Summary
Full Decision
ARBITRAL DECISION
I – REPORT
The arbitrators Judge José Poças Falcão (presiding arbitrator), Dr. Hélder Faustino and Dr. Arlindo José Francisco (member arbitrators), designated by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, agree as follows:
1. On 7 September 2018, A..., S.A., NIPC ..., with registered office at Rua ..., ..., in ... (hereinafter Claimant), filed a request for constitution of an arbitral tribunal, pursuant to the combined provisions of articles 2, no. 1, paragraph a), and 10, no. 1, paragraph a), and no. 2, of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters (hereinafter, abbreviated as RJAT), as amended by article 228 of Law no. 66-B/2012, of 31 December, with a view to obtaining the pronouncement of this tribunal regarding:
- Assessment of the lawfulness of the decision dismissing the gracious appeal presented with a view to annulling the tax acts establishing Value Added Tax (VAT) for May 2013 and corresponding compensatory interest, as well as the tax act establishing VAT.
The Claimant attached 15 (fifteen) documents.
The Respondent is the AT – Tax and Customs Authority (hereinafter, Respondent or AT).
2. Essentially, the Claimant alleges that:
The legal transaction actually concluded with C..., Lda. was a contract for the transfer of an autonomous business branch.
3. The request for constitution of an arbitral tribunal was accepted by the President of CAAD and followed its normal course with notification to AT on 13 September 2018.
4. The Claimant did not proceed to nominate an arbitrator, so, pursuant to article 6, no. 2, paragraph a) and article 11, no. 1, paragraph a) of the RJAT, the President of the Deontological Council of CAAD designated as arbitrators of the collective Arbitral Tribunal the undersigned, who communicated acceptance of the assignment within the applicable period.
4.1. On 29 October 2018, the parties were notified of this designation and did not express their will to reject the designation of the arbitrators, in accordance with the combined terms of article 11, no. 1, paragraphs b) and c), of the RJAT and articles 6 and 7 of the CAAD Deontological Code.
4.2. Thus, in accordance with the provision of article 11, no. 1, paragraph c) of the RJAT, the collective Arbitral Tribunal was constituted on 19 November 2018.
5. On 7 January 2019, the Respondent, duly notified for that purpose, filed its Response in which it specifically contested the arguments put forward by the Claimant, concluding that the present action was unfounded.
5.1. Essentially and also briefly, it is important to summarize the most relevant arguments on which the Respondent based its Response, namely:
For the transfer carried out to be subject to the provisions of no. 4 of article 3 of the VAT Code, the operation should encompass assets capable of constituting an independent business branch.
However, by excluding the computer equipment that was in the establishment/property, it is concluded that the computer equipment considered indispensable for a company providing accounting services to continue its activity was not transferred, therefore an economic unit was not transferred, and the transfer in question, even though titled by the 2nd version of the contract, was not exempt from VAT.
5.2. The Respondent did not request the production of additional evidence and proceeded to attach the administrative file (hereinafter, PA) to the case file.
6. By order of 14 January 2019, the parties were notified of the decision of the collective Arbitral Tribunal to dispense with the holding of the meeting referred to in article 18 of the RJAT, with 29 April 2019 being set as the deadline for delivery of the arbitral decision.
7. On 16 January 2019, the Claimant filed a request stating its opposition to the decision of the collective Arbitral Tribunal not to hold the meeting of article 18 of the RJAT, arguing that the failure to produce witness evidence constitutes a procedural nullity, in accordance with article 195 of the Code of Civil Procedure (CPC).
II. CASE MANAGEMENT
The Arbitral Tribunal was regularly constituted and is competent ratione materiae, given the nature of the subject-matter of the case [cfr. articles 2, no. 1, paragraph a) and 5 of the RJAT].
The request for arbitral pronouncement is timely, as it was filed within the period provided for in article 10, no. 1, paragraph a), of the RJAT.
The parties have legal personality and capacity, have standing, and are regularly represented (cfr. articles 4 and 10, no. 2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).
The case is not affected by any nullities; no exceptions or preliminary matters have been raised that would prevent examination of the merits and that should be addressed.
III. GROUNDS
1. Issues to be determined
a) To ascertain whether the transaction in question in the present case should benefit from the provisions contained in no. 4 of article 3 of the VAT Code, and to draw the respective consequences for the act dismissing the gracious appeal no. .../2017 of the Finance Directorate of Lisbon and for the respective VAT assessments and compensatory interest (2017... and 2017...), in the total amount of € 80,607.12.
b) If the claim is successful, whether the ATA should be ordered to indemnify the claimant for the damages caused in the context of the tax execution proceedings nos. ...2017... and ...2017..., which are pending in the Finance Service of Oeiras ... with the provision of a bank guarantee, in accordance with article 53 of the LGT.
2. FACTS
The following facts are considered proven:
a) The Claimant is a joint-stock company that declared commencement of activity on 15 May 2001, whose corporate purpose consists of the "provision of management and accounting services, consultancy and training, especially in the area of management, project development, as well as commercialization of software and hardware and other equipment related to the activities developed", main CAE – 69200 - "Accounting and Audit Activities; Tax Consultancy", and whose activity focuses on the provision of accounting services in the 8 (eight) business units that make up A..., S.A..
b) For VAT purposes, the Claimant is a taxable person in accordance with paragraph a), no. 1, of article 2 of the VAT Code, subject to the normal regime with monthly periodicity, in accordance with the provision of paragraph b), no. 1, of article 41 of the VAT Code.
c) In the context of an inspection action, regarding the analysis of the gains and losses statement submitted by the Claimant, the AT verified that the most significant loss relates to the disposal of a financial interest corresponding to 67% of the share capital of company B..., S.A. (NIPC: ...), which was disposed of for the amount of € 300,000.00.
d) The interest in question was acquired in 2006 for the amount of € 1,000,900.00.
e) The Claimant presented copies of the contracts for the acquisition and transfer of the financial interest, as well as evidence of the respective means of payment and receipt.
f) The interest in question is reflected in the accounts for a total amount of € 1,067,305.80 (Account 411103 – "Capital Interests – M.E. –B...– Inforegisto" - € 158,243.80 and Account 44103 – "Goodwill – Inforegisto" - € 909,062.00).
g) From the accounting perspective, the Claimant showed a loss of € 0.00, having derecognized the balance of account 41113 – "Inforegisto" in the amount of € 158,243.80 and credited only part of account 44103 – "Goodwill – Inforegisto", in the amount of € 141,756.20.
h) The remaining goodwill, in the amount of € 767,306.00, was reallocated to other business units of the Claimant.
i) In the relevant tax period, the Claimant, through a contract concluded on 22 April 2013, transferred a client portfolio for the amount of € 300,000.00 to company C..., Lda. (NIPC:...).
j) The said contract establishes in its Clause 4, the revocation, by the Claimant, of the sublease contract concluded with company C..., Lda., relating to the property located at Rua ..., ..., ...-..., in ... .
k) In Clause 5, both parties undertake to take steps to effect the assignment of contractual position of employment contracts relating to employees D... and E... .
l) In Clause 6, no. 4, it follows that the price included the furnishings of the property, with the exception of assets owned by company A..., S.A., such as all computers, lettering and all material related to the brand F... .
m) The contract in question does not contain any list of assets of the fixed assets transferred. [In Annex no. 1 only the individual identification of the transferred client portfolio appears].
n) For the purposes of the said transfer, invoice no. 1 FA 2013L/1738, dated 3 May 2013, was issued by the taxable person to company C..., Lda., for the amount of € 300,000.00, with the reason for non-subjection to VAT being stated as the provision of no. 4 of article 3 of the VAT Code.
o) In accordance with the provisions of Clause 6, no. 4, the equipment located in the Claimant's establishment, in particular all computers, lettering and all material related to brand F..., were not transferred.
p) The AT made a correction to the Claimant, applying to the value of the consideration (€ 300,000.00) the rate of 23% provided for in paragraph c) of no. 1 of article 18 of the VAT Code, and ascertained the amount of VAT to be assessed, in the amount of € 69,000.00, in the period of May 2013.
q) On 19 September 2017, the Claimant exercised its right to be heard through a request that was filed with the AT services under registration no. 2017... .
r) In the exercise of the right to be heard, the Claimant stated that the contract found in Annex no. 1 of the inspection report was revoked by a contract designated as "Contract for Transfer of Economic Unit under Suspensive Condition", which is attached as Annex no. 6.
s) From the comparison of both contracts it appears that they are dated 22 April 2013, differing in the designation of the contract (page 1), in Clause 1 (page 2), Clause 6 (page 4) and a new annex to Annex no. 2 was attached.
t) It is further noted that the pages that were altered in the 2nd version of the contract are not initialed by all parties to the contract. Specifically, these pages show initials only in the upper right corner, contrary to the pages that were not altered which are initialed in the upper and lower corners on the right side.
u) From Clause 6 of the 1st version of the contract it follows that:
1. The consideration to be paid by the SECOND PARTY by this assignment of Client Portfolio corresponds to the value of 300,000.00 (three hundred thousand euros) (the Price);
2. On 23 April 2013, the SECOND PARTY pays, as an earnest, the sum of € 50,000.00 (fifty thousand euros), by certified check to be delivered at the establishment of G...;
3. The remaining € 250,000.00 (two hundred and fifty thousand euros) shall be paid by the SECOND PARTY by 10 May 2013, by certified check.
4. The Price includes the furnishings of the property, with the exception of assets owned by the FIRST PARTY, such as all computers, lettering and all material relating to brand F..., which the FIRST PARTY shall remove from the property within two days after the last payment is made.
5. The FIRST PARTY maintains full access to the property for the purposes of the above provision.
6. This contract serves as an enforceable instrument pursuant to paragraph c) of article 46 of the Code of Civil Procedure.
7. The payment of the price provided for in this contract includes all the settlement of accounts between the parties, due to the contracts referred to in the preamble. The rents and fees and other expenses of normal operation of the A... establishment in ... are the account of the FIRST PARTY up to 30 April and the account of the SECOND PARTY from that date onwards.
v) From Clause 6 of the 2nd version of the contract it follows that:
1. The consideration to be paid by the SECOND PARTY by this assignment of the economic unit corresponds to the value of 300,000.00 (three hundred thousand euros) (the Price);
2. On 23 April 2013, the SECOND PARTY pays, as an earnest, the sum of € 50,000.00 (fifty thousand euros), by certified check to be delivered at the establishment of G...;
3. The remaining € 250,000.00 (two hundred and fifty thousand euros) shall be paid by the SECOND PARTY by 10 May 2013, by certified check.
4. The Price includes the furnishings of the property listed in Annex no. 2, furnishings to which an overall value of € 50,000.00 (fifty thousand euros) is attributed, with the exception of assets owned by the FIRST PARTY, such as all computers, lettering and all material related to brand F..., which the FIRST PARTY shall remove from the property within two days after the last payment is made.
5. The FIRST PARTY maintains full access to the property for the purposes of the above provision.
6. This contract serves as an enforceable instrument pursuant to paragraph c) of article 46 of the Code of Civil Procedure.
7. The payment of the price provided for in this contract includes all settlement of accounts between the parties, due to the contracts referred to in the preamble. The rents and fees and other expenses of normal operation of the A... establishment in ... are the account of the FIRST PARTY up to 30 April and the account of the SECOND PARTY from that date onwards.
w) The price attributed to the equipment subject to transfer in the amount of € 50,000.00 is not reflected in the realization values of the Gains and Losses Statement of Tangible Fixed Assets made available by the Claimant [cfr. document 7 attached to the Inspection Report].
x) The realization value recorded in the Gains and Losses Statement is lower than the aforementioned amount (€ 14,890.52). [From the description of the assets disposed of that appears in the said Statement, it cannot be concluded that it relates to the contract in question. Furthermore, the disposal of 4 vehicles is noted that do not appear in Annex no. 2 of the said contract].
y) It is also noted that, in the light of the provision of point 4 of Clause 6, in both the 1st and 2nd version of the aforementioned assignment contract, all computers owned by the Claimant were excluded from the transaction.
z) In effect, in the copy of the declaration presented by the Claimant, the acquirer declares that the assets excepted in point 4 of Clause 6 were removed from the property.
aa) In October 2017, the Claimant was notified of the additional VAT assessment no. 2017..., referring to the period of May 2013, in the amount of € 69,000.00, to which is added compensatory interest in the amount of € 11,607.12, corresponding to document no. 2017... .
bb) On 13 December 2017, the Claimant filed a gracious appeal, which was subsequently dismissed by order of the Head of the Division of Administrative Justice of the Finance Directorate of Lisbon dated 4 June 2018.
cc) On 7 September 2018, the Claimant filed the present request for arbitral pronouncement.
With relevance for the assessment and decision of the case, no facts remain unproven.
3. JUSTIFICATION OF THE FACTS
The facts relevant to the judgment of the case were selected and delimited according to their legal relevance, in view of the plausible solutions of the legal issues, in accordance with the combined application of articles 123, no. 2, of the CPPT, 596, no. 1 and 607, no. 3, of the Code of Civil Procedure (CPC), applicable pursuant to article 29, no. 1, paragraphs a) and e), of the RJAT.
With regard to the facts proven, the Tribunal's conviction was based on the facts articulated by the parties, the accuracy of which was not contested and were therefore admitted by agreement, on the critical analysis of the documentary evidence on the case file, including the administrative file.
4. MATTERS OF LAW
The transfer in question results from a contract concluded between the claimant and the commercial company C... Lda., dated 22 April 2013, by which invoice no. 1 FA 2013L/1738 of 3 May 2013 was issued in the amount of € 300,000.00, with the indication that it is an act not subject to VAT in accordance with the provision of no. 4 of article 3 of the VAT Code, the claimant supporting its position on the fact that, in its understanding, it transferred a business unit that includes the facilities, the clients, the workers and all the fixed assets related to the business, having only excluded the material relating to brand F..., owned by the Claimant, as well as some computers which, being physically on the premises, were not included in Annex 2 of the contract, with the acquiring entity continuing the activity that had been developed by the Claimant, with no interruption in the service provided to clients, which is also evidenced in the financial statements of the acquiring company attached to the case file, namely with regard to the aspects of fixed assets, client balances, personnel expenses and provision of services, with the ATA merely limiting itself to founding the decision of non-applicability of no. 4 of article 3 of the VAT Code on the fact that the said contract contains a clause that excludes the material of brand F... and lettering computers, which in itself, in the Claimant's view, is insufficient to justify the assessment and the decision dismissing the gracious appeal.
For its part, the ATA considers that for the transfer carried out to be subject to the provision of the aforementioned article, the operation should encompass assets capable of constituting an independent business branch; however, in accordance with the provision of point 4 of clause six of the contract, the equipment located in the Claimant's establishment, namely all computers, lettering and all material relating to brand F..., were not transferred. And that the non-inclusion of any computer equipment (hardware and software), indispensable for the exercise of the activity of the establishment, the assets transferred are not capable of constituting an independent business branch, so the said transfer must be subject to VAT in accordance with the provision of paragraph a) of no. 1 of the VAT Code, since in these circumstances an economic unit was not being transferred, but only part of assets.
It is necessary to decide.
The text of no. 4 of article 3 of the VAT Code is transcribed: "The following are not considered transfers: the assignment, whether for consideration or free of charge, of a commercial establishment, the whole of an asset or part thereof, which is capable of constituting an independent business branch, when, in any case, the acquirer is, or becomes, by reason of the acquisition, a taxable person among those referred to in paragraph a) of no. 1 of article 2"
From the analysis of this rule, which makes a negative delimitation of the rules of incidence, we conclude that its applicability is directed to the transfer of the totality of the assets of a commercial establishment or the transfer of a part thereof, and establishing for that purpose that the assets transferred are themselves capable of constituting an independent business branch, or when in any case the acquirer is or becomes, by reason of the acquisition, a taxable person for VAT purposes among those referred to in paragraph a) of no. 1 of article 2 of the VAT Code.
The tax legislator does not impose the obligation that the transfer embrace the totality of the assets of the establishment; it may be only a part, but ultimately we must be in the presence of an independent activity unit and that its acquirer is already, or becomes, by virtue of the acquisition, a taxable person for VAT purposes as already referred to and continues to exercise the same economic activity that was being exercised by the transferor, continuing without interruptions the said activity.
In the case in question, it is revealed from the case file that there was a transfer of part of the assets of the establishment, namely the client portfolio, the employment contracts of employees, the furnishings of the property, the revocation of the sublease contract of the property, even though subject to a condition precedent for good payment, with the exclusion of material designated F... and lettering computers.
The inspection services of the respondent concluded that, because the transfer did not include the aforementioned computer equipment (hardware and software) indispensable to the exercise of the activity of the establishment, the transfer could not be framed under no. 4 of article 3 of the VAT Code, without however stating whether this was the only computer equipment existing in the unit and, by reason of its non-inclusion, the unit was prevented from exercising the activity that was being exercised there, whether in fact the acquirer continues to develop the activity that was being exercised by the transferor at that location or whether the clients transferred to the acquirer are fulfilling their tax obligations, data which, without significant effort on the part of the respondent, as it possessed them, could have directed to the case file in order to support its point of view.
The case file reveals, without contradiction from the respondent, that the acquirer was established at the location in the exercise of the activity that had previously been exercised by the claimant.
From the foregoing, we consider the conditions imposed by the rule in analysis to be satisfied, so the assessment carried out by the ATA is insufficiently justified, in that it is not sufficient to say that the computer equipment was indispensable to the exercise of the activity, without referring to the existence of other equipment that was transferred, without saying anything about the acquiring entity regarding the development of the activity, since it was established at the location with the clients and others, whether or not it was a taxable person that practiced exclusively taxed operations.
III. 3 – Indemnification of the Claimant for damages caused in the context of tax execution proceedings
The Claimant requests recognition of the right to indemnification for the guarantee it provided with a view to suspension of the tax execution proceedings already identified in the case file.
The arbitral process is the appropriate means for recognition of the right to indemnification for the guarantee wrongfully provided, as article 171 of the CPPT is applicable on a subsidiary basis, by virtue of the provision of article 29, no. 1, paragraph c), of the RJAT.
It is proven in the case file that the Claimant presented a guarantee to the ATA dated 21 December 2017, with a view to suspension of the aforementioned tax execution proceedings and that up to the date of filing of the arbitral procedure, having already expended the amount of € 3,909.42 and being unaware of what amount it will still have to expend, so, although the right is recognized, the tribunal cannot quantify the amount to be indemnified, which may occur in execution of judgment.
IV. DECISION
Given the foregoing, this Tribunal decides:
To adjudge the claim totally well-founded and, as a consequence,
A) To annul the aforementioned act dismissing the gracious appeal no. .../2017 of the Finance Directorate of Lisbon, maintaining it in the legal order;
B) To annul the VAT assessments and compensatory interest subject to the case file (2017... and 2017...), in the total amount of € 80,607.12;
C) To order the Tax and Customs Authority (AT) to pay indemnification to the Claimant, pursuant to article 53 of the LGT, to be quantified in execution of judgment;
D) To fix the value of the case at € 80,607.12, considering the provisions contained in articles 299, no. 1 of the CPC, 97-A of the CPPT and 3, no. 2 of the RCPAT;
E) To order the Respondent to pay the costs of the proceedings (no. 4 of article 22 of the RJAT); and
F) To fix the costs at the amount of € 2,754.00, in accordance with the provision of Table I referred to in article 4 of the RCPAT.
Lisbon, 22 April 2019
The Collective Arbitral Tribunal,
(José Poças Falcão)
(Hélder Faustino)
(Arlindo José Francisco)
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