arguing that such requests do not depend on the application of the same rules of law. The Respondent further alleged the material incompetence of the Tribunal regarding the additional assessments of IVA and their respective compensatory interest, from November 2011 to December 2012, concerning which the Applicant stated it had not been notified, which, in its view, would lead the discussion to the level of Opposition to Fiscal Execution, pursuant to Article 204 of the CPPT, since the issue concerns the exigibility of the debt and not the legality of the assessments, thereby exceeding the competence of arbitral tribunals, in light of the provision in Article 2 of the RJAT.
Notified of this reply, the Applicant came to pronounce itself on the matter of the exceptions raised by the Tax Authority, arguing for the dismissal thereof.
On 21 October 2014, an interlocutory decision was rendered in which it was declared: on the one hand, that the applicant had not formulated requests that contend with the competence of this Tribunal (contrary to what was sought by the Tax Authority), wherefore such exception was dismissed; on the other hand, it was held that the illegal cumulation of requests was indeed verified and, to that extent, the Applicant was notified, pursuant to Article 47, No. 5, of the CPTA, to indicate which of the requests – annulment of the IVA or IRS assessments – it intended to have examined, a decision which is hereby fully reproduced.
In time, the applicant opted for the prevalence of examination of the requests relating to IVA.
Consequently, by new interlocutory decision, rendered on 14 November 2014, which is hereby incorporated, the exception of illegal cumulation of requests was held to be well-founded, the respondent was absolved from the instance regarding the annulment requests of the IRS assessments and the proceedings were ordered to continue for examination of the legality of the annulment requests of the IVA assessments identified in the initial request, which are hereby fully reproduced[1].
On 6 January 2015, the hearing referred to in Article 18 of the RJAT was held, at which the witnesses presented by the Applicant were examined.
A period being granted for presentation of written submissions, these were presented by the parties, pronouncing themselves on the evidence produced and reiterating and developing their respective legal positions.
Meanwhile, on 2 February 2015, the Applicant presented a request asking the Tribunal to rule on the amount of the arbitration fee subsequent to payment, in view of the incident of illegal cumulation of requests previously decided, which was done.
A period of 30 days was set for rendering of final decision, following presentation of submissions by the Tax Authority, which period was subject to extensions, in accordance with Article 21/2 of the RJAT, until 27 March 2015.
The Arbitral Tribunal is materially competent and is regularly constituted, pursuant to Articles 2, No. 1, para. a), 5 and 6, No. 1, of the RJAT. The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to Articles 4 and 10 of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.

The proceedings do not suffer from nullities.

Thus, there is no obstacle to examination of the merits of the case.

All things considered, it is necessary to render

II. DECISION

A. MATTER OF FACT

A.1. Facts Held as Proven

The Applicant is engaged in consulting and computer programming, management and operation of computer equipment, other activities related to information technologies, retail sale of computers, peripheral units and computer programs, consulting for business and management, as ascertained from the permanent certificate with access code no. …-…-… (doc. 1, attached to the initial request).
The Applicant was subject to an inspection covering the years 2009, 2010, 2011 and 2012, authorized by Service Orders No. 0I2013… and 0I2013…, carried out by the Tax Inspection Services of the Finance Directorate of …, which resulted in corrections regarding IVA and IRS not withheld at source.
On 26/11/2013, the Applicant was notified of the draft report regarding the aforementioned inspection, which covered the years 2009, 2010, 2011 and 2012.
The Applicant sent, on 10/12/2013, a request in which it questions whether the right of hearing should concern the facts relating to 2008 or only the facts of the years in question in the inspection in question, given that the facts relating to 2008 had already been subject to a previous inspection, yet, of the 182 pages of the draft, 84 were composed of the faithful copy of the report of the 2008 inspection.
It further requested that the period for prior hearing be interrupted until the date on which it was notified of the Tax Authority's position, under penalty of being deprived of, in practice, exercising the right to pronounce itself on the facts imputed to it.
By Official Letter No. 8/113/0507, of 16/12/2013, the Applicant was notified of the decision which held that it is not incumbent on the Tax Administration to determine whether the exercise of hearing should concern the facts of the 84 pages of the report relating to 2008, and also denied the request to interrupt the period for exercising the right of hearing.
By registered letter, of 30/12/2013, the Applicant exercised the right of hearing, invoking, forthwith, the nullity of the tax inspection procedure, by violation of the principle of collaboration of the Administration and by duplication of tax inspection procedures concerning the facts relating to the year 2008.
Through Official Letter No. 82758/0507, of 23/12/2013, the Tax Authority notified the Applicant of the Tax Inspection Report.
By Official Letter No. 3631/0507, dated 16/01/2014, the Applicant was notified of a decision which held that the exercise of the right of hearing was untimely.
The inspection action in question, carried out under Service Orders No. OI2013… and OI2013…, was opened following the conclusions reached in the inspection action for the year 2008, under Service Order No. OI2011…, because the Tax Authority verified the accounting of invoices or equivalent documents which, in its view, do not correspond to the true relationship between the Applicant and the entities that issued them and because, according to consultation of the data contained in Annexes O and P of the annual declaration of accounting and tax information, in the subsequent years the Applicant accounted for invoices or equivalent documents issued by such entities.
Through a transfer agreement concluded on 2008-09-30 (Annex No. 1 of the Inspection Report (RIT), whose content is fully reproduced for the due legal purposes), "B… INFORMATION SOLUTIONS, S.A." (hereinafter referred to as B… PORTUGAL), Tax ID No. … and "C… INFORMATION SYSTEMS, S.A.", Tax ID No. …, transmitted to "D… – IT Consulting and Programming Activities, Ltd." (now called "A…, LDA." – here Applicant), Tax ID No. …, the "economic unit (…) called 'Portugal Extensions', including its sub-units: A1…, A2…, A3… and A4….", for the price of € 702,755.00 (1,000,000 US dollars at the date of the contract).
It is provided in the aforementioned contract that those entities transmitted to the Applicant "A…" the assets listed in clause 3, namely:

"all contracts with customers and concerning sales, implementation, maintenance, support and/or provision of services concerning the economic unit (…)";
"all products and corresponding copyrights, intellectual or industrial property, registered or not, concerning the economic unit and its sub-units (…)";
"all operations on tangible and intangible assets, including the know-how of B… relating to sales, implementation, maintenance, support and provision of services of the products or projects pertaining to the economic unit (…)".

In addition to the aforementioned assets, it is also provided that the "legal status of employer in contracts with employees related to the economic unit" was transmitted, in accordance with the provision in No. 1 of Article 318 of the Labour Code, approved by Law No. 99/2003, of 27 August, in force at the date of the facts, and thereafter revoked by Law No. 7/2009, of 12 February.
In 2002, E…, together with various partners, created F… – IT Services, Consulting and Management, Ltd., a company which began activity with the Finance Authority on 02/05/2002 (doc. 101, attached to the initial request), dedicated to the provision of IT services, consulting and management.
On 24/10/2008, F… entered into a contract with the Applicant (doc. 105, attached to the initial request), by which it bound itself to the following provision of services: management and guidance based on comprehensive knowledge; elaboration of strategies concerning the determination of the best available techniques to develop certain software and software architecture; consulting in computer science, database structures; consulting in algorithm development and application of scope separation concepts; consulting in functional logical vision, code, structural development, evolutionary physics, user/return concerning software development; consulting in mathematical modeling of functions applied to administration, management, economics and accounting.
The location for the provision of services could be at the Applicant's facilities, at the facilities of its clients, at F…'s facilities or at another location which it deemed sufficient and necessary for the purpose.
The activity of F… could be developed on any day of the year and at any time, including non-working days.
The services to be provided by F… would be ensured by workers or service-providing entities to F…, with the latter assuming all responsibility for their actions.
The amount to be paid for the services from F… would be € 8,590 monthly, plus IVA.
The Applicant would equally pay the expenses approved for F… to provide the services to which it had committed.
The contract would be in force for one year, renewing for equal and successive periods, with either party being able to terminate it with ninety days' notice.
On 02/01/2009, the Applicant and F… subscribed to an amendment to the contract, altering clause 10, whereby the provision of services became remunerated with the monthly sum of €10,000.00 (page 921, of the documents attached by the Applicant with the request of 06/11/2013).
On 31/08/2009, the Applicant and F… revoked the service provision contract, with immediate effect.
During the term of the service provision contract, F… continued to provide services to other entities, among which B… (docs. 106 to 152, with the initial request).
The Applicant never paid E…, nor F…, any holiday bonus or Christmas bonus.
E… did not perform tasks at the Applicant's headquarters, did not comply with working hours set by the latter, nor did he receive, nor did he receive, orders from any officials of the Applicant, nor from its managers.
E…, on behalf of F…, had as his workplace F…'s headquarters, as well as any other place he deemed convenient.
E… never enjoyed holidays granted by the Applicant, nor was he ever part of the latter's personnel.
The instruments that E… used to perform his functions were supplied by F….
The invoices issued by F… to the Applicant expressly state that the service provided relates to "IT Consulting", followed by the indication of the month, and that the quantity is 1, referring to the provision of intellectual services embodied in the monthly retainer contract, the unit price of the services provided and relating to IT consulting (pages 392 to 402, of the documents attached by the Applicant with the request of 06/11/2013).
G… – IT Projects and Solutions, Ltd. was incorporated on 14/11/1996, with H… and I… as partners, as shown by the permanent certificate with code no. ..-…-…, which is hereby reproduced (doc. no. 175, with the initial request).
On 24/10/2008, G… entered into a service provision contract with the Applicant (doc. 176, with the initial request), whereby it bound itself to provide: specialized strategic consulting on infrastructure and Research matters at the level of consulting; professional and specialized management of companies in the IT and corporate business areas; consulting on acquisitions and strategy; consulting on hardware, systems, networking, communications and security architecture; consulting on server virtualization and other innovations in the use of hardware storage capacity; consulting on process modeling; project management and team management; consulting on structural design of shared environments.
The location for the provision of services could be at the Applicant's facilities, at the facilities of its clients, at G…'s facilities or at another location which it deemed sufficient and necessary for the purpose.
The activity of G… could be developed on any day of the year and at any time.
The amount to be paid for the services from G… would be € 7,500 monthly, plus IVA, and this amount could be altered if the services were modified, and the Applicant would equally pay the expenses approved for G… to provide the services to which it had committed.
The contract would be in force for one year, renewing for equal and successive periods, with the Applicant being able to terminate it with ninety days' notice, but G… would have to terminate it with one hundred and eighty days' notice.
On 02/01/2009, an amendment to the contract was entered into between the Applicant and G…, which altered clause 10, with the provision of services becoming remunerated with the monthly sum of € 9,000.00 (page 914, of the documents attached by the Applicant with the request of 06/11/2013).
On 31/08/2009, a revocation agreement to the service provision contract was subscribed by the Applicant and G… (page 915, of the documents attached with the request of 06/11/2013).
The Applicant never paid H…, nor G…, any holiday bonus or Christmas bonus.
H… worked for G… at the Applicant's headquarters, at G…'s headquarters, at his home and abroad.
H… never complied with working hours set by the Applicant, nor did he receive, nor did he receive orders from any officials of the Applicant, nor from its managers.
H… never enjoyed holidays granted by the Applicant, nor was his name included in the holiday map existing for its workers, nor did he ever form part of the Applicant's personnel.
The instruments that H… used to perform his functions were supplied by G….
The invoices issued by G… (pages 316 to 324, of the documents attached with the request of 06/11/2013) contain the wording "Provision of services in accordance with the October 2008 contract, concerning the month of", followed by the indication of the month, and that the quantity is 1, referring to the provision of intellectual services embodied in the monthly retainer contract, as the unit price of the services provided during the month in question.
J… provided the Applicant with services consisting of analysis and detection in legal documents of changes applicable to management software, so that it could proceed to make the corresponding changes in its programs and IT systems, through a monthly retainer contract, not reduced to writing.
J… performed his functions at his home or at another location he preferred, and rarely went to the Applicant's headquarters, as he sent the relevant information electronically.
J… had total freedom to choose when he should provide the services, in terms of day and time, so he was not obliged to comply with working hours, only having to fulfill the task that was contracted.
The Applicant never paid J… any holiday bonus or Christmas bonus.
J… did not receive orders from any officials of the Applicant, nor from its managers, never enjoyed holidays granted by it, nor was his name included in the holiday map existing for its workers, nor did he form part of its personnel.
The instruments that J… used to perform his functions were acquired by himself.
The invoices issued by J… (pages 232 to 256, of the documents attached with the request of 06/11/2013), in the description field, mention "IT consulting services", and refer to quantity 1 and the unit price of the services provided, but not all express the period to which they pertain.
K… – Representations and Services, Ltd. began activity with the Finance Authority on 27/07/1995 (doc. 190, with the initial request).
On 03/11/2008, K… entered into a contract with the Applicant (doc. 191, with the initial request), whereby it committed to the provision of the following services: functional analysis of changes to management software so as to produce maps that are in accordance with applicable legislation in force at the time of analysis; analysis of the need for changes to the ERPs of the First Party in accordance with the analysis of their compliance with the Guidance on tax compliance for business and accounting software published by the OECD; functional and technical analysis, development and quality control of the modules to be called ERM and SAF-T to be marketed by the First Party integrated in its ERPs.
The location for the provision of services could be at the Applicant's facilities, at the facilities of its clients, at K…'s facilities or at another location which it deemed sufficient and necessary for the purpose.
The activity of K… could be developed on any day of the year, and at any time, having total freedom to fulfill the contract in the manner it deemed most correct, provided it achieved what was intended by both parties.
The services to be provided by K… would be ensured by workers or service-providing entities to K…, with the latter assuming all responsibility for their actions.
The amount to be paid for the services from K… would be € 3,673.00 monthly, plus IVA, and this amount could be altered if the services were modified.
The Applicant would equally pay the expenses approved for K… to provide the services to which it had committed.
The contract would be in force for eight months, renewing for equal and successive periods, with either party being able to terminate it with ninety days' notice.
On 05/01/2009, an amendment to the contract was signed by the Applicant and K…, Ltd., whereby the monthly amount of the service provision was altered to the monthly sum of € 3,240.00 (page 908, of the documents attached with the request of 06/11/2013).
On 04/05/2009, a new amendment to the contract was signed between the Applicant and K…, Ltd., according to which, as consideration for the provision of services, the first began paying the second, with monthly frequency, the sum of € 4,433.33 (page 909, of the documents attached with the request of 06/11/2013).
On 30/12/2010, the revocation of the service provision contract was agreed (page 910, of the documents attached with the request of 06/11/2013).
The Applicant never paid K…, any holiday bonus or Christmas bonus.
J…, in his capacity as a worker of K…, had K…'s headquarters as his place of work, or any location he deemed convenient, and used the work instruments that the latter provided him.
The invoices issued by K… (pages 149 to 173, of the documents attached with the request of 06/11/2013) contain the expression "Provision of services in accordance with the November 2008 contract", followed by the month they pertain to, and mention the unit price of the services provided.
In point 3.1 of the RIT, it states that from the analysis of the aforementioned invoices accounted for in the year 2008, "it is verified that:

The amount of invoices issued by K…, LDA., with monthly frequency, is equal, that is, € 3,673.00;
The sum of the monthly amount of invoices issued by K…, LDA. (€ 3,673.00) with the amount of invoices issued in the same period by J… (€ 1,600.00), is equal to the amount stated in various invoices issued by K…, LDA. in different months of 2008 to B… PORTUGAL (€5,273.00);
In the period between 24-01-2008 and 23-12-2008, it is verified that almost all invoices issued by K…, LDA. were to B… PORTUGAL and A…, being that in the period between 02-07-2008 and 23-12-2008 all invoices were issued to those entities;
The invoices issued by K…, LDA. have as descriptive "IT consulting services" or "Provision of IT consulting services", referring to the period (month) to which they pertain;
The descriptive is similar to that used in invoices issued to B… PORTUGAL; - The invoices issued by Mr. J… have as descriptive "IT consulting services" or "Provision of IT consulting services", referring to the period (month) to which they pertain;
The invoices present as quantity of service provided "1";
The invoices present as unit value the amount of the service provided."

In the periods between 31-01-2009 and 24-12-2009, between 22-01-2010 and 27-12-2010, and 31-01-2011 and 10-02-2011, in the case of K…, LDA., and in the period between 20-01-2009 and 28-12-2010, in the case of J…, it is verified that all invoices were issued to A….
The sum of the monthly amount of invoices issued by K…, LDA. with the amount of invoices issued in the same period by J… was, in the months of January to May 2009, € 4,840.00 (€ 3,240.00 + € 1,600.00), and in the subsequent months, €4,833.33 (€ 4,433.33 + € 400.00).
In the month of May 2010, when it was verified that the amount of the invoice issued by K…, LDA. was € 2,933.33 (and not € 4,433.33), it is noted that the amount of the invoice issued in that period by J… was € 1,900.00 (and not € 400.00), and the sum of the amounts of the invoices amounted to € 4,833.33.
The quantity of invoices issued monthly by K…, LDA. in the years 2009 and 2010 is equal to what was verified in the documents issued in 2008, making reference in the descriptive to "Provision of Services in accordance with the November 2008 contract", except for the invoices issued in the year 2011 which refer to "Transmission of rights as stipulated in the 2010 revocation agreement for ERM and SAF-T modules".
The amount concerning quantity and descriptive contained in the invoices issued monthly by J… in the years 2009 and 2010 is equal to what was verified in the documents issued in 2008.
The date of issuance of the invoices issued by K…, LDA. to A… in the year 2011 (31-01-2011 and 10-02-2011) occurred after the date on which the dissolution and liquidation of that company took place (12-01-2011), the date on which that taxpayer proceeded to the cessation of its activity.
The date of issuance of the last invoice issued by J… to A… (28-12-2010) occurred two days before the date of cessation of activity of that taxpayer (31-12-2010).
L… was a dependent worker of B…, as a sales representative.
Starting 01/06/2001, he went to work for the company M… Marketing and Accounting, Ltd., where he remained until 31/10/2001, the date on which the contract ceased by agreement (doc. 200, with the initial request).
On 09/11/2001, L… registered for employment at the Employment Center of … of the Institute of Employment and Vocational Training (doc. 202, with the initial request).
On 20/11/2001, L… requested from the Institute of Solidarity and Social Security the payment of the total amount of unemployment benefits, with a view to creating his own business, which was granted (docs. 203 and 204, with the initial request).
L… created N… – IT Consulting, Ltd., on 13/12/2002, as is apparent from the permanent certificate with code no. …-…-… (doc. 205, with the initial request).
N… is engaged in IT consulting and programming, having been contracted by B… as a service provider.
On 03/11/2008, N… entered into a contract with the Applicant (doc. 206, with the initial request), whereby it bound itself to the provision of consulting services in object-oriented HLL script languages; consulting in object-relational databases; consulting in ERP of the business unit A1…; consulting in systems analysis and operation of Iseries operating system; consulting in RPG programming; consulting in programming and coordination reconciling technical analysis and functional analysis, oriented to Customers.
The location for the provision of services could be at the Applicant's facilities, at the facilities of its clients, at N…'s facilities or at another location which it deemed sufficient and necessary for the purpose.
The activity of N… could be developed on any day of the year and at any time.
N… had total freedom to fulfill the contract in the manner it deemed most correct, provided it achieved what was intended by both parties.
The services to be provided by N… would be ensured by workers or service-providing entities to N…, with the latter assuming all responsibility for their actions.
The amount to be paid for the services from N… would be € 3,212.54 monthly, plus IVA.
The Applicant would equally pay the expenses approved for N… to provide the services to which it had committed.
The contract would be in force for one year, renewing for equal and successive periods, with either party being able to terminate it with ninety days' notice.
On 05/01/2009, an amendment to the service provision contract was entered into between the Applicant and N…, concerning clause 10 (page 913, of the documents attached with the request of 06/11/2013), with N… receiving as consideration, with monthly frequency, the sum of € 2,950.00 euros.
The Applicant never paid L…, nor N…, any holiday bonus or Christmas bonus.
L… did not comply with working hours set by the Applicant, did not receive orders from any officials of the latter, nor from its managers.
L…, in his capacity as a worker of N…, had N…'s headquarters as his place of work, as well as any other place he deemed convenient.
L… never enjoyed holidays granted by the Applicant.
L… never formed part of the Applicant's personnel.
The instruments that L… used to perform his functions were supplied by N….
The invoices issued by N… (pages 257 to 315, of the documents attached with the request of 06/11/2013) contain the expression "Provision of services in accordance with the November 2008 contract", followed by the month they pertain to, mention that the quantity is 1, and the unit price of the services provided.
When the invoices do not pertain to the monthly retainer of the contract, the services are identified and specified, as occurs with invoices 2009FT11 ("UQ Consult Project month August"), 2010FT18 ("Support and specific development in CNC treatment processing, during the 1st quarter of 2010"), 2011FT32 ("Analysis of the impact of billing certification on specific processes of UQ Consult. 1st Tranche"), 2011FT35 ("Analysis of the impact of billing certification on specific processes of UQ Consult. 2nd Tranche"), 2011FT38 ("Analysis of the impact of billing certification on specific processes of UQ Consult. 3rd Tranche") (pages 264, 272, 285, 288 and 291, of the documents attached with the request of 06/11/2013).
In the RIT, moreover, it states that, concerning the invoices accounted for in the year 2008, "it was verified that:

The amount of invoices issued with monthly frequency, is equal, that is, € 3,212.54;
The amount is equal to the amount stated in various invoices issued in different months of 2008 to B… PORTUGAL;
In the period between 23-01-2008 and 22-12-2008, it is verified that all invoices issued by N…, LDA. were to B… PORTUGAL and A…;
The invoices issued have as descriptive "Consulting services";
The descriptive is similar to that used in invoices issued to B… PORTUGAL;
The invoices present as quantity of service provided "1";
The invoices present as unit value the amount of the service provided."

In the period between 20-01-2009 and 31-12-2012, all invoices issued by N…, LDA. were to A… (with the exception of invoice no. 3).
The amount of invoices issued with monthly frequency, is € 2,950.00.
The amount concerning quantity contained in the invoices issued monthly in the years 2009, 2010, 2011 and 2012 is equal to what was verified in the documents issued in 2008, making reference in the descriptive to "Provision of Services in accordance with the November 2008 contract".
On 17/09/2002, O… – IT Consulting and Projects, Ltd. was created, as is apparent from the permanent certificate with code no. …-…-…, (doc. 222 with the initial request), having as its purpose IT consulting and programming.
O… provided services to B… and, on 03/11/2008, entered into a contract with the Applicant (doc. 223, with the initial request), whereby it committed to provide services of: consulting at the level of combination of functional knowledge from a technical point of view, from the implementation and strategic point of view and also in the functional perspective, based on vast experience in the various competencies described in the context of the SII application; consulting in the context of stock management and financial management.
The location for the provision of services could be at the Applicant's facilities, at the facilities of its clients, at O…'s facilities or at another location which it deemed sufficient and necessary for the purpose.
The activity of O… could be developed on any day of the year, and at any time.
O… had total freedom to fulfill the contract in the manner it deemed most correct, provided it achieved what was intended by both parties.
The amount to be paid for the services from O… would be € 3,650 monthly, plus IVA.
The Applicant would equally pay the expenses approved for O… to provide the services to which it had committed.
The contract would be in force for one year, renewing for equal and successive periods, with either party being able to terminate it with ninety days' notice.
On 05/01/2009, an amendment to the service provision contract was subscribed by the Applicant and O…, with alteration of clause 10 (page 906, of the documents attached with the request of 06/11/2013), with the monthly consideration for the services provided being altered to 3,636.83 euros.
On 02/01/2012, a new amendment to the service provision contract was subscribed by the Applicant and O…, with alteration of clause 1 (page 907, of the documents attached with the request of 06/11/2013).
The Applicant never paid P…, nor O…, any holiday bonus or Christmas bonus.
P…, managing partner of O…, did not comply with any working hours set by the Applicant, did not receive, nor did he receive orders from any officials of the Applicant, nor from its managers.
P…, in his capacity as a worker of O…, had O…'s headquarters as his place of work, as well as any other location he deemed convenient.
P… never enjoyed holidays granted by the Applicant, nor did he ever form part of the Applicant's personnel.
The instruments that P… used to perform his functions were supplied by O….
O… issued invoices concerning services not integrated in the monthly retainer, and also provided services and issued invoices for another entity – Q…, Ltd. – distinct from the Applicant.
The invoices issued by O… in the context of the aforementioned contract are found in the documents attached by the Applicant at the beginning of the inspection procedure (pages 17 to 90, with the request of 06/11/2013), which state that the quantity is 1, the unit price of the services provided and the statement that they pertain to the provision of services in accordance with the November 2008 contract, referring to the month in question.
When the invoices do not pertain to the monthly retainer of the contract, the services are identified and specified, as occurs with invoices 2009FT73 ("Reinforcement of support A…, to clients A1.., during the 1st fortnight of September"), 2010FT87 ("Reinforcement of support and consulting"), 2011FT109 ("Reinforcement of support for the launch of the billing certification process, during the 1st quarter of 2011. 1st Tranche"), 2011FT112 ("Reinforcement of support for the launch of the billing certification process, during the 1st quarter of 2011. 2nd Tranche"), 2011FT114 ("Reinforcement of support for the launch of the billing certification process, during the 1st quarter of 2011. 3rd Tranche") (pages 28, 39, 59, 61 and 63, of the documents attached with the request of 06/11/2013).
The RIT states that, from the analysis of invoices accounted for in the year 2008, "it was verified that:

the amount of invoices issued with monthly frequency, is equal, that is, € 3,650.00 (given that part of the amount of invoice no. 2008FT60, relates to "Consulting services" (€ 3,650.00), and the remainder concerns "Technical Assistance" (€ 291.00);
the monthly amount of such invoices (€3,650.00) is equal to the amount stated in various invoices issued in different months of 2008 to B… PORTUGAL;
in the period between 21-01-2008 and 15-12-2008, it is verified that all invoices issued by N…, LDA. [should read O…, LDA.] were to B… PORTUGAL and A…;
the invoices issued have as descriptive "Consulting services", with part of the amount of invoice no. 60 (€291.00) concerning "Technical Assistance";
the descriptive ("Consulting services") is similar to that used in invoices issued to B… PORTUGAL;
the invoices present as quantity of service provided "1";
the invoices present as unit value the amount of the service provided."

In the period between 23-01-2009 and 27-12-2012, the majority of invoices issued by O…, LDA. were to A….
The amount of invoices issued with monthly frequency, is equal, that is, €3,636.83, (with part of the amount of invoices concerning "Provision of Services in accordance with the November 2008 contract" (€3,345.83), and the remainder concerning "Technical Assistance" (€ 291.00)";
The amount concerning quantity contained in the invoices issued monthly in the years 2009, 2010, 2011 and 2012 is equal to what was verified in the documents issued in 2008.
On 03/03/1999, R… Projects and IT Solutions, Ltd. was created, as is apparent from the permanent certificate with code no. …-…-… (doc. 243, with the initial request), a commercial company whose purpose is the elaboration and monitoring of IT projects, provision of services and sale of IT equipment.
On 03/11/2008, R… entered into a contract with the Applicant (doc. 244, with the initial request), whereby it bound itself to the following provision of services: consulting on functional, organizational and project support; consulting and monitoring at the level of "large accounts", through general and specific interventions; consulting at the level of identification of projects and business ideas, with a view to acquisition and retention of "large accounts".
The location for the provision of services could be at the Applicant's facilities, at the facilities of its clients, at R…'s facilities or at another location which it deemed sufficient and necessary for the purpose.
The activity of R… could be developed on any day of the year and at any time.
R… had total freedom to fulfill the contract in the manner it deemed most correct, provided it achieved what was intended by both parties.
The services to be provided by R… would be ensured by workers or service-providing entities to R…, with the latter assuming all responsibility for their actions.
The amount to be paid for the services from R… would be € 3,773.00 monthly, plus IVA.
The Applicant would equally pay the expenses approved for R… to provide the services to which it had committed.
The contract would be in force for one year, renewing for equal and successive periods, with either party being able to terminate it with ninety days' notice.
On 05/01/2009, an amendment to the service provision contract was signed, through which clause 10 was altered, with the consideration for the provision of services being altered to €3,460.00 (page 916, of the documents attached with the request of 06/11/2013).
On 01/07/2009, a second amendment to the service provision contract was signed, through which clause 6 was altered, with the express authorization of the Applicant for R… to provide services to third parties, during the period of six months, and clause 10 was also altered, with the consideration for the provision of services then being set at 692.00 € (page 917, of the documents attached with the request of 06/11/2013).
On 26/07/2010, a revocation agreement to the service provision contract was entered into (page 918, of the documents attached with the request of 06/11/2013).
The Applicant never paid S…, managing partner of R…, nor this entity, any holiday bonus or Christmas bonus.
S… did not comply with working hours set by the Applicant, did not receive, nor did he receive, orders from any officials of the Applicant, nor from its managers.
S…, in his capacity as a worker of R…, had R…'s headquarters as his place of work, as well as any other location he deemed convenient.
S… never enjoyed holidays granted by the Applicant, nor did he ever form part of the latter's personnel.
The instruments that S… used to perform his functions were supplied by R….
R… provided services to entities other than the Applicant (docs. 254 to 257, with the initial request).
The invoices issued by R… are found in the documents attached by the Applicant at the beginning of the inspection procedure (pages 345 to 377, of the documents attached with the request of 06/11/2013), which state that the quantity is 1, and the unit price of the services provided, and expressly refer to the provision of services in accordance with the November 2008 contract, referring to the month in question.
When the invoice does not pertain to the monthly retainer of the contract, the services are identified and specified, as occurs with invoice 2009FT52 ("Diagnosis and survey of needs in the COLORMIX and CMS areas") (page 360, of the documents attached with the request of 06/11/2013).
The RIT states that "From the analysis of the aforementioned invoices accounted for in the year 2008, "it is verified that:

The amount of invoices issued with monthly frequency, is equal, that is, € 3,773.00;
The amount is equal to the amount stated in various invoices issued in different months of 2008 to B… PORTUGAL;
In the period between 22-01-2008 and 23-12-2008, it is verified that almost all invoices issued by R…, LDA. were to B… PORTUGAL and A…;
The invoices issued have as descriptive "Consulting services";
the descriptive is similar to that used in invoices issued to B… PORTUGAL;
The invoices present as quantity of service provided "1";
The invoices present as unit value the amount of the service provided."

In the period between 09-01-2009 and 23-07-2010, it is verified that the majority of invoices issued by R…, LDA. were to A….
The amount of invoices issued with monthly frequency, is equal, that is, €3,460.00 (although in the period between 28-08-2009 and 18-12-2009 it was € 692.00).
The amount concerning quantity contained in the invoices issued monthly in the years 2009 and 2010 is equal to what was verified in the documents issued in 2008, making reference in the descriptive to "Provision of Services in accordance with the November 2008 contract".
T… dedicated itself to IT programming in java and coolplex.
Starting in November 2008, it entered into a service provision contract with the Applicant, in retainer regime, for the amount of 2,000.00€, per complete month of service, plus IVA.
The location for the provision of services could be at the Applicant's facilities, at the facilities of its clients, at T…'s home or at another location which it deemed sufficient and necessary for the purpose.
T… had freedom to develop its activity when it wished.
T… filed IRS returns relating to 2008, 2009 and 2010 (docs. 258 to 260, with the initial request), from which it is verified that it was a service provider – included in category B.
T… filed Periodic IVA Declarations (docs. 261 to 266, with the initial request).
The Applicant did not pay T… any holiday bonus or Christmas bonus relating to 2008 and 2009.
T… did not comply with working hours, did not receive orders from any officials of the Applicant, nor from its managers.
T… did not enjoy holidays granted by the Applicant relating to 2008 and 2009, nor did it form part of the Applicant's personnel in those same years.
The instruments that T… used to perform its functions were its own.
In March 2010, T… ceased to be a service provider of the Applicant and became its dependent worker (doc. 267, with the initial request).
T… did not issue invoices, but rather Model Receipts No. 6, commonly called green receipts, in which there is no field for indication of the quantity or scope of service provided, and in the receipts issued there is in the "Activity exercised" field, the statement "IT Programmer", as well as amounts ranging between €59.41 and €3,968.55 (pages 403 to 416, of the documents attached with the request of 06/11/2013).
The RIT states that from the analysis of the aforementioned official model receipts relating to the year 2008, "it is verified that:

the amount of the various official model receipts issued, with monthly frequency, is equal, that is, € 2,000.00;
the amount is equal to the amount stated in various official model receipts issued in different months of 2008 to B… PORTUGAL;
in the period between 22-01-2008 and 19-12-2008, it is verified that all official model receipts issued by Ms. T… were to B… PORTUGAL and A…;
in the official model receipts there is as activity exercised 'IT Programmer'."

In the periods between 16-01-2009 and 30-03-2010 the majority of official model receipts issued by T… were to A… and there are various official model receipts issued with similar monthly amounts, that is, € 2,000.00.
The last official model receipt issued to A… was on 30-03-2010, that is, the day before the cessation of activity by Ms. T….
In the years 2010 (from April onwards), 2011 and 2012, T… earned income from dependent employment with A….
U… provided services in the context of programming, based on the level of knowledge of SII, development in SQL and RPG III and IV and ILERPG – languages; as well as CL programming; to which he added functional knowledge of the product worked.
Starting in November 2008, U… began the provision of IT services to the Applicant, in retainer regime, by means of a monthly consideration not assessed.
The location for the provision of services could be at the Applicant's facilities, at the facilities of its clients, or at another location which the provider deemed sufficient and necessary for the purpose.
U… provided services for Applicant's clients, namely those contained in the Excel sheet, with the date of provision of the service, identification of the client and the location of the establishment (page 926, of the documents attached with the request of 06/11/2013).
U… had freedom to develop its activity when it wished.
In the invoices issued by U…, whose deductibility was excluded in the tax acts that are the subject of this proceeding, there is the mention "IT services" and the quantity of one. The value indicated in the invoices under this reference ranges between €250.00 and €2,300.00 (pages 91 to 148, of the documents attached with the request of 06/11/2013).
In addition to those invoices, and in the same period, U… issued debit notes with the reference "Expenses on Your account relating to", followed by the month and year.
V…, Single-Person, Ltd. offered services in the context of RPG III and IV programming, being specialized in the area of programming, invoicing and stock and production management, to which he added functional knowledge of the product worked.
In October 2008, V…, Single-Person, Ltd., was concluding the project to create the stock management program for W… Portugal, S.A., and agreed to work for the Applicant, in retainer regime, for the amount 2,500 €, per month, plus IVA., starting in November 2008.
The invoice in question in the inspection pertained to the final phase of its task, which is why the amount reached 1,500 €, plus IVA (page 335, of the docs. attached with the request of 06/11/2013).
The location for the provision of services could be at the Applicant's facilities, at the facilities of its clients, or at another location which the provider deemed sufficient and necessary for the purpose.
V…, Ltd. had freedom to develop its activity when it wished.
From the invoice issued by V…, referred to above, there is the mention "Consulting services", quantity 1, referring to the unit price of the services provided of €1,500.00.
X…, S.A. / X…, Ltd. offered extensive experience in IT application functionality and company management – both at national and international level, as well as in commercial strategy and functional applicability.
It was contacted by the Applicant to present a budget concerning the company restructuring project, having presented the one found in the documents attached by the Applicant at the beginning of the inspection procedure (page 924, with the request of 06/11/2013).
In the budget there is the company restructuring project, the methodology to be followed, the amounts, specifically, the total amount of 63,840.00 €, plus IVA, which would be divided into two phases, 50,000.00 €, with 20% on award and the remainder in four monthly tranches, and weekly support of 13,840.00 €, through monthly invoicing spread over five months.
The amounts invoiced by X…, in question in the proceedings, contain the reference "Company restructuring project of A… and future planning of the organization", followed by mentions "Award", corresponding to the amount of €10,000.00, 2nd to 4th "Tranche", corresponding to the amount of €10,000.00 each, and "Conclusion", corresponding to the amount of €10,000.00, and/or "Weekly support of the company restructuring project of A…", corresponding to the amount of €2,768.00, with all descriptives referring to quantity 1 (pages 336 to 343, of the documents attached with the request of 06/11/2013).
On 01/10/2010, Y… Single-Person, Ltd. entered into a service provision contract of IT consulting with the Applicant (page 923, of the documents attached with the request of 06/11/2013).
The location for the provision of services could be at the Applicant's facilities, at the facilities of its clients, at Y…, Ltd.'s facilities or at another location which it deemed sufficient and necessary for the purpose.
The activity of Y…, Ltd. could be developed on any day of the year, and at any time.
Y…, Ltd. had total freedom to fulfill the contract in the manner it deemed most correct, provided it achieved what was intended by both parties.
The amount to be paid for the services from Y…, Ltd. would be € 3,316.00 monthly, plus IVA.
The Applicant would equally pay the expenses approved for Y…, Ltd. to provide the services to which it had committed, it not being provided, however, in the contract that these payments would be plus IVA.
The contract would be in force for sixteen months, renewing for equal and successive periods.
The invoices issued by Y…, whose deductibility was excluded in the tax acts that are the subject of this proceeding, are found in the documents attached by the Applicant at the beginning of the inspection procedure (pages 417 to 450, with the request of 06/11/2013), and are divided into two groups.
One of them contains the mention "Professional services provided during the month", quantity 1 and unit price of €3,316.00, with the exception of invoice 4, dated 30-04-2011, in which in that field there is the amount of €3,566.00, and which contains the handwritten mention "Diff. paid in May (3566,00 – 3316,00) 250,00".
A second group contains the mention "Training services to your employees", quantity 1 and unit price of €1,000.00.
In addition to those invoices, and in the same period, Y… issued other invoices with various descriptives of expenses, which were not disregarded by the Tax Authority.
On 01/12/2011, a verbal service provision contract was entered into between the Applicant and Z… – IT Solutions and Consulting, Ltd., by means of payment of consideration.
The location for the provision of services could be at the Applicant's facilities, at the facilities of its clients, at Z…'s facilities or at another location which it deemed sufficient and necessary for the purpose.
The activity of Z… could be developed on any day of the year and at any time.
Z… had total freedom to fulfill the contract in the manner it deemed most correct, provided it achieved what was intended by both parties.
On 01/01/2013, Z… entered into a written service provision contract with the Applicant (page 920, of the documents attached with the request of 06/11/2013).
The invoices issued by Z… are found in the documents attached by the Applicant at the beginning of the inspection procedure (pages 378 to 385, with the request of 06/11/2013), which state the mention "Provision of services concerning the month of", followed by the month to which they pertain, quantity 1, and the amount of €3,416.67, in accordance with the contract entered into.
In the course of the inspection procedure, the Applicant was notified to exhibit a copy of any contracts entered into concerning the provisions of services covered by the invoices issued by U…, V… Single-Person, and X…, S.A., having not done so.
In the course of the inspection procedure, the Applicant was notified to exhibit a copy of any budgets or any other documents prepared for the same purpose, concerning the provisions of services covered by the invoices issued by U…, V… Single-Person, Y… Single-Person and Z…, LD.ª, having not done so.
The judgment handed down on 07/06/2011, in the context of the precautionary procedure that was pending in the 2nd Mixed Court of … Court, under No. …/11….TB…, was annulled by Judgment handed down by the Court of Appeal of …, in Appeal No. …/11….TB…, on 12/01/2012, which revoked the decision of fls. 713 (of 27/05/2011) and ordered the annulment of all acts subsequent to the same (docs. 268 to 270, attached with the initial request).
The aforementioned precautionary procedure had no participation of the Applicant, which was not a party, took no position, and produced no evidence in the same.
In October 2008, the month following the contract mentioned in 11 to 13 above, the Applicant paid the salaries to its dependent workers (doc. 272, with the initial request).
In October 2008, there was no payment to the aforementioned service-providing entities, since, in that month, no tasks were performed by them.
Both the workers of B…, and its service providers (and their employees and/or subcontractors) had the need to access the IT systems of B…, as well as those of its clients.
For this purpose, they had to possess express authorizations from B… for this purpose, for reasons of system security, that is, they had to possess one or several usernames and their respective passwords.
The list of persons contained in annex 9 of the transfer agreement is a list of persons who were authorized to enter the IT system of B…, regardless of their quality as workers, service providers or employees of service-providing companies.
It is usual, in IT activity, that the designations used for the provision of services are these same, especially when it is not possible to make all the activities that service providers perform appear in invoices, such as, for example, expressing in the invoice the entire intellectual journey that is traveled to obtain the solution to a problem or to obtain the start of a solution, which may even be complemented by another service-providing entity.
The Applicant provides diversified services, namely, sale of licenses for the use of production software of its own and third parties, maintenance thereof, support thereof, elaboration and development of IT projects and programs, repair of IT errors, generalized IT consulting.
The relationships it maintains with most of the subcontracted entities are based on retainer-type contracts, in which there is no underlying number of days or hours of services dedicated, nor a single specific task.
In the majority of cases in question, the subcontracted services integrate the cost of product development and their maintenance, which are invoiced based on the respective contracts, making it difficult to establish a direct relationship between the provision of subcontracted services and invoicing to customers.
It is stated in the RIT, at page 147, that "From the elements gathered, no indications were found that the aforementioned invoices and equivalent documents did not cover a cost/expense actually incurred by A… for IRC purposes, as a result of the analysis of the accounting, of the documents that serve it as support…"
All invoices and/or green receipts issued by some service providers in retainer regime are pre-approved by the Applicant via pre-established agreements, wherefore the Applicant decided that the same be processed, in terms of payment, in the "CS – Salary Accounting" journal.
In the accounting introduction, such payments are recorded in the respective sub-accounts of the FSE account – Supplies and External Services.
In terms of graphical presentation of payments, the service-providing entities are not mixed with the workers on behalf of others of the Applicant: the initial part of the list groups only workers – from i… to ii…, after which only service providers are grouped – from F… – IT Services, Consulting and Management, Ltd. to G… - IT Projects and Solutions, Ltd. (doc. 273, with the initial request).

2. Facts Held as Not Proven

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

A.3. Justification of the Proven and Not Proven Matter of Fact

Regarding the matter of fact, the Tribunal does not have to pronounce itself on everything that was alleged by the parties, it being incumbent upon it, rather, the duty to select the facts that matter for the decision and to discriminate the proven matter from the not proven (cfr. Art. 123, No. 2, of the CPPT and Article 607, No. 3 of the CPC, applicable ex vi Article 29, No. 1, paras. a) and e), of the RJAT).

Thus, the relevant facts for the judgment of the case are chosen and outlined according to their legal relevance, which is established in attention to the various plausible solutions of the question(s) of Law (cfr. previous Article 511, No. 1, of the CPC, corresponding to the current Article 596, applicable ex vi Article 29, No. 1, para. e), of the RJAT).

Thus, having regard to the positions taken by the parties, in light of Article 110/7 of the CPPT, the documentary evidence and the procedural file attached to the record and also the testimony of the witnesses E…, L…, P…, S…, J…, iii…, iv… and v…, the facts listed above were considered proven, with relevance to the decision.

B. ON THE LAW

Having the matter of exception raised in the proceedings already been decided, for examination, in the present proceedings, the questions are presented to be decided relative to the verification, or not, of the following defects of the tax act:

of form, by violation of the duty of hearing, and of No. 1 and of para. f) of No. 3 of Article 59 of the LGT (points 4, 5, 6 and 9 concerning the proven facts);
violation of law, by duplication of tax inspection procedures concerning the facts of the year 2008 (point 7 of the proven facts);
vicio of violation of law, by erroneous qualification of the income as dependent employment and consideration that the invoices issued by service-providing entities do not meet the requirements of Article 36, No. 5, of the IVA Code.

Let us examine each one of them.

The Applicant alleges the occurrence of a defect of form, by violation of the duty of hearing by the Administration, because, in its view, the "inspection procedure is null after the preparation of the draft report, by violation of the principle of hearing which was not effectively complied with, wherefore all acts practiced in the procedure after this date should be considered null and void."

Regarding this allegation, it is necessary to note from the outset that the Applicant does not indicate any rule that supports the invoked nullity, it being certain that the rule, in administrative procedures, is that of annullability, as follows from Article 135 of the CPA, applicable to the tax procedure by referral of Article 2/d) of the CPPT.

Nevertheless, being the invalidity in question of a procedural nature, and having regard to the provision of Article 54 of the CPPT, it shall always be cognizable in this forum.

The alleged violation of the duty of hearing raised, stems from the circumstance that, despite having presented its pronouncement beyond the period that is legally provided, to understand that the circumstance of having presented a request "in which it questions whether the right of hearing should concern the facts relating to 2008, or only the facts of the years in question in the inspection in question; since the facts relating to 2008 had already been subject to a previous inspection", and where it asked "further that the period for prior hearing be interrupted until the date on which it was notified of the Tax Authority's position, under penalty of being deprived of, in practice, exercising the right to pronounce itself on the facts imputed to it."

Now, with all due respect, the Applicant will have no reason in this matter. Indeed, the doubt that was raised and posed to it, was neither founded nor capable of compromising the exercise of the right of hearing that was, in fact, granted to it, given that, from the outset, the Applicant could always have chosen to pronounce itself on the facts relating to 2008 that it deemed relevant, without any prejudice ensuing therefrom, wherefore it is not considered that either the duty of prior hearing was violated, nor, much less, the principle of collaboration, enshrined in No. 1 and para. f) of No. 3 of Article 59 of the LGT, all the more so as it was not, manifestly, a matter of doubt "about the interpretation and application of tax rules", but, solely, about the content of the report notified.

In this manner, and for the foregoing, this question raised by the Applicant is dismissed.

Next, the Applicant also alleges the violation of Article 63/4 of the LGT, which provides that:

"The inspection procedure and the duties of cooperation are adequate and proportional to the objectives to be pursued, there being able to be more than one external inspection procedure concerning the same taxpayer or tax obligor, imposed and taxation period by decision, grounded on the basis of new facts, of the highest ranking official of the service, except if the inspection is aimed only at confirming the assumptions of rights that the taxpayer invokes before the tax administration and without prejudice to the ascertainment of the tax situation of the taxpayer by means of inspection or inspections directed at third parties with whom it maintains economic relations."

The Applicant understands, in sum, that "it is completely excessive and violating of the rights of the Applicant, the copy of 84 pages of the report relating to the year 2008, since this matter has already been the subject of a pronouncement by the Applicant, as well as its respective impugnation."

Regarding this question, it is to be said from the outset that, once more with all due respect, it is understood that the Applicant has no reason.

Indeed, the use of facts ascertained in the inspection for the year 2008, in the inspection for the years 2009 to 2012, embodied in the notification within the scope thereof, of the report of the former, does not constitute a new inspection concerning the facts of that first year, especially because no new facts were aimed at or raised.

But, even if it were not so, the consequence of the alleged duplication of procedures would not be that which the Applicant derives.

Indeed, and as to this effect, it was written in the Judgment handed down in proceeding 164/2013T of CAAD[2]:

"Indeed, it is held good that, just as is expressly referred to in the preamble of the RCPIT, the regulation of the tax inspection procedure aims "essentially at the organization of the system, and consequently at the guarantee of proportionality to the ends to be attained, the security of taxpayers and other tax obligors and their own participation in the formation of decisions."

That is, the regulation of the tax inspection procedure has, in the first place, an essentially organizational (regulatory) purpose and, from the perspective of taxpayers, will aim essentially to define the conditions under which the legal effects peculiar to such procedure will effectively be reflected in their legal sphere, in addition to ensuring their participation in the decisions that may be taken.

Regarding this latter aspect, it is to be said from the outset that, in view of the general principle of participation of taxpayers in the formation of decisions concerning them, enshrined in Article 60 of the LGT, the essential interests legally relevant to those, in the matter, would always be duly safeguarded, regardless of the concrete regulation of the tax inspection procedure. Moreover, it should also be noted in this regard that the tax inspection procedure does not have, primarily, a decisory nature (hence, for example, the respective final act – the report – is not directly challengeable, in that it is not, in itself, harmful), but merely preparatory or accessory[3], wherefore the need to safeguard the participation of taxpayers "in the formation of decisions", in its scope, will be highly diminished.

Thus, the principal purpose, always from the perspective of taxpayers, of the regulation of the tax inspection procedure, and of the respective observance by the Tax Administration, will reside in the fixing of the legally necessary conditioning factors for the legal effects peculiar to the procedure in question to be effectively reflected in the legal sphere of taxpayers, in particular the suspension of the period of expiration of the right to assessment of taxes by the Administration, pursuant to Article 46/1 of the LGT, as well as the subjection of those targeted to the guarantees and prerogatives of tax inspection (Articles 28 and 29 of the RCPIT), and to the application of precautionary measures (Articles 30 and 31 of the RCPIT).

Thus, and following from what has been set out, it is understood that the violation of rules regulating the tax inspection procedure will, essentially, have the consequence of preventing certain effects peculiar to that procedure from occurring, such as the suspension of the period of expiration of the right to assessment of taxes, or the obligation to open the installations of those targeted to tax inspection.

In sum, it is understood that the tax inspection procedure does not aim to protect the participation of the taxpayer in the process of gathering information and elements by the Tax Administration, nor, much less, to oblige it to instigate such procedure, to proceed with the gathering of information and elements that it is lawful for it to obtain, in accordance with the general terms of the legal order, outside that procedure. Similarly, the tax inspection procedure will not aim, in the first place[4], at least, to ensure, by its observance, the reliability or suitability of the information or elements gathered.

This, moreover, has been the understanding of the STA, and may be consulted in this regard the Judgment handed down in proceeding 0955/07, on 27-02-2008, in whose summary it reads:

"The inspection and assessment procedures are distinct from one another, although the latter has merely preparatory or accessory character, which does not mean that the illegalities committed in it necessarily project themselves into the assessment, invalidating it."

Following from what has been transcribed, even if it were understood that the duplication of procedures alleged by the Applicant in fact occurred, such invalidity would not be susceptible to invalidating the assessments that it impugns.

Indeed, such invalidity, which is considered not to have occurred, if it were to be verified would repercuss only, and in accordance with its own nature, on the effects peculiar to a legitimately carried out inspection procedure, such as, for example, the special duties and subjections that derive for the taxpayer from the "intrusive" nature of that procedure[5], to which the taxpayer should not owe obedience, or the repercussions that the same has on the matter of expiration of the right to assessment[6], which would not operate.

Thus, and in view of all that has been set out, this question should also be dismissed.

Stated this, and advancing to the substantive question that arises in the proceedings, it is verified that, essentially, the tax acts to be examined in this forum, which pertain to IVA considered as unduly deducted by the Applicant, rest on the understanding that the invoices that support the deductions:

"... are not [corresponding to the true relationship existing between A… and the entities that issued them, wherefore, in accordance with the provision in No. 3 of Article 19 of the IVA Code, it was verified on the part of A… an undue deduction of this tax, and which gave rise to a failure to deliver tax to the coffers of the State.

A… used the invoices or equivalent documents for purposes of deduction of IVA, accounting for the IVA contained therein in the sub-account '2432312 - Deductible IVA - Other goods and services – Domestic Territory', and including such amounts in the respective periodic declarations in field 24, respectively.

We hold as established that, regardless of the fact that it was concluded that such invoices or equivalent documents "...are not [corresponding to the true relationship existing...] " between A… and the entities that issued them, it is verified that the invoices or equivalent documents in question do not comply with the provision in No. 5 of Article 36 of the IVA Code once they do not refer to the quantity and the unit price of the services provided (besides a generic mention of the services provided, such as, "IT Consulting Services" or similar expressions or references such as "Provision of Services in accordance with the contract, which is why, in accordance with No. 2 of Article 19 of the IVA Code, the deduction of the tax would always be undue."[7]

Thus, the corrections promoted by the Tax Authority, and contested herein, rest on Article 19 of the IVA Code, whose content, for what now matters, is as follows:

"1 — For the assessment of tax due, taxpayers deduce, in accordance with the following articles, to the tax levied on the taxable operations which they carried out:

a) The tax due or paid for the acquisition of goods and services from other taxpayers; (...)

2 — Only the following documents confer the right to deduction, in the name and in the possession of the taxpayer:

a) In invoices and equivalent documents passed in legal form;

b) In the receipt of payment of IVA that is part of import declarations, as well as in documents issued electronically by the Directorate-General of Customs and Special Consumption Taxes, in which the number and date of the cash movement appear.

3 — Tax resulting from a simulated operation or in which the price contained in the invoice or equivalent document is simulated cannot be deducted."

With interest for the decision to be handed down, by referral of para. a) of No. 2 of the cited Article 19, Account must be taken of No. 5 of Article 36 of the IVA Code[8], which provides that:

"Invoices or equivalent documents must be dated, numbered sequentially and contain the following elements:

a) The names, firms or corporate designations and the head office or domicile of the supplier of goods or provider of services and of the recipient or purchaser, as well as the corresponding tax identification numbers of the taxpayers subject to the tax;

b) The quantity and usual designation of the goods transferred or of the services provided, with specification of the elements necessary to determine the applicable rate; packaging not effectively transacted must be subject to a separate indication and with express mention that it was agreed that it would be returned;

c) The price, net of tax, and other elements included in the taxable value;

d) The applicable rates and the amount of tax due;

e) The reason justifying the non-application of the tax, if applicable;"

Examined from the RIT, it is verified that the invoices or equivalent documents disregarded may be divided into two groups, according to the systematic followed by it:

a) one, in the total amount of €159,940.57, to which refer fls. 110 to 147 of the RIT, disregarded on the ground in the aforementioned Article 19/3 of the IVA Code, relating to the following taxpayers:

i. E… / F… IT Services Consulting and Management, Ltd;

ii. H… / G… - Projects and Solutions, Ltd;

iii. J… / K… Representations Services, Ltd;

iv. L… / N… - IT Consulting, Ltd;

v. P… / O… - IT Consulting and Projects, Ltd;

vi. S… / R.. IT Projects and Solutions, Ltd ; and

vii. T…;

b) another, in the total amount of €53,042.21, to which refer fls. 147 to 159 of the RIT, disregarded on the ground in the, also, aforementioned Articles 19/2 and 36/5 of the IVA Code, relating to the following taxpayers:

i. U…;

ii. V…, Single-Person, Ltd.;

iii. X…, S.A. / X…, Ltd.;

iv. Y… Single-Person, Ltd.; and

v. Z… – IT Solutions and Consulting, Ltd.

In view of the justification of the tax acts sub iudice, and the normative framework above, it is important to ascertain, then, whether or not:

a) the legal presuppositions of Article 19/3 of the IVA Code, regarding the invoices and equivalent documents disregarded on the ground of such rule;

b) the legal presuppositions of para. a) of No. 2 of the same Article 19, combined with No. 5 of Article 36, also of the IVA Code, regarding the invoices disregarded on the ground of such rule.

Let us then examine.

Regarding the invoices or equivalent documents disregarded on the ground of Article 19/3 of the IVA Code, there will then be a need to ascertain whether, in concrete, the invoices in question in this proceeding concern simulated operations, or not.

As has been written up to the recent Judgment of the TCA-S of 05-02-2015, handed down in proceeding 08097/14[9], "When the Tax Administration disregards invoices it deems false, the burden of proof rules of Article 74 of the LGT are applied, it being incumbent on the Administration to prove that the legal presuppositions legitimizing its action are verified, that is, that there are serious indications that the operation contained in the invoice does not correspond to reality."

The first step in the examination of the matter in question will, therefore, be to verify whether "there are serious indications that the operation contained in the invoice does not correspond to reality."

Examined the facts held as proven, it is understood, from the outset, that the answer should be negative.

Indeed, in that evidentiary list, it is not discerned [Translation ends at page 147 of RIT as document was truncated in source material]

Frequently Asked Questions

Automatically Created

When can service contracts be reclassified as dependent employment for IVA and IRS purposes in Portugal?

Service contracts can be reclassified as dependent employment for IVA and IRS purposes when the Portuguese Tax Authority determines that the economic substance of the relationship constitutes an employment relationship rather than an independent service provision, regardless of the formal contractual designation. This reclassification has significant consequences: for IRS purposes, it triggers withholding tax obligations on the payer; for IVA purposes, it may invalidate VAT deductions if the invoices issued by the service provider do not meet the requirements of Article 36(5) of the CIVA. The tax authority examines factors such as subordination, economic dependence, integration into the business structure, and whether the service provider assumes entrepreneurial risk. In Process 411/2014-T, the tax authority reclassified payments made under service contracts as employment income, resulting in additional assessments for both non-withheld IRS and disallowed VAT deductions.

What are the mandatory invoice requirements under Article 36(5) of the Portuguese VAT Code (CIVA)?

Article 36(5) of the Portuguese VAT Code (CIVA) establishes specific invoice requirements that must be satisfied for VAT deduction rights to be valid. While the full text of this provision is not detailed in the case excerpt, it relates to formal documentation requirements for supporting VAT input deductions. In Process 411/2014-T, the Tax Authority argued that invoices issued by service-providing entities did not comply with Article 36(5) requirements, thereby invalidating the taxpayer's right to deduct the corresponding VAT. This provision is particularly relevant when the tax authority reclassifies service relationships as employment relationships, as invoices issued for what is deemed to be dependent employment income would not constitute valid documentation for VAT purposes. The burden of proof typically falls on the taxpayer to demonstrate that invoices meet all statutory requirements for VAT deductibility.

Can IVA and IRS additional tax assessments be challenged together in CAAD tax arbitration proceedings?

No, IVA (VAT) and IRS (income tax) additional assessments cannot be challenged together in a single CAAD tax arbitration proceeding. Process 411/2014-T definitively established this principle through two interlocutory decisions. The Tax Authority raised an exception of illegal cumulation of claims under Article 3(1) of the RJAT (Legal Regime of Tax Arbitration), arguing that IVA and IRS claims do not depend on application of the same legal rules and therefore cannot be joined. The CAAD tribunal agreed in its October 21, 2014 interlocutory decision, finding illegal cumulation and requiring the applicant to elect which tax assessment to challenge. The applicant chose to proceed with IVA claims. In the November 14, 2014 interlocutory decision, the tribunal absolved the Tax Authority from the IRS-related instance and limited proceedings to VAT issues. Taxpayers facing both IVA and IRS assessments from the same inspection must file separate arbitration requests for each tax type.

What are the grounds for claiming violation of the right to a hearing (audição prévia) in Portuguese tax inspection procedures?

Violation of the right to prior hearing (audição prévia) in Portuguese tax inspection procedures can be claimed under Article 59 of the General Tax Law (LGT), particularly paragraph 1 and paragraph 3(f). Grounds for claiming violation include: failure to notify the taxpayer of the draft inspection report; insufficient time to respond to the draft findings; denial of requests to interrupt the hearing period when legitimate issues arise; requiring the taxpayer to respond to facts already subject to previous inspection procedures (duplication); and refusing to clarify the scope of matters subject to hearing. In Process 411/2014-T, the applicant claimed hearing violations on several grounds: the draft report included 84 pages copied from a 2008 inspection already concluded, creating uncertainty about whether hearing should address those previously-inspected facts; and the Tax Authority's refusal to interrupt the hearing period to clarify this scope issue, effectively depriving the taxpayer of meaningful opportunity to respond. The Tax Authority responded that it is not incumbent upon tax administration to determine which facts require hearing responses.

How does the CAAD tribunal assess material competence when both IVA and IRS liquidations are disputed simultaneously?

The CAAD tribunal assesses material competence when both IVA and IRS liquidations are disputed by applying Article 2(1) of the RJAT, which defines the scope of tax arbitration jurisdiction, in conjunction with Article 3(1) RJAT, which addresses cumulation of claims. In Process 411/2014-T, the tribunal's competence analysis proceeded in two stages. First, it examined whether the claims fell within CAAD's subject-matter jurisdiction under Article 2 RJAT, dismissing the Tax Authority's argument that certain VAT assessments involved executory collection issues (exigibility of debt) rather than legality of assessments. The tribunal confirmed its competence to review assessment legality. Second, it addressed whether procedurally distinct claims (IVA and IRS) could be joined, finding they could not under Article 3(1) RJAT because they do not depend on application of the same legal rules, despite arising from the same factual inspection. This establishes that CAAD has broad material competence over different tax types, but procedural rules prohibit their simultaneous adjudication in a single proceeding. Taxpayers must pursue separate arbitration requests for each tax type.

VAT on Service Contracts vs Employment: Article 36(5) CIVA Invoice Requirements – CAAD 411/2014-T

Table of Contents

Summary

Full Decision

ARBITRAL DECISION

I – REPORT

II. DECISION

A. MATTER OF FACT

A.1. Facts Held as Proven

2. Facts Held as Not Proven

A.3. Justification of the Proven and Not Proven Matter of Fact

B. ON THE LAW

Frequently Asked Questions

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Table of Contents

VAT on Service Contracts vs Employment: Article 36(5) CIVA Invoice Requirements – CAAD 411/2014-T

Table of Contents

Summary

Full Decision

ARBITRAL DECISION

I – REPORT

II. DECISION

A. MATTER OF FACT

A.1. Facts Held as Proven

2. Facts Held as Not Proven

A.3. Justification of the Proven and Not Proven Matter of Fact

B. ON THE LAW

Frequently Asked Questions

Tags

FRESH Legal Group

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