CAAD Case 426/2018-T: VAT Deduction Rights for Mixed Taxable Persons (Sujeitos Passivos Mistos)

ARBITRAL DECISION[1]

The arbitrator, Dr. Sílvia Oliveira, appointed by the Ethics Council of the Administrative Arbitration Center (CAAD) to form the Single Arbitral Tribunal, constituted on 13 November 2018, decided as follows:

REPORT

A..., a non-profit association, legal entity no. ..., with registered office at Rua ..., no. ... ..., in Lisbon (hereinafter referred to as "Claimant"), filed a request for arbitral pronouncement and constitution of a Single Arbitral Tribunal, on 3 September 2018, pursuant to the provisions of Article 4 and Article 10, no. 2 of Decree-Law no. 10/2011, of 20 January [Legal Framework for Arbitration in Tax Matters (RJAT)], in which the Tax and Customs Authority (hereinafter referred to as "Respondent") is named as respondent.

The Claimant states that having been "(...) notified of VAT assessment acts for the periods May 2014 to November 2017 no. 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018..., 2018... and 2018... and of the assessment of respective interest (...)" (assessments with the same identification as the tax assessments referred to above), filed an arbitral request requesting that this Arbitral Tribunal declare the illegality "(...) of the aforementioned VAT assessment notes, in the contested part, and of the respective interest with all legal consequences, namely the addition of compensatory interest at the legal rate".

1.3. The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD on 3 August 2018 and notified, on the same date, to the Respondent.

1.4. Given that the Claimant did not proceed with the appointment of an arbitrator, pursuant to Article 6, no. 1 of RJAT, the undersigned was appointed as arbitrator on 23 October 2018 by the President of the Ethics Council of CAAD, and the appointment was accepted within the timeframe and terms legally provided for.

1.5. On the same date, both Parties were duly notified of this appointment and did not manifest any intention to reject it, pursuant to the combined provisions of Article 11, no. 1, paragraphs a) and b) of RJAT and Articles 6 and 7 of the Code of Ethics.

1.6. Thus, in accordance with the provisions of paragraph c), no. 1 of Article 11 of RJAT, the Arbitral Tribunal was constituted on 13 November 2018, and an arbitral order was issued on the same date to notify the Respondent to, pursuant to Article 17, no. 1 of RJAT, submit a Response within a maximum period of 30 days and, if it wished, request the production of additional evidence.

1.7. Additionally, in that arbitral order it was further stated that the Respondent should remit to the Arbitral Tribunal, within the Response period, a copy of the administrative file.

On 17 December 2018, the Respondent filed its Response, defending itself by way of objection and concluding that "(...) a decision should be rendered determining the dismissal of this request for arbitral pronouncement, absolving the Respondent of the claims, with all legal consequences".

In the Response, the Respondent further requested the waiver of witness evidence, understanding that "(...) the issues to be resolved are essentially matters of law (...)".

On the same date, the Respondent attached to the file the respective administrative file.

On 18 December 2018, both Parties were notified of an arbitral order with the following tenor:

"Having taken into consideration:

• The fact that no matter of exception requiring determination was raised in the Response presented on 17 December 2018;
• The fact that the position of the Parties is fully defined in the File and supported by the documentary evidence presented;

In this context, it appears that witness evidence is not necessary and there is no utility in holding the meeting provided for in Article 18 of the (...) (RJAT).

Thus, pursuant to the principles of the Arbitral Tribunal's autonomy in conducting the proceedings, expedition, procedural simplification and informality (Articles 19, no. 2, and 29, no. 2, of RJAT), as well as bearing in mind the principle of limitation of useless acts provided for in Article 130 of the Civil Procedure Code (CPC), applicable by virtue of Article 29, no. 1, paragraph e) of RJAT, this Arbitral Tribunal decided:

• To waive the holding of the meeting referred to in Article 18 of RJAT;
• To dispense with the examination of the witness evidence presented by the Claimant;
• To determine that proceedings continue with optional written submissions, to be presented within a successive period of 10 days, counting from notification of this order;
• To designate 15 February 2019 for the purposes of rendering the arbitral decision.

Finally, the Arbitral Tribunal further advises the Claimant that, until the date of rendering the arbitral decision, it must proceed with payment of the subsequent arbitral fee, pursuant to Article 4, no. 3 of the Regulation of Costs in Tax Arbitration Proceedings and communicate such payment to CAAD".

The Claimant presented written submissions on 4 January 2019, in order to renew "(...) for all legal purposes, what was stated on the first page regarding the facts considered proven (...), as well as on the matter of law (...)", concluding that "(...) the Claimant's request should be upheld (...)".

The Respondent did not present submissions.

Given the existence of an inconsistency between the amount declared in the arbitral request (EUR 27,095.06) and the amount declared in the summary of the request contained in CAAD's Case Management System (EUR 35,000.00), an arbitral order was issued on 11 February 2019 (notified on 12 February 2019), to notify the Claimant to, within 5 days, clarify/correct the amount of the request and the Respondent to, if it wished, make submissions, within the same period.

Given the need for the 5-day period mentioned above to elapse, in the same arbitral order the rendering of the arbitral decision was rescheduled for 22 February 2019.

The Claimant came to clarify, by way of an application submitted on 15 February 2019, that the amount of the request to be considered is the one contained in the arbitral request (proper), that is, EUR 27,095.06.

The Respondent did not make submissions on the content of the arbitral order referred to in point 1.14., above.

CAUSE OF ACTION

2.1. The Claimant begins by stating that "(...) it was subject to an inspection action covering the financial years 2014 and 2015, nos. OI2017... and OI2017...", from which "(...) resulted corrections at the level of VAT in the amount of EUR 81,232.83 (2014) and EUR 2,507.03 (2015) (...)".

2.2. According to the Claimant, and in accordance with the Inspection Report, "the basis of the corrections concerns the improper deduction of VAT for the following reasons:

• Correction of the amount of the VAT credit carried forward in the 1st declaration of 2014 (...) was improperly increased by EUR 19,342.31 (incorrect application of the VAT deduction method for the costs of ACTA magazine) for transactions carried out between 2008 and 2013 (...), and

• Correction of the credit amount of EUR 58,504.98 (originating between the period 2004 and 2007) which was influencing the credit value of the first declaration of 2014, was entirely disregarded by the fact that the taxable person did not retain accounting for a period exceeding the legal period of 10 years of filing and, to that extent, is not in a position to prove the right to use the VAT credit formed during that period.

• Correction of the carried forward credit (...) in the amount of EUR 5,245.72 (2014) and EUR 2,507.03 (2015) for incorrect application of the VAT deduction method for the costs of ACTA magazine (...)".

2.3. The Claimant clarifies that "this objection is limited solely to the part of the value of the assessments which reflects the correction due to non-acceptance of the VAT deduction method practiced (...) with the ACTA magazine activity (...), that is, the correction of EUR 19,342.31 (increase of the credit transferred to the 1st VAT declaration of 2014 for transactions carried out between 2008 and 2013) and the correction of the carried forward credit (in the amount of EUR 5,245.72 (2014) and EUR 2,507.03 (2015), totaling the VAT deduction correction value of EUR 27,095.06 which gave rise to the deductions in the periods of the assessments subject to this objection (from May 2014 to November 2017)" (underlined by us).

2.4. In summary, according to the Claimant, in the arbitral request what is at issue is "(...) the adoption of the VAT deduction method (...) in the expenses it incurred with the production and distribution of a magazine called ... (...)".

2.5. In this context, the Claimant clarifies that it is a private law association, without profit-making purpose and, for VAT purposes, a mixed taxable person, that is, "in pursuing its statutory functions (...) it has generally developed (i) VAT-exempt activities (...) and (ii) the activity of providing advertising services subject to VAT on the pages of the aforementioned ACTA magazine".

2.6. The Claimant states that "(...) it adopted the actual allocation method, and thus deducted only the VAT (...) of the magazine costs (...), understanding that these costs are entirely and exclusively associated with the sale of advertising in the magazine as it considers it a physical instrument of advertising".

2.7. However, the Claimant adds, "the tax inspection services (SIT), despite accepting that the magazine activity has autonomy to be isolated, understand that A... should have adopted the pro rata method (general) (...) and ascertained the aforementioned deduction percentage by placing in the numerator the outputs obtained with advertising and in the denominator the outputs obtained with advertising and the total of fees paid by members".

With effect, the Claimant reiterates, "the SIT assumed that the magazine is sold/transmitted (without VAT) having in exchange the value of all annual fees that members pay, whereby, in the view of the SIT, it is this value (...) that should be weighed, together with the costs of selling advertising, for calculation of the pro rata of VAT deduction supported with the costs of production and distribution of the magazine" whereby "depending on the monthly pro rata ascertained (...) for the financial years 2014 and 2015 the SIT carried out the aforementioned correction (...)".

According to the Claimant "the (...) (point of disagreement between A... and the ATA) lies in the question of associating the value (entirety) of the fees to the magazine activity" because:

"A... understood that the free distribution of the magazine to members did not have a value (...) to be weighed in this advertising/magazine distribution activity (...) because the costs whose VAT was deducted (...)" "(...) are related to printing and distribution, that is (...)" "(...) costs (...) necessary for the advertising space it sold (...) in the magazine, being appropriate its full deduction" and;

Second, according to the Claimant, "(...) it follows from the bylaws of A... that member fees do not properly have a counterpart, merely associating with a vast series of rights and duties of a financial, social, participatory and cultural/scientific nature, etc.".

"By contrast, the SIT understand that the distribution of the magazine to members is (the only) counterpart to the entirety of the fees (...), and should consequently be weighted (the total annual fees) in the percentage of VAT deduction", further arguing "(...) that without the financing of member fees the magazine was economically unsustainable (...)", forgetting that "(...) A... is a non-profit association".

Thus, the Claimant understands that "(...) the SIT are not right, insofar as, being accepted that it makes sense to isolate the advertising/magazine distribution activity, we are in full application of no. 2 of Article 23 which allows actual allocation (...) of an identifiable part (sale of advertising in the magazine) of the activity (...)".

Further according to the Claimant, "as follows from number 3 of Article 23 of CIVA (...), objective criteria must be adopted that allow determination of the degree of utilization of these goods and services in operations conferring the right to deduction and in operations not conferring that right" but "(...) the SIT, despite isolating the magazine activity, adopted the pro rata criterion, based on the general rule (...) as if it were the only one legally applicable and the most appropriate (...)".

The Claimant argues that "(...) nothing prevents, that the specific pro rata rule (...) be adopted in an objective manner provided that it (...) proves (...) to be the most objective and appropriate criterion with respect to a particular activity that was isolated (...)".

"In sum, A... understood that the magazine activity is an activity of an advertising distribution channel", having understood that "(...) the value of the fees does not matter for the percentage of VAT deduction borne with the costs of the magazines" whereby the Claimant argues that "(...) it has the right to deduct the VAT, whose correction (...) it now contests", petitioning that it be "(...) declared the illegality of the (...) VAT assessment notes, in the contested part, and of the respective interest with all legal consequences, namely the addition of compensatory interest at the legal rate" (underlined by us).

RESPONDENT'S RESPONSE

3.1. The Respondent begins by stating that "A... is a non-profit association governed by its bylaws and applicable legal provisions and is classified, for VAT purposes, in the normal regime, with monthly periodicity, as a mixed taxable person, given that it carries out operations conferring the right to deduction of tax supported upstream and, simultaneously, carries out exempt operations not conferring the right to any deduction".

3.2. The Respondent proceeds by stating that "in the course of the inspection action carried out, it was verified that the entire VAT supported with operations related to the preparation and distribution of a scientific publication (...) was deducted, by application of the actual allocation method" but "(...) as it was found that the activity developed (...) was mixed, for VAT purposes, the tax deducted was rectified through application of the pro rata method".

3.3. The Respondent further clarifies that "although the inspection action covered the financial years 2014 and 2015, the claimant comes to contest the VAT assessments for the periods May 2014 to November 2017, as the corrections resulting therefrom fell (...) on the carried forward VAT credit which influenced periods subsequent to those which were subject to analysis" (underlined by us).

3.4. With regard to the position taken by the Claimant, the Respondent does not agree with it when it argues that "(...) the sale of advertising inside the magazine..., is related to the object of the activity developed subject to VAT and classified the magazine, in itself, as a mere physical instrument of advertising (...)," because the Respondent understands that "if the magazine were, in fact, only the physical instrument of advertising, then it would be distributed for the advertising included and the scientific content that characterizes it would not be necessary and, if it existed, would be mere supplements to the aforementioned advertisements".

3.5. In effect, the Respondent argues that "(...) analyzing all the facts contained in the RIT (...) it is imperative to conclude that there is no doubt that the subject of the activity subject to tax is the publication and distribution of the magazine ... to members (rights provided in the Bylaws of A...)" whereby the Respondent understands that "the sale of advertising spaces inside the magazine, in light of the accounting elements presented and, especially, those which were not presented in the course of the inspection acts (...), did not succeed in meeting the requirements necessary to be (...), an isolatable area of the main activity (publication and distribution of the magazine) remaining, merely, as a component that contributes to the formation of total income from it" (underlined by us).

3.6. According to the Respondent's allegation, "advertising sales cannot exist without the publication of the magazine and the reverse is possible, as happened in 2013, a year in which no income subject to tax was recorded and, likewise, the VAT supported with the costs of the magazine edition (...) was deducted," because "(...) even without the sale of advertising, the magazine was printed, which proves the direct relationship between both and demonstrates the secondary and merely complementary nature of income obtained from such advertising".

3.7. But, according to the Respondent, "(...) another component (...) may contribute to total income from the activity in the same way as advertising sales: the sale of magazines to third parties", because "although this did not occur in 2013 and is not the main form of magazine distribution, sales to third parties have already occurred and cannot be disregarded as they are operations subject and not exempt from VAT that generate income associated with magazine publication, which reinforces the supplementary character of advertising sales, relative to magazine publication".

According to the Respondent's argument, "A... adopted, for VAT deduction, the actual allocation method (...) deducting the full VAT whenever the input is consumed in an activity conferring the right to deduction (...)" but, according to the Respondent, "(...) this was not the procedure that was effectively applied because the activity underlying the expenses incurred was the publication and distribution of the magazine which, contrary to what A... alleges, does not have as its sole income, the amount received from the sale of advertising inside it".

In effect, the Respondent alleges that "(...) analyzing the accounting records, it is possible to verify that income from advertising sales did not generate sufficient means to meet the expenses incurred (...)" whereby it reiterates that "(...) to comply with its obligations to the respective suppliers, it was necessary to have other funds" which, according to the Respondent, "(...) is what occurred (...)".

On the other hand, the Respondent understands that "(...) it is undeniable that the publication of the magazine and its distribution to the member are expressly provided as counterpart to the payment of the fee" "namely through the information contained on its website page (...) where it states (...)" that "for a fee as a member of A... (...) you may enjoy all types of services that A... provides to its members" among which "Magazine..." stands out.

Thus, the Respondent understands that "(...) it was (...) demonstrated that, to the VAT which was fully deducted by the taxable person, were associated operations that gave rise to VAT assessment (advertising sales) but also, necessarily, others, generating income (...) on which no tax was assessed (fees)" whereby the Respondent concludes that "(...) as the adoption of the actual allocation method (i) required the existence of accounting separation between acquisitions of goods and services intended for the sector conferring full VAT deduction and acquisitions concerning the sector in which VAT deduction is excluded and (ii) presupposed that all operations considered in the deduction were associated with an activity in which all income obtained is subject to VAT and not exempt, it could not be applied (...) due to failure to meet the requirements listed" (underlined by the Respondent).

Thus, the Respondent reiterates that "it was for this reason that, in the inspection report, it was stated that the correct deduction method to be applied in this situation should have been the deduction percentage method or pro rata".

Additionally, the Respondent understands that "through the bylaws and the content of A...'s website page, it was possible to confirm that magazine publication and subsequent distribution to members is mandatory but the benefit of membership is acquired by payment of fees" whereby "(...) it is deemed consistent to assert that the fee, as the only mandatory payment for magazine recipients, is, in part or in its entirety, allocated to the activity of magazine publication and distribution".

Thus, the Respondent understands that "considering that there was no doubt that, at minimum, part of the fee amount would always have to be allocated to the magazine publication and distribution activity, all efforts were made in order to determine the allocation percentage", "the calculation should take into account factors such as the number of members, the amount paid, the number of magazines printed and distributed, as well as other events held and costs incurred in each year but, without the provision of such elements, the requirements necessary to ascertain the allocation rate were not met, so the full amount was considered" (underlined by us).

For the Respondent it is manifest "(...) that the right to VAT deduction borne on inputs related to the magazine is neither never could be deductible, because in addition to disregarding the rules of CIVA and the Directive, it directly violates the principle of neutrality (...)," reiterating that "(...) as the Claimant failed to provide elements that would allow realization (...) of the right to deduction, namely, by providing the information requested by the SIT in order to ascertain the amount of fees allocated to the production and distribution of the magazine, the SIT carried out the less burdensome correction for the Claimant and which still safeguards the aforementioned principle of neutrality," "that is, despite accepting the deductibility of tax relating to advertising, the Respondent could not fail to take into account the amount relating to fees, because unquestionably they are allocated to the production and distribution of the magazine" (underlined by us).

And "as the Respondent failed to demonstrate, as was its obligation (art. 74 of LGT, 29 no. 1 par. g) of CIVA), what part of the fees was allocated for such purpose, the Respondent had to consider the fees in their entirety" whereby the Respondent understands "(...) that the arguments invoked by the Claimant in the request for arbitral pronouncement, here expressed and fully contested, as well as the documents attached, fail, as they do not correspond to the truth or one cannot extract the legal effects sought by the Claimant from them," concluding the Respondent that there should be lacking "(...) fully the reasons and arguments expended by the Claimant in favor of the (...) desired annulment of the tax acts" (underlined by us).

CASE MANAGEMENT

4.1. The request for arbitral pronouncement is timely, as it was submitted within the period provided for in paragraph a), no. 1 of Article 10 of RJAT.

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

4.3. The parties have legal personality and legal capacity, are entitled as to the request for arbitral pronouncement and are duly represented, pursuant to the provisions of Articles 4 and 10 of RJAT and Article 1 of Ordinance no. 112-A/2011 of 22 March.

4.4. No procedural defects were identified.

4.5. There are no exceptions requiring determination.

MATTERS OF FACT

5.1. Preliminarily, and with respect to matters of fact, it is important to note that the Tribunal does not have to pronounce on everything that was alleged by the parties, it being its duty instead to select the facts that matter for the decision and discriminate proven facts from unproven ones [see Article 123, no. 2 of the Tax Procedure and Process Code (CPPT) and Article 607, nos. 3 and 4 of CPC (applicable pursuant to Article 29, no. 1, paragraphs a) and e), of RJAT].

5.2. Thus, the facts relevant for judgment of the case are selected and defined according to their legal relevance, which is established in light of the various plausible solutions to the question(s) of Law.

Proven facts

5.3. The Claimant is a scientific association of private law, non-profit and of public utility, endowed with legal personality, established in 1948, for an indefinite period, governed by its bylaws and applicable legal provisions and is classified under CAE 72200 "Research and Development in Social and Human Sciences".

5.4. The Claimant's Mission is the protection and promotion of ... health and well-being, through excellence and defense of health care, education, research and support to members.

5.5. The Claimant A... has as its object (Article 3 of the Bylaws):

"a) Promote the study of ... health and ... and the promotion and dissemination of progress in ... in the care, pedagogical and research aspects;

b) Represent ... Portuguese in relations with National and International Entities that present convergence with the objectives of A...;

c) Intervene as a partner or consultant with the authorities and civil society in promoting ... health and ... and in solving pediatric problems;

d) Promote privileged exchange with peers and Portuguese-speaking communities".

5.6. In accordance with its Bylaws, in pursuing its objectives, it is incumbent upon the Claimant, in particular:

"a) The study of problems inherent to members as interveners in promoting ... health and well-being and ... and their integration in the family and community;

b) Promote training and information activities to its members within the scope of the social object;

c) Collaborate with other bodies, national and international, promoting cooperation of activities related to the statutory objectives;

d) Promote the study of different specific areas of ...;

e) Procure the capture of financial resources for the implementation of its actions;

f) Select and hire individual and legal persons, so as to ensure proper functioning within the scope required by its purposes".

5.7. Still in accordance with the Bylaws (Article 5 of the Bylaws), "may be members (...) the ..., other professionals and institutions directly linked to ... health and ...," the Claimant having the following categories of members:

a) Effective;
b) Aggregate;
c) Corresponding;
d) Honorary;
e) Benefactor.

5.8. Effective members (Article 5, no. 3 of the Bylaws) have the right, according to Article 6, no. 1 of the Bylaws, to:

"a) Participate in the scientific initiatives of A...;

b) Participate and vote in General Assemblies;

c) Elect and be elected to the governing bodies of A...;

d) Benefit from all activities, initiatives, services and support of A...;

e) Receive the scientific publications that A... publishes, namely the ...;

f) And participate in the area dedicated to professionals on A...'s website" (bold and underlined by us).

5.9. Effective members, according to Article 7 of the Bylaws, have the duty to:

"a) Contribute to A... with the fee set by the General Assembly and with all contributions voted by this body;

b) Perform with zeal and diligence the positions to which they are elected;

c) Comply with and enforce the applicable legal provisions for A..., as well as the Bylaws, Internal Regulations and decisions of the governing bodies" (bold by us).

5.10. Aggregate, corresponding, honorary and benefactor members (Article 5, no. 4 of the Bylaws) do not have the right, according to Article 6, no. 3 of the Bylaws, to:

a) Vote in General Assemblies;

b) Elect and be elected to the governing bodies of A...;

having the remaining rights listed for effective members (see point 5.8., above)

5.11. Aggregate members, according to Article 7, no. 2 of the Bylaws, have the duty to:

"a) Contribute to A... with the fee set by the General Assembly, and with all contributions voted by this body;

b) Comply with and enforce the legal provisions applicable to A..., as well as the Bylaws, Internal Regulations and decisions of the governing bodies" (bold by us).

5.12. Corresponding, honorary and benefactor members do not have the duty to contribute to A... with the fee set by the General Assembly or with any other contribution voted by this body.

5.13. In terms of Income, according to Article 42 of the Bylaws, "the income of A... consists of:

a) Fees paid by members;

b) The proceeds of agreements made with members, sections and third parties;

c) Subsidies, donations, grants, inheritances that accrue to it and are accepted by A...;

d) The proceeds from the sale of publications;

e) The proceeds from activities developed, namely training or improvement activities organized by A... for members or third parties, as well as any services provided in its area of intervention;

f) The proceeds from research activities;

g) Income from own property;

h) Other contributions from members or third parties, which are legitimate" (underlined by us).

5.14. In terms of tax classification, the Claimant is classified, for corporate income tax (IRC) purposes, as a taxable person pursuant to paragraph a) of no. 1 of Article 2 of the IRC Code and, for VAT purposes, due to the activity it carries out, is a taxable person under VAT pursuant to no. 1 of Article 1 of the VAT Code, being classified in the normal regime with monthly periodicity.

5.15. Given that the Claimant develops activities encompassing operations subject conferring the right to VAT deduction supported upstream and, simultaneously, operations that are exempt from tax, in terms of tax classification for VAT purposes, the Claimant is a mixed taxable person with actual allocation of all assets.

5.16. With respect to the VAT deduction method, the Claimant adopted the actual allocation method and the amounts considered were limited exclusively to operations related to the preparation and distribution of a quarterly publication, of scientific nature, called "...".

5.17. In the financial years 2014 and 2015, the Claimant presented the following total amounts in the VAT Returns filed throughout each year:

5.18. The Claimant was subject to an external inspection action, of limited scope, covering the financial years 2014 and 2015, pursuant to service orders no. OI2017... and OI2017..., respectively, opened for VAT and IRC, motivated by the VAT credit which was in carryforward status, in successive periods, without a request for refund (see previous point).

5.19. The inspection acts commenced on 28 April 2017 and were concluded on 23 October 2017.

5.20. According to the conclusions presented in the draft Inspection Report:

5.20.1. "In terms of deduction, the taxable person adopted the actual allocation method and the amounts considered were limited exclusively to operations related to the preparation and distribution of a quarterly publication, of scientific nature, called ... which is distributed free of charge by A..., in the course of its activity, to any member, as one of the benefits for being a member and is encompassed in the counterparts provided by the fees paid. (...). The taxable person applied the actual allocation method because it considered that it could isolate all operations associated with this activity and that all income obtained was subject to VAT and not exempt. Analyzing this activity, it was found that the preparation and distribution of the magazine (...), in terms of active operations, encompasses the sale of advertising spaces inside it, an activity not exempt from tax but also the fees paid by members (...) who receive it free of charge, as one of the counterparts of being members. The fees paid (...) are income subject to VAT but exempt (...). With respect to the tax deducted, the taxable person entered in field 24 (...), the tax borne with the acquisition of services associated with (...) magazine preparation (graphic production and acquisition of technical content). However, the taxable person only considered as inputs of the activity the advertising receipts, which is not correct. (...). The relevance of the fees paid is evident and can be assessed from mere analysis of the accounting where the expenses (and VAT deducted) associated with magazine preparation and distribution far exceed the income (and VAT assessed) obtained from advertising, that is, without the financing of A..., through fees, the magazine would not have economic viability. Thus being, (...), the taxable person should have considered the income from advertising sales, the fees paid by magazine recipients and the expenses necessary for its preparation and distribution. In light of the foregoing, considering that we are dealing with income obtained subject to VAT, exempt and not subject to tax, the correct deduction method to be applied in this situation should have been the deduction percentage method or pro rata (...)" (underlined by us)."

5.20.2. With respect to the tax credit carried forward from prior periods, "based on the calculations performed it was found that the amount of the tax credit carried forward in 2014 (in period 1403T) was improperly increased by EUR 19,342.31 for transactions carried out between 2008 and 2013" and "(...) the deduction of the tax credit ascertained in non-documented periods (prior to 2008), that is, the deduction of EUR 58,504.98, cannot be accepted";

5.20.3. To the VAT deducted with the acquisition of other goods and services (2014 and 2015), "for the reasons identified in the analysis of the carried forward credit, (...), taking into account the application of pro rata in 2014 and 2015, as (...) was explained for the years 2008 to 2013 (...)," corrections were proposed, both for the year 2014 and for the year 2015.

5.21. Thus, from said inspection action resulted a draft of corrections, for VAT purposes, in the total amount of EUR 81,232.83 (year 2014) and EUR 2,507.03 (year 2015), on the ground of improper VAT deduction through use of incorrect deduction method (use of the actual allocation method).

5.22. The Claimant was notified of the draft corrections from the Inspection Report through Official Letter no. ..., of 27 October 2017 (file no. RD...PT) as well as to exercise, if it wished, its right to be heard within 15 days.

5.23. The Claimant exercised its right to be heard in writing, through registered mail (RH...PT), received on 15 November 2017 and by electronic mail, contesting the corrections proposed by the SIT with respect to the "legally adequate deduction method," "correct methodology for calculating percentage" and "expiration of the right to assess tax".

5.24. With respect to corrections related to the "deduction method," the Claimant understood in its right to be heard that:

5.24.1. "(...) the advertising/magazine distribution activity is an isolatable activity" and that "the SIT also accepted this principle";

5.24.2. "(...) from among the overall activity of A..., it is accepted that it is appropriate to separate (allocate) this sector of activity, that is, at the basis of the SIT's correction is a method of actual allocation (albeit partial)";

5.24.3. "A... understood that the free distribution of the magazine to members did not have a value (...) to be weighed in this advertising/magazine distribution activity" but "(...) the SIT understood that the distribution of the magazine to members is (the only) counterpart to all fees (...), and should (...) have weight in the percentage of VAT deduction";

5.24.4. Since it makes sense for the Claimant "(...) to isolate the advertising/magazine distribution activity" we would be, according to the Claimant, "(...) in full application of no. 2 of Article 23 which allows actual allocation (...) of an identifiable part of the activity".

5.25. With respect to the "correct methodology for calculating percentage," the Claimant reiterates that:

5.25.1. "(...) the law (...) requires the adoption of (any) objective criterion (provided that it proves adequate)" and "(...), in the pro rata applied by the SIT, they associated the total value of member fees as being the counterpart (payment) of the magazine which (...) is distributed without payment of a price" (underlined by us);

5.25.2. "As follows from A...'s bylaws (...), member fees do not properly have a counterpart, merely associating with a series of rights and duties of a financial, social, participatory and cultural/scientific nature, etc", "that is, there is no sinallagma whatsoever between the value (and even less the total value) of the fee with the receipt of the magazine" (underlined by us);

5.25.3. "Due to this lack of direct and immediate relationship, A... understood that the value of fees does not matter for the percentage of VAT deduction borne with the costs of magazines".

5.26. With respect to "expiration of the right to assess tax," as such matter does not form part of the corrections contested in this proceeding, it will be relevant here only insofar as "(...) the VAT deducted from 2008 to 2013 (...)," that "(...) the SIT applied the same pro rata calculation rule they adopted for the inspected financial years 2014 and 2015 and considered that the tax credit from that period (...) was improperly increased for 2014 in the amount of EUR 19,342.31", reiterating the Claimant that, for this correction, "(...) the arguments made (...) against the method and calculation of deduction percentage underlying the correction proposed for the inspected financial years 2014 and 2015 apply";

5.27. As the SIT found that the "Summary Map of Corrections Resulting from the Inspection Action (...) for the financial year 2014, integrated (...) [in the] draft report, did not show all the corrections described throughout it" and further as the SIT proposed the "(...) maintenance of the corrections identified in the first draft report (...)," in compliance with Articles 60 of LGT and RCPITA, they proceeded to notify the Claimant, by registered mail (Official Letter no. ..., of 18 January 2018), of a second "Draft Report" so that the Claimant, if it wished, could exercise a new right to be heard, within a period of fifteen days.

5.28. Within the period granted, the SIT received a second right to be heard, maintaining the SIT in the Inspection Report issued the arguments previously presented in the examination of that first right to be heard.

5.29. The Claimant was notified of the final version of the Inspection Report through Official Letter no. ..., of 29 March 2018, in which the SIT, after having considered the arguments presented by the Claimant in its right(s) to be heard, concluded regarding this proceeding that:

5.29.1. With respect to the "legally adequate deduction method," the Respondent came to reiterate that "(...) being fees an exempt income (...) and advertising, an operation subject and not exempt, we are faced with a mixed activity which (...) allows VAT deduction in the percentage corresponding to the amount of annual operations giving rise to deduction";

5.29.2. With respect to "correct methodology for calculating percentage," the Respondent came to consider that "(...) no elements were presented that call into question the corrections proposed regarding the tax deducted in 2014 and 2015, whereby they should be maintained (...)".

5.30. Thus, "(...) by considering that no elements were presented that would allow altering the corrections proposed (...)," the SIT understood in the Inspection Report that the corrections proposed must be fully maintained, that is:

"i. (...);

ii. Tax deducted – in 2014 and 2015 VAT was deducted which exceeded the limit ascertained by application of the pro rata percentage, whereby a correction should be made in favor of the State (field 41) of the improperly deducted tax".

5.31. Consequently, the Claimant was notified of the following VAT and interest assessments, which are partially contested in this proceeding:

Notwithstanding the conclusions resulting from the Inspection Report being more comprehensive, and consequently, also the assessments resulting from it, this arbitral request concerns only the part of the assessments which reflects the correction resulting from non-acceptance of the VAT deduction method practiced by the Claimant with respect to the magazine activity "...," that is:

• The correction of the amount of the VAT credit carried forward in the first declaration of 2014, in the amount of EUR 19,342.31;
• The correction of the carried forward credit in the amount of EUR 5,245.72 (year 2014) and in the amount of EUR 2,507.03 (year 2015);

totaling the amount of VAT corrections contested in the arbitral request, the sum of EUR 27,095.06.

5.33. No other facts capable of affecting the merits decision of the request were proven.

Reasoning regarding matters of fact

5.34. Regarding the proven facts, the conviction of the Arbitral Tribunal was based, in addition to the free assessment of the positions taken by the Parties (regarding facts), on the content of the documents submitted, by both Parties, to the file, as well as on the analysis of the administrative file sent by the Respondent.

Unproven facts

5.35. It was not proven that the Claimant paid the amounts associated with the VAT and interest assessments, in the part contested in this arbitral request.

5.36. No other facts occurred that were proven to be unproven with relevance to the arbitral decision.

MATTERS OF LAW

6.1. With the matter of fact established as proven, it is now important to determine the law applicable to the underlying facts, according to the questions to be decided.

6.2. In this context, in the arbitral process under analysis, the questions regarding which the Claimant and Respondent present opposing understandings consist of:

6.2.1. Whether, in calculating deductible VAT, in 2014 and 2015, the Claimant should have considered the income from advertising sales, the fees paid by magazine "..." recipients and the expenses necessary for its preparation and distribution?

6.2.2. Whether the correct deduction method to apply, with respect to magazine preparation and distribution, should have been the deduction percentage method or pro rata (as the Respondent argues) and not the actual allocation method (as the Claimant argues)?

6.2.3. Whether, as a result of the VAT deduction method used by the Claimant (actual allocation method), it deducted, in 2014 and 2015, tax that exceeded the limit ascertained by application of the pro rata percentage?

6.2.4. Whether, consequently, the Claimant deducted tax improperly?

6.2.5. Whether, given the answers to be given to the foregoing questions, the VAT assessment acts and compensatory interest, object of the arbitral request, suffer from illegality or not in order to decide whether, consequently, said assessment acts should or should not be annulled?

6.3. Regarding the matter in dispute, as we saw above, the Claimant argues that being, for VAT classification purposes, a mixed taxable person [because, "in pursuing its statutory functions (...) it has generally developed (i) VAT-exempt activities (...) and (ii) the activity of providing advertising services subject to VAT on the pages of (...) ACTA magazine"], "in the years to which the inspection refers (...) and earlier, (...) it adopted the actual allocation method, having deducted only the VAT (...) of magazine costs (...), understanding that these costs are entirely and exclusively associated with advertising sales (...)", thus disagreeing with the position taken by the SIT in the Inspection Report (and subsequently, the position of the Tax Authority reiterated in the Response) that "(...) although accepting that magazine activity has autonomy to be isolated [a position, however, contested by the Respondent], they understand that A... should have adopted the pro rata method (general) (...)" and ascertained "(...) the aforementioned deduction percentage by placing in the numerator the outputs obtained from advertising and in the denominator the outputs obtained from advertising and the total of fees paid by members" because they understood that "(...) the magazine is sold/transmitted (without VAT) having in exchange the value of all annual fees that members pay (...)" (underlined by us).

6.4. Thus, in the view of the SIT, "(...) this value (...) that should be weighed, together with the costs of advertising sales, for calculation of the pro rata of VAT deduction borne with the costs of magazine production and distribution" (underlined by us).

6.5. In this context, the Claimant understands that "the (...) (point of disagreement between A... and the ATA) lies in the question of associating the value (entirety) of the fees to the magazine activity" because "(...) it follows from A...'s bylaws that member fees do not properly have a counterpart, merely associating with a vast series of rights and duties of a financial, social, participatory and cultural/scientific nature, etc." whereby the Claimant understands that "(...) the SIT are not right (...)," concluding that "(...) it has the right to deduct the VAT, whose correction to the deduction it now contests" (underlined by us).

6.6. On the other hand, the Respondent understands that "(...) it is imperative to conclude that there is no doubt that the subject of the activity subject to tax is the publication and distribution of the magazine ... to members (rights provided in A...'s Bylaws)" whereby the Respondent understands that "the sale of advertising spaces inside the magazine, in light of the accounting elements presented and, especially, those which were not presented in the course of the inspection acts (...), did not succeed in meeting the requirements necessary to be, even, an isolatable area of the main activity (publication and distribution of the magazine) remaining, merely, as a component that contributes to the formation of total income from it" (underlined by us).

6.7. Thus, according to the Respondent, although the Claimant refers to "(...) adopting the actual allocation method for VAT deduction (...) deducting the full VAT whenever the input is consumed in an activity conferring the right to deduction (...)", "(...) this was not the procedure that was actually applied because the activity underlying the expenses incurred was magazine publication and distribution which (...) does not have as its sole income, the amount received from advertising sales inside it" because "(...) analyzing the accounting, it is possible to verify that income from advertising sales did not generate sufficient means to meet the expenses incurred (...)".

6.8. And, being demonstrated for the Respondent "(...) that other funds contributed to the pursuit of the activity and, by not being subject to VAT assessment, immediately preclude full deduction of the tax borne with the inherent expenses, as they are associated with a mixed activity" a position that it reinforces by asserting that "(...) it is undeniable that magazine publication and its distribution to the member are expressly provided as counterpart to the payment of the fee" (underlined by us).

6.9. Thus, the Respondent understands that "(...) it was (...) demonstrated that, to the VAT which was fully deducted by the taxable person, were associated operations that gave rise to VAT assessment (advertising sales) but also (...) others, generating income (...) on which no tax was assessed (fees)" whereby the Respondent reiterates that "(...) the correct deduction method to be applied in this situation should have been the deduction percentage method or pro rata" (underlined by us).

6.10. For the Respondent it is further manifest "(...) that the right to VAT deduction borne on inputs related to the magazine is neither never could be deductible (...)" because "(...) it directly violates the principle of neutrality, which is (...) the foundation of VAT", "(...) the Claimant having failed to provide elements that would allow realization (...) of the right to deduction (...)".

6.11. And, for the Respondent, "the Claimant having failed to demonstrate, as was its obligation (...), what part of the fees was allocated for such purpose, the Respondent had to consider the fees in their entirety," concluding in the sense "(...) that the arguments invoked by the Claimant in the request for arbitral pronouncement (...) fail" (underlined by us).

6.12. Given the positions, in summary, set out above, this Arbitral Tribunal must analyze the arguments presented by each of the Parties and decide which of them has merit, in light of the applicable legal rules.

6.13. In this context, regarding the exercise of the right to VAT deduction, some preliminary considerations are warranted, both regarding its nature and regarding its exercise by mixed taxable persons.

On the nature and scope of the exercise of the right to deduction

6.14. VAT is a tax that taxes consumption, and the true delimiting criterion of the basis of incidence thereof is the concept of economic activity, which will have crucial importance in delimiting the right to deduction of mixed taxable persons, such as the Claimant.

6.15. In fact, as Rui Manuel Pereira da Costa Bastos writes, "in defining VAT taxable persons, the national legislator chose, from the outset, not to use the concept of economic activity, an autonomous notion of EU Law, without prejudice to using, in part, its definition provided by the VAT Directive, using the same redundancy of the EU legislator (...), which should serve only to emphasize the comprehensive character of the field of application of this tax".[2]

6.16. And, still according to the same author, "notwithstanding that we are in the presence of a general tax on consumption, endowed with a very broad scope of application (...), we have found (...) that only activities having an economic character are encompassed, when carried out by a taxable person. Thus, the residual and comprehensive concept of provision of services (...), as stated in the VAT Code (...), has as its delimitation the very concept of economic activity, materialized in an act of consumption, which must necessarily occur".[3]

6.17. Returning to the characterization of VAT, note that the principle of neutrality constitutes the principal characteristic of this tax, as a corollary of the legal principle of non-discrimination.

6.18. In fact, neutrality constitutes a central characteristic of VAT, both from an internal perspective (embodied in its non-influence on price formation, in the structure of the economic circuit), and from an external perspective (in interstate commercial relations, with the adoption of the destination principle).

6.19. "The exercise of the right to VAT deduction embodies one of the principal characteristics of this tax, (...) in accordance with the regime established in the Sixth Directive of 1977 (Directive 77/388/EEC, of the Council, of 17/05/1977), more precisely in its Article 17, which establishes the rules of exercise of the right to deduction of the tax, contemplating various objective and subjective requirements of exercise of that right to deduction" (underlined by us).[4]

6.20. Now, the mechanism of the right to deduction allows the taxable person to purge its burden of upstream-borne VAT, not thereby reflecting it as an operational cost of its activity, removing the cumulative effect and cascading taxation that characterized the tax which VAT replaced, promoting the economic neutrality of the tax.

6.21. Thus, in the internal legal system, according to Article 19, no. 1 of the VAT Code (Right to Deduction), "for calculation of tax due, taxable persons deduct (...) from the tax inciding on the taxable operations they carried out (...)" in particular, "the tax due or paid for the acquisition of goods and services from other taxable persons (...)," and that, pursuant to no. 2 of said Article 19 "only the aforementioned tax (...) in invoices issued in the legally prescribed form (...)", in the name and possession of the taxable person for VAT purposes, confers the right to deduction.

6.22. Additionally, the right to VAT deduction is limited to allocation, even if partial, of the expenses in question in operations conferring the right to deduction, which are enumerated in Article 20 of the VAT Code and in Articles 168 and 169 of Directive 2006/112/EC, of the Council, of 28 November 2006 (hereinafter referred to as VAT Directive).

6.23. According to Article 20, no. 1 of the VAT Code (Operations conferring the right to deduction), "only the tax that has incided on goods or services acquired, imported or used by the taxable person for realization (...)" in particular of "supplies of goods and provisions of services subject to tax and not exempted from it" and of "supplies of goods and provisions of services consisting of (...) exempt operations (...)" pursuant to the legally provided terms can be deducted.

6.24. On the other hand, the VAT Directive establishes, in its Article 173, no. 1 that, "as regards goods and services used by a taxable person for carrying out both operations with the right to deduction, referred to in Articles 168, 169 and 170, as operations without the right to deduction, deduction is permitted only regarding the proportion of VAT corresponding to the amount relating to the first category of operations" (underlined by us).

6.25. In fact, an entity may simultaneously carry out operations conferring the right to deduction alongside others not conferring that same right, in particular because they are exempt or simply not subject, (namely, because they do not fit within the concept of "economic activity" mentioned above).

On the exercise of the right to deduction by mixed taxable persons

6.26. In this context, preliminarily, note that, as writes Rui Manuel Pereira da Costa Bastos (in the work already cited), "guarantor of neutrality, a structuring principle of the common (...) VAT system, the right to deduction is conditioned to the existence of a direct and immediate relationship between the goods and services acquired (inputs) and the operations which, inserted in the perimeter of the concept of economic activity, are taxed. Deduction will, however, be partial if those inputs are mixed, that is, simultaneously allocated to taxed operations or non-taxed operations because they are VAT-exempt or simply outside its field of application. In these circumstances, the deduction of VAT must be proportional to the operations conferring the right to deduction. This proportionality, in the particular case of the commonly called "mixed taxable persons," must be assessed, from an ex ante perspective, according to the actual allocation method, based on accounting separation with reference to objective allocation criteria, or, from an ex post perspective, according to the deduction percentage method or pro rata, which takes as reference the outputs of each activity, implementing the volume of business. (...)" (underlined by us).

6.27. At the domestic level, it follows from Article 23, no. 1 of the VAT Code (Methods of deduction relating to goods of mixed use) that, when a taxable person, in the exercise of its activity, carries out supplies of goods and provisions of services, some of which do not confer the right to deduction, the tax borne on acquisitions is deductible only in the percentage corresponding to the annual amount of operations giving rise to deduction.

6.28. If we compare the prior wording of no. 1 of Article 23 of the VAT Code with the current wording [introduced by Law no. 67-A/2007, of 31 December – State Budget Law for 2008 (LOE 2008)], it is evident that it was the legislator's intention to clarify and restrict the scope of application of the criteria for apportionment of VAT by activities of mixed nature.

6.29. In fact, following the author and the work already cited, from the prior wording of that article there resulted a literal interpretation, in light of which the scope of application of Article 23 of the VAT Code extended to all goods and services acquired by mixed taxable persons, even if exclusively allocated to one or two operations, referring to these the method of direct imputation.

6.30. In these terms, consideration/limitation of deductibility of VAT contained in expenses exclusively allocated to a non-operation (that is, operations not resulting from the exercise of an economic activity) or in the sphere of exercise of an economic activity, their exclusive allocation to an operation conferring the right to deduction or, alternatively, to an operation not conferring that right, must be addressed in light of Article 20 of the VAT Code, through direct imputation, and never Article 23 of the same instrument.[5]

6.31. In this manner, only once the filter of Article 20 of the VAT Code is exceeded, and only in the case of indistinct use of inputs for both types of operations portrayed, will the application of Article 23 of that instrument be questionable.

6.32. In this context, the condition of mixed taxable person is limited to mixed use of goods/services and does not properly result from the mere fact that a given taxable person simultaneously exercises the right to deduction in contrast to others not conferring that same right.[6]

6.33. Thus, with respect to the methodologies proposed for purposes of VAT deductibility borne by mixed taxable persons, the general rule provided, both in Article 173, no. 1 of the VAT Directive and in Article 23, no. 1 of the VAT Code, points toward use of the deduction percentage method or pro rata which may, however, be displaced by application of the provisions of nos. 2 and 3 of Article 23 of the VAT Code, that is, by application of the actual allocation method.[7]

6.34. This method is provided, as mentioned above, in no. 2 of Article 23 of the VAT Code, having Article 52 of LOE 2008 added to the wording of that article the expression "(...) based on objective criteria that allow determination of the degree of utilization of these goods and services in operations conferring the right to deduction in operations not conferring that right"

6.35. "In these terms, this deduction method places as a premise the existence of a direct and immediate connection between a given upstream operation and one or several downstream operations with the right to deduction" (underlined by us).[8]

6.36. Thus, "(...) it is required that the said direct and immediate relationship be assessed according to the objective content of the upstream input (...) borne, nothing preventing that the exclusive cause of the operation in question may also be taken into account as a criterion for determining such content" and should, "in a first phase, (...) be assessed whether the upstream operation subject to VAT presents a direct and immediate relationship with one or several operations conferring the right to deduction, presupposing the reporting of its cost in the price of these" and "subsequently, if such is not the case, should be assessed whether the expenses incurred for the acquisition of goods or services upstream are part of the general expenses linked to the set of economic activity of the taxable person (...)."[9]

6.37. Consequently, there is the possibility of deducting the entire tax borne in the acquisition of goods and services intended for activities giving rise to deduction but simultaneously preventing the deduction of tax borne on operations not conferring that right.[10]

6.38. In fact, the wording of Article 23 of the VAT Code is particularly innovative because, "through express legal imposition, the VAT contained in inputs simultaneously allocated to an economic activity and a non-economic activity, must, necessarily, be subject to apportionment through application of the actual allocation method (...)."[11] [12]

6.39. The primary factor that characterizes this method and distinguishes it from the deduction percentage method or pro rata rests on the existence of a criterion for assessing the percentage of deductible VAT inherent to mixed inputs, which reflects the actual allocation of these, regardless of the outputs associated with the activities that comprise them.

6.40. However, nothing prevents use of the actual allocation method for certain inputs whose nature thus allows, leaving the pro rata method for other consumption in which application of this methodology would not prove efficient, namely due to increased complexity and compliance costs.

6.41. In truth, it is relevant to note that use of the actual allocation method requires specificities of an accounting nature because it is in accounting separation that the calculation of the proportionality of deductible VAT rests (autonomization of activities, apportionment of indirect costs, reflected in mixed inputs).

6.42. It would thus be unquestionable that it is the actual allocation method which potentially should best reflect the degree of actual utilization of a given input at the level of activities conferring the right to deduction, without prejudice to such method possibly representing an increase in the effort of information to be provided which corroborates the allocation criteria used and, consequently, the requirements of an accounting nature.

On the corrections carried out reflected in the disputed assessments

6.43. In this context, let it first be stated that it is undisputed that the Claimant is, for VAT classification purposes, a mixed taxable person (see point 5.15., above) because, in pursuing its statutory activities, it develops actions with different VAT classifications, that is, it practices, simultaneously, exempt operations without the right to deduction and taxed operations conferring the right to deduction

6.44. As already noted, within the corrections subject to the arbitral request what is at issue is the adoption of the VAT deduction method used by the Claimant (actual allocation method) in the expenses it incurred with the production and distribution of a scientific publication which, quarterly, is distributed free of charge to its effective members.

6.45. In fact, the Claimant acknowledges in the arbitral request that, having adopted the actual allocation method, it deducted in full the VAT borne with magazine costs (printing, paper, transport and distribution), understanding that these are entirely and exclusively associated with advertising sales in the magazine which it publishes quarterly, as it understands that this publication is a piece of advertising, which constitutes an isolatable activity within the context of the Claimant.

6.46. The SIT in the Inspection Report understood that "(...) magazine preparation and distribution (...) in terms of active operations, encompasses the sale of advertising spaces inside it, a taxed activity and not exempt from tax but also the fees paid by members, recipients of the magazine (...)," whereby the SIT and the Respondent came to defend that, for purposes of "correct understanding of this activity for VAT purposes, the taxable person should have considered income from advertising sales, the fees paid by magazine recipients and the expenses necessary for its preparation and distribution," whereby they concluded that "considering that we are dealing with income obtained subject to VAT, exempt and not subject to tax, the correct deduction method to be applied (...) should have been the deduction percentage method or pro rata" (underlined by us).

6.47. In this context, this Arbitral Tribunal understands that the Claimant is correct when it states that "(...) member fees do not (...) have a counterpart, merely associating with a vast series of rights and duties of a financial, social, participatory and cultural/scientific nature (...)," and that for this reason, it would make no sense to associate the value of the fees with the publication of the magazine.

6.48. In fact, as a matter of proven fact noted at point 5.