CAAD 451/2018-T: VAT Reverse Charge for Non-Resident Taxpayers Registered in Portugal – Refund and Material Incompetence

ARBITRAL DECISION

The arbitrators Dr. Alexandra Coelho Martins (arbitrator-chairman), Dr. Leonardo Marques dos Santos and Dr. Ricardo Rodrigues Pereira (arbitrators-members), appointed by the Deontological Council of the Centre for Administrative Arbitration ("CAAD") to form the present Arbitral Tribunal, constituted on 20 November 2018, agree as follows:

Report

A..., hereinafter referred to as the "Claimant", holder of the collective person number and tax identification number in Portugal..., with registered address in ..., Germany, presented, on 11 September 2018, a request for constitution of a Collective Arbitral Tribunal, under the terms provided in Articles 2, No. 1, subparagraph a) and 10, Nos. 1 and 2, both of Decree-Law No. 10/2011, of 20 January, as amended by Articles 228 and 229 of Law No. 66-B/2012, of 31 December (Legal Regime for Arbitration in Tax Matters, hereinafter "RJAT"), and Articles 1 and 2 of Administrative Order No. 112-A/2011, of 33 March, with the Tax and Customs Authority ("TA") being the Respondent.

The Claimant seeks an arbitral pronouncement on the illegality of the additional Value Added Tax ("VAT") assessment notice No. 2018..., in the amount of € 1,790,706.97, and the assessment of corresponding compensatory and default interest No. 2018..., in the amount of € 17,775.42, both relating to the period of January 2018, issued as a result of a tax inspection action carried out by the Tax Inspection Services of the Finance Office of Lisbon, from which VAT corrections and interest (compensatory and default) totalling € 5,782,406.76 resulted.

The Claimant seeks:

• The declaration of illegality, and consequent annulment, of the VAT assessment acts (of € 1,790,706.97) and compensatory and default interest (of € 17,775.42) due to errors in factual and legal grounds;

• The restitution of the amount of VAT of € 3,986,076.81, recorded in the periodic VAT returns relating to the months of November 2016, February, April, May, June and August 2017 and January 2018;

• The refund of the amount of interest paid corresponding to € 17,775.42;

• The condemnation of the TA to the payment of indemnifying interest on the amounts paid, of tax € 3,986,076.81, and of interest € 17,775.42, at the legal rate, until full reimbursement;

• And finally, the condemnation of the TA to the payment of indemnification for undue provision of a guarantee, in relation to the enforcement procedure relating to the VAT assessment (of € 1,790,706.97).

To this end, the Claimant submits that the contested corrections are based on an illegal interpretation by the TA regarding Article 2, No. 1, subparagraph g) of the VAT Code, based on point 1 of Circular Letter No. 30073/2005, of 24 March, from the VAT Services Department, to the effect that a taxable person who does not have a seat, stable establishment, domicile or tax representative in Portugal, but is registered for VAT purposes in this country, must charge VAT on sales located in national territory to purchasers who are taxable persons established here and must not apply the reverse charge mechanism provided for in that provision.

The Claimant further contends that such an interpretation by the TA is inconsistent with Binding Rulings issued by the latter regarding the interpretation of Article 6, No. 6, subparagraph a) of the VAT Code which refers to the same concept, of "mere VAT registration", in the sense advocated by the Claimant that this does not constitute sufficient connection to locate an operation in Portugal, thereby violating the provisions of Article 68-A of the LGT and the principle of legal certainty and protection of legitimate expectations, a corollary of the Rule of Law (cf. Article 2 of the Constitution).

The Claimant adds that the TA's position violates the interpretation of the concept of "taxable person not established in the territory of the country" established by the Court of Justice ("CJ") in the Stoppelkamp judgment, of 6 October 2011, case C-421/10.

The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and automatically notified to the TA.

In accordance with Articles 5, No. 3, subparagraph a), 6, No. 2, subparagraph a) and 11, No. 1, subparagraph b) of the RJAT, the President of the Deontological Council of the Centre for Administrative Arbitration appointed the arbitrators of the Collective Arbitral Tribunal, signatories hereto, who communicated their acceptance of the task within the applicable period, notifying the parties of such appointment.

The Collective Arbitral Tribunal was constituted on 20 November 2018.

Pursuant to Article 17, No. 1 of the RJAT, the Respondent was notified on 21 November 2018 to present a Reply, in which it raised the exception of partial lack of material jurisdiction of the Arbitral Tribunal with respect to the claim submitted by the Claimant relating to the restitution of the amount of € 3,986,076.81, which it considers to relate to the appreciation of the request for denial of VAT refund.

In the Respondent's view, this request for restitution of the amount of € 3,986,076.81 concerns the decision to deny the VAT refund requested by the Claimant in the periodic return for January 2018, which falls outside the jurisdiction of the Arbitral Tribunal, pursuant to Article 2, No. 1, of the RJAT and Article 2 of Administrative Order No. 112-A/2011, of 22 March, as it does not constitute a tax act, i.e., an assessment act.

The Respondent also defended itself by way of challenge.

In this connection, it refers to the facts contained in the Tax Inspection Report and emphasizes that the Claimant assessed VAT pursuant to Article 1, No. 1, subparagraph a) of the VAT Code on sales made to the company of the group "B... SARL", but for other clients, likewise established in national territory, the Claimant carried out sales with application of the reverse charge rule provided in Article 2, No. 1, subparagraph g) of the VAT Code (i.e., did not assess this tax).

It further contends that if the Claimant assumed the nature of a non-resident taxable person, as it claims, it should have submitted the refund request under Article 5 and following of Decree-Law No. 186/2009, of 12 August, which transposed Directive No. 2008/9/EC, of 12 February.

It considers that indemnifying interest is not due because the arbitral process aims at a mere control of legality, so it cannot determine that there was "error attributable to the services" and that in the case in question such error does not exist. With respect to indemnification for undue guarantee, it contends that the Claimant neither alleged nor proved the costs incurred to provide the guarantee, so it is not possible to fix any indemnification which can only possibly be determined in enforcement of the judgment, should the action be upheld.

It concludes by requesting the dismissal of the arbitral pronouncement request ("ppa"), as unproven, with the consequent absolution of the Respondent from all claims, with legal consequences.

On 14 January 2019, the Claimant exercised the right to be heard regarding the matter of the exception raised by the TA.

In this context, the Claimant clarifies that the object of the arbitral action is solely the tax act of additional VAT assessment with No. 2018..., in the amount of € 1,790,706.96, relating to the period of January 2018, and not the refund request. The Claimant states that it did not ask the Arbitral Tribunal to appreciate or annul the decision denying the refund request despite the grounds, both for the assessment act and for such denial decision, being the same. The only request it makes in this regard, in addition to the annulment of the assessment act, is the return by the TA of the amounts of VAT improperly withheld, as it considers this to be a natural consequence of the annulment of the assessment act.

On 15 January 2019, the Arbitral Tribunal waived the meeting provided for in Article 18 of the RJAT, without opposition from the Parties. The Claimant and Respondent were notified to present successive arguments and the deadline for delivery of the arbitral decision was set, with the Claimant presenting arguments on 1 February 2019, maintaining, in essence, the arguments contained in the claim for arbitral pronouncement and the response to the exception.

The Respondent did not attach the administrative file and chose not to argue.

By arbitral ruling of 6 May 2019, in view of the complexity of the issues raised, the deadline for delivery of the arbitral decision was extended by two months, pursuant to Article 21, No. 2 of the RJAT.

In light of the above, it is important to delimit the main issues to be decided.

First, it is necessary to appreciate and decide the preliminary issue raised by the Respondent regarding the lack of material jurisdiction (partial) and consequent lack of arbitral jurisdiction to rule on the claim submitted by the Claimant relating to the refund of the amount of VAT of € 3,986,076.81.

It is also necessary to appreciate the substantive issue regarding the VAT assessment act of € 1,790,706.96, which is strictly a matter of law and centres on the application of Article 2, No. 1, subparagraph g) of the VAT Code to local sales, i.e., to goods transfers effected in Portuguese territory and located here, carried out by taxable persons without a seat, stable establishment, domicile or tax representative in Portuguese territory, but registered (only) for VAT purposes in Portugal.

Preliminary Issue. Lack of Material Jurisdiction of the Tribunal

The Respondent claims the partial lack of material jurisdiction of this Tribunal, invoking the following arguments in summary:

• The Claimant, when submitting the arbitral pronouncement request, in particular in Articles 16 to 19, 27 and in the claims section, in addition to the illegality and consequent annulment of the VAT assessment acts and interest [whose value amounts to € 1,808,482.39, being € 1,790,706.97 of VAT and € 17,775.42 of compensatory and default interest], requests the condemnation of the TA to refund the (additional) amount of € 3,986,076.81 as a consequence of such annulment, with such amount corresponding to the VAT credit whose refund request was made in the periodic return for January 2018 and which was denied;

• The TA defends that the present arbitral instance is materially incompetent to rule on such request (resorting to various judgments to demonstrate its position, e.g., Arbitral Decisions of 29 January 2018, issued in the context of case No. 137/2017-T; of 3 October 2015, issued in the context of case No. 48/2015-T; of 4 April 2014, issued in case No. 238/2013-T; as well as the judgment of the Southern Central Administrative Court ("SCAC") of 28 April 2016, issued in case No. 9286/16, and of the Supreme Administrative Court ("SAC"), of 12 July 2007, issued in case No. 303/07);

• The right to VAT refund does not assume the character of a true subjective right that is imposed, without further requirements, inexorably, on those who must provide it;

• There is a fundamental fact, which concerns the assessment of the legitimacy of the refund against taxable persons of the tax and such legitimacy is assessed, in particular, depending on the legitimacy of the exercise of the right to deduction, for VAT purposes;

• In the case of the present proceedings, the assessment of the legitimacy of the refund was carried out through the inspection procedure, carried out under service order No. OI2018..., which determined its total illegitimacy, in the amount of € 3,986,076.81;

• In accordance with the express will of the legislature in Article 2, No. 1 of the RJAT, the arbitral jurisdiction is not competent to rule on the Claimant's claim, in relation to the request it formulates, since the decision to deny a VAT refund request does not translate into a tax assessment act;

• From national case law (in particular from the judgment of the SAC, of 6 November 2008, handed down in case No. 115/08) it can be inferred that decisions on refund requests do not have the character of assessment acts, being foreign to these. Thus, the analysis and decision of refund requests does not entail the appreciation of the legality of an assessment act, self-assessment, withholding tax or payment on account capable of being appreciated by the arbitral jurisdiction;

• Since the appreciation of a VAT refund does not fall within the appreciation of the legality of an assessment act, the issue brought before this proceeding does not fall within the competence of this Tribunal, pursuant to and for the purposes of Article 2, No. 1 of the RJAT and Article 2 of Administrative Order No. 112-A/2011, of 22 March (Binding Ordinance), on penalty of violation of Article 212, No. 3 of the Constitution;

• In arbitral proceedings, there is no right and fact appeal, as a rule, to be lodged with the competent Central Administrative Court, given that the Parties involved have, on this specific point, expressly renounced the assistance of higher courts. However, such waiver occurred as to matters within the CAAD's jurisdiction, which does not include the appreciation of tax administrative acts that do not entail the appreciation of the legality of tax assessments, as happens with denials of refunds. Thus, subjecting the denials of refund requests to the CAAD's jurisdiction is nothing more than condemning such matters to the impossibility of being reviewed on second instance, through the ordinary appeal provided in Article 280 of the CPPT;

• A normative interpretation contrary to that now explained clearly violates the principle of free access to courts, in the aspect of double degree of decision, arising from Articles 20 and 268 of the Constitution.

In response to the matter of the exception, the Claimant invoked, in summary, that:

• The object of the present action is, solely and only, the tax act of additional VAT assessment with No. 2018..., in the amount of € 1,790,706.97, and the tax act of assessement of compensatory and default interest No. 2018..., in the amount of € 17,775.42, both relating to the taxation period of January 2018;

• Notwithstanding, the Claimant also petitions the condemnation of the TA to refund the amount of the VAT refund requested and which was denied, in the amount of € 3,986,076.81, considering it as a natural consequence of the granting of the annulment request;

• Condemnation that it considers can only be concretized in the course of voluntary or judicial enforcement of the arbitral decision to be issued;

• It understands that at no moment did it include within the scope of the object of the present request the appreciation of that VAT refund request, for, as the TA very rightly notes, that evaluation was made in the inspection proceedings and constitutes an administrative act not subject to review before arbitral tribunals;

• Notwithstanding, underlying the issuance of the VAT assessment act in question, there was an inspection procedure, in which the competent TA services formulated conclusions and invoked grounds that determined the denial of the refund request, but also, and to the same extent, the issuance of that assessment act;

• For that reason, the Arbitral Tribunal cannot fail to rule on the validity and/or legality of the corrections that are set out in the Inspection Report drawn up in the course of that inspection action, for the same constitute the very foundation of the tax act which is the object of the present request;

• It is not a matter of re-appreciating the VAT refund request formulated, it is rather a matter of ruling on the corrections made by the TA and which generated, on the one hand, the denial of that request and, on the other hand, and what matters for the case at hand, the issuance of an additional VAT assessment act, subject to review pursuant to the aforementioned provision of the RJAT;

• That is, the grounds invoked by the TA in the inspection proceedings – although the same extend also to the refund request itself – will have to be appreciated in this proceeding by the Tribunal, for only by knowing of such grounds will it be possible to deliver a substantive decision regarding the VAT assessment act subject to review.

Having regard to the argument described above, this Tribunal finds reason to support the Respondent, in line with the case law it referenced.

In fact, given the rule delimiting jurisdiction contained in Article 2, No. 1, subparagraph a) of the RJAT[1], Arbitral Tribunals may appreciate claims relating to the declaration of illegality of "tax assessment acts, self-assessment, withholding tax and payment on account acts", with all others being excluded, including contentious action against the denial of a VAT refund request.

This is without prejudice to the fact that the VAT Code exceptionally determines in Article 22, No. 13 that an appeal lies against the denial of a refund request - even though this does not involve the appreciation of the legality of an assessment act - judicial challenge and not, as would result, in principle, from the tenor of Article 97, Nos. 1 and 2 of the Code of Tax Procedure and Process ("CPPT"), contentious relief [i.e., administrative action], the procedural means appropriate to the discussion of tax administrative acts, which do not entail the appreciation of the legality of the assessment act.

It is that although the arbitral process was conceptualized in the Legislative Authorization Law for arbitration in tax matters (cf. Article 124, No. 2 of Law No. 3-B/2010, of 28 April) as an alternative procedural means to judicial challenge and to actions for the recognition of a right or legitimate interest in tax matters, the choice of the legislature was more restrictive. In fact, not only was competence equivalent to actions for recognition of a right dispensed with[2], but the delineation of the matters covered by the arbitral process in the impugnatory sphere ended up being accomplished through the fixing "with precision" of the "matters on which the arbitral tribunal may rule", as the preamble to the RJAT states, without opting for reference or remission to the procedural means of judicial challenge with the scope fixed in Article 97, No. 1 of the CPPT.

The central issue is that the appreciation of the denial of the VAT refund request in the amount of € 3,986,076.81 constitutes the knowledge of a tax administrative act that does not entail the appreciation of the legality of the tax assessment, and therefore unquestionably falls outside the matters susceptible of being subject to an arbitral pronouncement. On the other hand, the request for condemnation of the TA to refund this amount, not being grounded in the annulment of a VAT assessment act, would always be a consequence of the appreciation of a claim which the Arbitral Tribunal is prohibited from ruling on.

This was a choice of the legislature which, as stated, defined the scope of arbitral jurisdiction in a more restrictive manner. However, if the choice had been different, in the direction of expanded competence of the Arbitral Tribunal, the violation of the Constitution raised by the Respondent (cf. Articles 212, No. 3, 20 and 268) would not be reached, in particular of the principles of free access to courts, since arbitral tribunals are one of the categories of courts provided for in the Constitution (Article 209, No. 2) and the configuration of the system of appeals falls within the margin of legislative conformity, provided that the fundamental principles of jurisdiction are safeguarded, as appears to be the case, from the outset given the provisions of Articles 25 to 28 of the RJAT.

It is worth noting that the VAT assessment act challenged in these arbitral proceedings, as to which the Respondent does not raise any exception of lack of jurisdiction, has the value of € 1,790,706.97, which the Claimant has not paid and in relation to which a bank guarantee was provided. The consequence of the annulment of this act will be its elimination from the legal system and the possible obligation for the TA to indemnify the Claimant for undue provision of guarantee, should the respective requirements, provided for in Article 53 of the General Tax Law ("LGT"), be met. From this annulment does not follow, contrary to what the Claimant contends, the refund of another amount of VAT, of € 3,986,076.81, which was declared and borne (in the sense of paid) by the Claimant and which does not constitute the object of the aforementioned assessment act.

As stated above, we are dealing with two distinct realities, corresponding to autonomous claims, and the latter, as mentioned, by not involving the appreciation of a tax act strictly speaking, does not fall within the competence of this Arbitral Tribunal. This conclusion is not opposed by the fact that the cause of action in the two situations is the same, i.e., that the legal regime which invalidates the tax act of VAT assessment [the non-existence of the obligation to assess VAT on sales to purchasers established in national territory] is equally applicable to the operations underlying the refund request, and that, for that reason, the decision denying it should also be invalidated. However, in the latter case, this does not result from the invalidation of a VAT assessment act foreign to it, but from an autonomous appreciation of that denial, with respect to which the TA did not issue a tax act (of VAT assessment), to take place in the proper forum, which, in the contentious phase, is not that of the present arbitral process.

That is, with respect to the request for condemnation of the TA to refund VAT in the amount of € 3,986,076.81, no assessment act was issued by the TA, nor even in the broad sense advocated in the Arbitral Decision of 12 March 2019[3], relating to case No. 660/2017-T, reducible to the provision of Article 2, No. 1, subparagraph a) of the RJAT, capable of being appreciated by this Tribunal within the scope of its competence, so the invoked dilatory exception of absolute lack of jurisdiction ratione materiae (partial) must be considered well-founded.

Sanitation

The Tribunal was regularly constituted and is partially competent, ratione materiae, to rule on the VAT assessment acts No. 2018..., in the value of € 1,790,706.97, and compensatory and default interest No. 2018..., in the amount of € 17,775.42, in light of the provisions of Articles 2, No. 1, subparagraph a), 5, No. 3, subparagraph a), 6, No. 2, subparagraph a) and 11, No. 1, all of the RJAT. Likewise falling within the competence of this Arbitral Tribunal are the dependent claims for condemnation of the TA to refund the amounts paid (as compensatory and default interest); to the payment of indemnifying interest and indemnification for undue provision of guarantee regarding the identified tax acts of VAT assessment and interest.

However, as concluded above, the Tribunal is incompetent to rule on the request for condemnation of the TA to refund the amount of VAT of € 3,986,076.81, corresponding to the refund not made, and the payment of indemnifying interest in relation to this amount.

The Parties have legal personality and capacity and have legitimacy, pursuant to Articles 4 and 10, No. 2, of the RJAT and Article 1 of Administrative Order No. 112-A/2011, of 22 March.

The TA proceeded to designate its representatives in the proceedings and the Claimant attached a power of attorney, with the Parties thus being duly represented.

The arbitral pronouncement request is timely, as it was presented within the period provided in Article 10, No. 1, subparagraph a) of the RJAT, counted from the fact provided for in Article 102, No. 1, subparagraph a) of the CPPT.

The proceedings are not marred by defects that would invalidate them.

Factual Issues

Facts Established

With relevance for the decision, it is important to consider the following facts which the Tribunal finds established:

• The Claimant is a German commercial company that has been registered in Portugal only for VAT purposes, since 20 September 2012, and is classified under the monthly normal regime (cf. tax register file submitted by the Claimant as Doc. 3 of the arbitral pronouncement request and Final Inspection Report submitted as Doc. 5 of the arbitral pronouncement request, hereinafter, "Inspection Report").

• The Claimant pursues the main activity of "Wholesale trade, non-specialized" – CAE 46900 and the secondary activity of "Wholesale trade in animal feed" – CAE 46211 (cf. Doc. 3 of the arbitral pronouncement request and Inspection Report).

• The Claimant is not resident, nor does it have a seat, stable establishment or appointed representative in Portugal (cf. Doc. 3 of the arbitral pronouncement request and Inspection Report).

• The Claimant acquires, in Portugal, cereals originating from other EU Member States, via intra-community acquisitions, and also from third countries, via imports (cf. Inspection Report).

• Subsequently, the Claimant sells the aforementioned cereals, among others, to customers established in Portugal (domestic sales) (cf. Inspection Report).

• The Claimant did not assess VAT on local sales made to customers established in Portugal, by application of Article 2, No. 1, subparagraph g) of the VAT Code (cf. Inspection Report).

• In the periods from September 2016 to January 2018, the Claimant made sales in the national market to the following entities: C..., S.A. – TIN...; D... Lda. – TIN...; E..., S.A. – TIN...; and F..., S.A. – TIN..., without assessing VAT, with the mention of "Self-assessment" on the invoices, by application of Article 2, No. 1, subparagraph g) of the VAT Code (cf. point 3.2 of the Inspection Report).

• These Claimant customer companies, upon receiving these documents, proceeded with the self-assessment and deduction of VAT (cf. Inspection Report).

• The Claimant issued invoices to the company of the group B... – TIN..., for sales in the national market, in the period of October 2016, with assessment of VAT at the reduced rate as it concerns cereals (cf. Inspection Report, not contradicted by the Claimant).

• Having accumulated VAT credit in the periods between September 2016 and January 2018, the Claimant requested, with reference to the period of January 2018, the refund of VAT in credit (in its favour) in the amount of € 3,986,076.81 (cf. Inspection Report).

• Following the refund request, the Claimant was subject to a VAT inspection action whose object was the analysis of the refund request made, carried out by the Tax Inspection Services under Service Order No. OI2018..., of 19 February 2018 (cf. Inspection Report).

• The Claimant was notified to exercise the right to be heard, through Letter No.... of 18 April 2018, in relation to the Draft Tax Inspection Report, in the context of which the TA proposed the denial of the refund request submitted by the Claimant in the Periodic Return for January 2018. The Claimant did not exercise this right (cf. Doc. 4 of the arbitral pronouncement request).

• On 28 May 2018, the Claimant was notified of the Final Inspection Report, which maintained the proposed denial of the refund request in the amount of € 3,986,076.81, and the proposal for additional VAT assessment, in the amount of € 1,796,331.95, totalling VAT corrections in the amount of € 5,782,408.76, due to alleged failure to assess this tax in the invoices issued to customers, implying the "denial of this refund request [of € 3,986,076.81] and the consequent additional VAT assessment of € 1,796,331.95" (cf. Inspection Report submitted as Doc. 5 of the arbitral pronouncement request).

• To support its corrections, the TA states that "9. From the foregoing in the previous points, namely we emphasize the fact that the sales were entirely carried out in the national market, however the taxable person subjected some invoices to VAT, while others were considered non-subject by application of Article 2, No. 1, subparagraph g) of the VAT Code. It was demonstrated in the previous points that the goods were imported, and subsequently sold in national territory to domestic companies. Thus all active operations carried out and declared by company A... TIN..., took place in the national market thus meeting all the requirements for imposition to tax pursuant to Article 1 of the VAT Code, which was not verified" (cf. Inspection Report).

• In this context, it also invoked the application of Circular Letter No. 30073/2005, of 24 March, from the VAT Services Department, according to which:

"[…] notwithstanding the absence of a seat, stable establishment or domicile, non-resident taxable persons shall be bound by the obligations arising from the VAT Code, if they possess here a registration for VAT purposes, regardless of the possibility given to them to proceed with the appointment of a representative, a taxable person of value added tax in national territory, with sufficient power of attorney.

In these cases, they are in particular bound by the obligations of the VAT Code, namely those of assessment and payment of the tax due for operations carried out in national territory, the provision contained in subparagraph g) of No. 1 of Article 2 of the VAT Code being emptied of content.

Thus, and from the foregoing, the taxable person 'A...' TIN..., carried out in the periods under analysis only active operations subject to VAT in accordance with subparagraph a) of No. 1 of Article 1 of the VAT Code, not included in the assumptions of application of subparagraph g) of No. 1 of Article 2 of the VAT Code, with the consequent reverse charge rule." (cf. Inspection Report).

• On 2 June 2018, a decision was issued denying the Claimant's VAT refund request submitted in the Periodic Return for the month/period of January 2018, which was notified to the Claimant (cf. Doc. 6 of the arbitral pronouncement request).

• In June 2018, the TA issued the additional VAT assessment act with number No. 2018..., in the amount of € 1,790,706.97, resulting from the corrections that were made to the Claimant in the inspection action following the VAT refund request, for the period of January 2018, in the total amount of € 5,782,406.76, which was notified to the Claimant (cf. Docs. 1 and 9 of the arbitral pronouncement request and Inspection Report and by agreement).

• In this context, the TA also issued the act of assessment of compensatory and default interest under No. 2018..., in the amount of € 17,775.42, whose payment was made on 28 June 2018, and which had the payment deadline of 16 July 2018 (cf. Doc. 1 of the arbitral pronouncement request).

• An enforcement proceeding No....2018... was instituted against the Claimant, for coercive collection of the additional VAT assessed amount to the Claimant of € 1,790,706.97, plus costs of € 6,051.86 (cf. Doc. 7 of the arbitral pronouncement request).

• The Claimant requested the suspension of the enforcement proceeding with the Finance Service of Lisbon..., having for this purpose presented a bank guarantee in the amount of the VAT owed and additional, up to the maximum amount of € 2,273,582.94 (cf. Doc. 8 of the arbitral pronouncement request).

• On 11 September 2018, the Claimant, in disagreement with the VAT corrections to which it was subject, presented at CAAD the request for constitution of the Collective Arbitral Tribunal that gave rise to the present proceeding.

Facts Not Established

With relevance for the decision, there is no alleged factuality that should be considered as not established.

Justification of the Decision on the Facts

The facts pertinent to the determination of the case were chosen and delineated in function of their legal relevance, in light of the plausible solutions of the legal issues, pursuant to 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"), by remission of Article 29, No. 1, a) and e), of the RJAT.

The established facts were based on the critical analysis of the documents above listed and not contested by the parties, as well as the position taken by them regarding the facts.

On the Merits

Delineation of the Issue to Be Decided

The fundamental issue to be appreciated concerns the subjective incidence of VAT on goods transfers located in Portugal, carried out by taxable persons having only VAT registration in Portugal, i.e., without a seat, stable establishment, domicile or tax representative in this country, to purchasers who are taxable persons of this tax. This matter was the subject of Arbitral Decision No. 543/2018-T, of 6 June 2019, whose justification, in this matter, is followed.

According to the Claimant's position, in this case, the reverse charge rule is applicable, by application of Article 2, No. 1, subparagraph g) of the VAT Code, which means that the assessment and remittance of the tax to the State is the responsibility of the purchaser, via the self-assessment mechanism, also called "reverse charge".

For the Respondent, the general rule of tax assessment by the supplier of goods or service provider, contained in Article 2, No. 1, subparagraph a) of the VAT Code, is applicable, and thus the respective supplier or provider is responsible for the assessment and remittance of the tax to the State.

On the (Il)Legality of VAT Assessment

National and European Regulatory Framework

The rules whose application is discussed in the present arbitral action were introduced in Portugal, in the VAT Code, with the approval of Decree-Law No. 179/2002, of 3 August, following Legislative Authorization Law No. 16–A/2002, of 31 May, as follows:

"Article 15 of Law No. 16–A/2002, of 31 May

Transposition of Directive No. 2000/65/EC, of the Council, of 17 October

The Government is authorized to transpose into the national legal system Directive No. 2000/65/EC, of the Council of 17 October, which amends Directive No. 77/388/EEC, with regard to the determination of the VAT debtor.

Article 2 of Decree-Law No. 179/2002, of 3 August

Amendments to the Value Added Tax Code

Articles 2, 7, 26, 29 and 70 of the Value Added Tax Code, approved by Decree-Law No. 394–B/84, of 26 December, shall have the following wording:

«Article 2

1 – The following are taxable persons of the tax:

[…]

g) Natural or legal persons referred to in subparagraph a), who are purchasers in goods transfers or service provisions effected in national territory by taxable persons who do not have here a seat, stable establishment or domicile nor have a representative under Article 29 [now Article 30].

This regime introduced an exception to the general rule that emerges from the comparison of Articles 2, No. 1, subparagraph a) and 29, No. 1 of the VAT Code, according to which VAT must be assessed by the goods transferor or service provider:

"Article 2 of the VAT Code

Subjective Incidence

1 – The following are taxable persons of the tax:

a) Natural or legal persons who, independently and with a habitual character, carry out activities of production, commerce or provision of services, including extractive activities, agricultural activities and the activities of liberal professions, and also those who, in the same independent manner, carry out a single taxable operation, provided that such operation is connected with the exercise of the aforementioned activities, wherever this may occur, or when, independently of such connection, such operation meets the assumptions of the real incidence of personal income tax (IRS) or corporate income tax (IRC); [Wording as given by Article 2 of Decree-Law No. 186/2009, of 12 August, in force from 1 January 2010]"

Article 29 of the VAT Code

General Obligations

1 – In addition to the obligation of payment of the tax, taxable persons referred to in subparagraph a) of No. 1 of Article 2 must, without prejudice to what is provided in special provisions:

• […]

• Mandatorily issue an invoice for each goods transfer or service provision, as defined in Articles 3 and 4, regardless of the status of the goods purchaser or service recipient, even if they do not request it, as well as for payments made to them before the date of goods transfer or service provision;

• Send monthly a statement relating to the operations carried out in the exercise of their activity during the course of the second preceding month, indicating the tax due or the existing credit and the elements which served as the basis for its calculation; […]".

The special regime that was established in subparagraph g) of this Article 2, No. 1, broadens the scope of subjective incidence, as stated in the preamble to Decree-Law No. 179/2002, of 3 August, "making the purchaser of goods or services a taxable person of the tax, when he, having a seat, stable establishment or domicile in national territory, carries out in the exercise of an activity subject to tax, even if exempt from it, acquisitions of goods or services in national territory from entities not resident, who do not have here a stable establishment, nor have proceeded with the appointment of a tax representative".

As referred to in the Arbitral Decision in case No. 543/2018-T on an identical issue of the same taxable person:

"48. It is well known that VAT is a tax harmonized by European law, the Portuguese VAT Code([i]) being the result of the transposition of the so-called 'Sixth Directive', in force at the time of Portugal's accession to, then, the European Economic Community. The Sixth Directive was repealed and replaced by the current 'VAT Directive'([ii]), in force since 1 January 2007, without, however, the latter having introduced significant changes, which is why it became known as the 'Recast Directive' or Reformulation Directive, limiting itself, in general, to the systematic reorganization of the rules.

1. It is important to note that European law, both in the Sixth Directive and in the VAT Directive, makes a relevant distinction, not transposed by the domestic legislature, which separates the concept of taxable person from that of tax debtor and which may perhaps help in understanding the issues raised.

2. In the former case, it is the person who has the properties that determine the subjective incidence of VAT, regardless of the entity on whom the obligation of assessment and payment of tax rests, which may be different. The notion of taxable person is defined as 'any person who carries out, independently and anywhere, an economic activity, regardless of the purpose or result of that activity' (cf. Article 9, No. 1 of the VAT Directive, equivalent to Article 4, No. 1 of the Sixth Directive, corresponding to Article 2, No. 1, subparagraph a) of the VAT Code).

3. The tax debtor is characterized as the person on whom the obligation of assessment and payment of VAT rests. The general rule, which Article 2, No. 1, subparagraph a) of the VAT Code echoes, is that of coincidence between the taxable person – who transfers goods and/or provides services – and the tax debtor. Thus, VAT is due by taxable persons who carry out goods transfers or service provisions, as established by Article 193 of the VAT Directive (previously Article 21, No. 1, subparagraph a) I part of the Sixth Directive), 'except in cases where the tax is due by another person, in accordance with Articles 194 to 199 and 202.'

4. When the aforementioned coincidence between the transferor/service provider taxable person and the VAT debtor (the latter, the taxable obligor bound to its assessment and payment) does not occur, we are in the field of exceptions to the general rule applicable to internal operations, materialized in the adoption of the reverse charge regime or 'reverse charge'. In this case, the obligation of (self)assessment and payment of the tax that would normally be that of the transferor/provider is transferred to the purchaser, in a phenomenon of tax substitution specific to VAT. This reversal presupposes or requires that the purchaser also be a taxable person of the tax (in an Anglo-Saxon simplification, 'Business to Business' – B2B), not operating when he does not have that quality ('Business to Consumer' – B2C).

A caveat to confine what is said above to internal operations. Indeed, in the case of cross-border operations, since 1993 for intra-community goods operations, and 2010 for service provisions ('VAT Package'), the B2C general regime is that of reverse charge, with self-assessment by the purchaser.

However, as noted above, in the domestic VAT regime, the reverse charge is configured as an exception to the general rule and its application is optional for Member States, as postulated by Article 194 of the VAT Directive, in terms similar to that which was already provided by its predecessor, Article 21, No. 1, subparagraph a), II part of the Sixth Directive:

'Article 194 of the VAT Directive

When deliveries of goods or taxable services are effected by taxable persons who are not established in the Member State in which VAT is due, Member States may establish that the tax debtor is the recipient of the delivery of goods or the provision of services.

Member States shall determine the conditions of application of the provisions of paragraph 1.'

Member States are thus granted the prerogative of choosing another 'tax debtor', when two cumulative conditions are met. The first is that the operations be effected by taxable persons not established in the Member State where the operation is located and, as a result, the VAT due (in accordance with the criteria for spatial incidence and tax jurisdiction of Member States). The second is that the tax debtor is the recipient (purchaser) of those operations.

As stated above, an identical regime already resulted from Article 21, No. 1, subparagraph a), II part of the Sixth Directive, in the wording in force at the time of the amendment to Article 2, No. 1 of the VAT Code, when the respective subparagraph g) was introduced, in appreciation. That Community rule provided, under the heading 'Tax Debtor to the Public Treasury', that: '[i]n the case of deliveries of goods or taxable service provisions being effected by a taxable person not established in the territory of the country, Member States may provide, in the conditions they fix, that the tax debtor is the recipient of deliveries of goods or taxable service provisions;' [Article 28-G of the Sixth Directive, as amended by Directive No. 2000/65/EC, of the Council, of 17 October 2000([iii]) which amended the determination of the VAT debtor].

Thus, with the introduction of subparagraph g) to No. 1 of Article 2 of the VAT Code, accomplished in 2002, the national legislature expressly exercised the freedom of choice – conferred by European law – to select a 'tax debtor' different from the taxable person transferor of goods (or service provider). This is intended to say that it was an express choice of the national legislature and not a mandatory regime predetermined from a European source.

This freedom of choice has limitations that the VAT Directive itself enumerates and that it is important to scrutinize, without prejudice to the modeling by domestic law of conditions not regulated by European law. Indeed, on the one hand, the reverse charge mechanism will apply if (and only if) the goods supplier taxable person is not established in Portugal, the country where the goods transfer operations analyzed in the present arbitral proceedings are located; and, on the other hand, the 'tax debtor' must be the recipient (purchaser) of the goods.

It appears that the reverse charge regime established in Article 2, No. 1, subparagraph g) of the VAT Code respects such parameters. Indeed, its application is determined when goods transfers (or service provisions) are effected (i.e., located) in national territory by 'taxable persons who do not have here a seat, stable establishment or domicile, nor have a representative' and designates as VAT debtors the purchasers who are taxable persons of this tax.

It should be noted that, in accordance with the preamble of Decree-Law No. 179/2002, of 3 August, the Portuguese legislature intended that the reverse charge rule would apply only when the purchaser, a taxable person, had a seat, stable establishment or domicile in national territory. This restriction, however, was not reflected in the letter of the law, which does not distinguish between established and non-established purchasers, seeming to enable the interpretation that it covers any taxable person purchaser of VAT – i.e., who is engaged in the exercise of an economic activity – regardless of their location of establishment. Such a solution does, however, present significant practical difficulties which lead us to a different interpretation which need not be explored in depth here, since the contested VAT assessment concerns only goods transfers effected to purchasers established in Portugal."

Concrete Analysis: First Condition – Taxable Persons Who Do Not Have a Seat or Stable Establishment, nor Have a Representative

The Claimant is a company governed by German law that is engaged in a commercial activity, with unequivocal economic dimensions, and is therefore classifiable as a VAT taxable person. It emerges from the factual framework that the Claimant does not have a seat, stable establishment or appointed representative in Portugal. It has, however, obtained a tax identification number, solely for VAT purposes, i.e., it is registered in national territory for the purposes of this tax.

In the context of service provisions, where the location of taxable persons is also fundamental to determine the actual spatial incidence and taxation of operations (in the case at hand, goods transfers, that criterion is relevant only for determining the tax debtor), the EU Implementing Regulation No. 282/2011 of the Council, of 15 March 2011 ('Regulation'), OJ No. L 269/44, of 23 March 2011, clarified that the fact that a taxable person has a VAT identification number is not in itself sufficient to consider that they have a stable establishment (Article 11, No. 3 of the Regulation).

In the VAT sense, an establishment implies a sufficient degree of permanence and an adequate structure, in terms of human and technical resources (Article 11, Nos. 1 and 2 of the Regulation). Now, there is no reason to see why, in the context of goods transfer operations, as occurs in the situation at hand, these concepts should present another delineation or be interpreted differently.

It is established that the Claimant has a "mere VAT registration" in Portugal and is not established in this Member State. In these terms, it meets the assumptions of application of the reverse charge regime in active operations – goods transfers – that it carries out to other VAT taxable persons in national territory. In other words, the reverse charge rule is applicable regardless of whether the goods transferor (or service provider, if applicable) has VAT "registration" in Portugal. It can be either a registered taxable person or an unregistered one, provided that it is not established in national territory, nor has designated a representative here.

Indeed, Article 2, No. 1, subparagraph g) of the VAT Code determines as a negative condition of the reverse charge regime that the supplier has a seat, establishment or local representative, making no reference whatsoever to VAT registration. Moreover, the source of European law, Article 194 of the VAT Directive, also appeals to the concept of establishment, which is, as we have seen above, distinguishable from that of VAT registration.

On the other hand, VAT registration is a figure that has existed since 1993, having emerged with the implementation of the intra-community goods regime, so in 2002 it did not constitute a novelty capable of grounding an unintended incompleteness on the part of the legislature.

The Respondent advocates, in the Inspection Report reproduced above, that the Claimant cannot apply the reverse charge rule provided for in Article 2, No. 1, subparagraph g) of the VAT Code, with support from Circular Letter No. 30073/2005, of the VAT Services Department, since, although it does not have a seat, stable establishment or tax representative in Portugal, it possesses VAT registration in this country, and must thus assess tax pursuant to Article 1, No. 1, subparagraph a) of the cited Code "with subparagraph g) of No. 1 of Article 2 of the VAT Code and the consequent reverse charge rule not being applicable."

This Tribunal considers that such understanding not only has no correspondence with the letter of the law, but violates its spirit.

First, the condition that subparagraph g), of No. 1, of Article 2 of the VAT Code is only applicable in cases in which goods transferors or service providers do not possess VAT registration in Portugal does not result in the least from the letter of the law – a basic principle of legal interpretation, in harmony with Articles 9, No. 1 of the Civil Code and 11 of the General Tax Law ('LGT'). The Portuguese legislature, within the prerogative granted to it by Article 21, No. 1, subparagraph a) of the then Sixth Directive (and now Article 194 of the VAT Directive), could have imposed such a condition, which it did not.

Second, pursuant to Article 11, No. 1 of the LGT, in conjunction with Article 9 of the Civil Code, the interpretation of law must reconstruct, from the texts, the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was made and the specific conditions of the time in which it is applied.

In this context, it is important to consider the aims of such an exception regime, which deviates from the VAT collection paradigm, a tax grounded in an original model of pre-financing (assessment and collection by the transferor) and not self-assessment. Ben Terra even considers it noteworthy that this 'exception' was maintained, following the concerns expressed by the European Commission in the 1990s – B.J.M. Terra et al., Commentary – A Guide to the Recast VAT Directive (IBFD 2017), p. 3049.

As emphasized in Recital 1 of Directive No. 2000/65/EC of the Council([iv]), whose transposition gave rise to Article 2, No. 1, subparagraph g) of the VAT Code, in addition to the objective of simplifying the obligations of smaller taxable persons, dispensing them in multiple cases from the obligation of registration in VAT in other Member States where they are not established, the reverse charge of the taxable person constitutes an important anti-fraud mechanism and aims at reliable and correct collection of VAT by taxable persons who are purchasers of goods and services in Portugal – essentially, to combat possible situations of tax fraud and evasion([v]).

In sectors sensitive to VAT fraud, such as construction or waste, residues and recyclable scrap, the Portuguese legislature chose to apply the reverse charge mechanism of the taxable person. In carousel fraud, taxable persons established in various Member States interact, so it appears that the "reverse charge" of subparagraph g) of No. 1 of the Article 2 of the Code, here in appreciation, is a legislative choice with marked anti-abuse purpose.

If one were to understand as the TA does, it would be enough for the non-established taxable person to register for VAT purposes in Portugal to circumvent the reverse charge regime, which would frustrate the legislative purpose and fraud would be favored. It is noted that the reversal does not translate into lower state revenue, operating only a subjective modification of the debtor, and in the case at hand, the Claimant's purchasers proceeded with the self-assessment of VAT, so there is no question of any diminution of tax revenue.

Third, if subparagraph g) of No. 1 of Article 2 of the VAT Code does not condition the reversal on the fact that the goods transferor or service provider has (or does not have) VAT registration in Portugal, it is not the responsibility of the TA to introduce this restriction, outside the constitutional law requirement for the creation of taxes (cfr. Article 165, No. 1, subparagraph i) of the CRP) and in clear violation of the principle of legality (cfr. Article 103, No. 2 of the CRP).

Fourth, the reverse charge rule is a lex specialis in relation to the general rule of VAT assessment by the goods transferor and service provider, so, within its scope of application, it prevails over the general regime.

Fifth, it is important to clarify that the simplification measures in question apply only to operations carried out with purchaser taxable persons of VAT, i.e., B2B, the obligation of registration in our country and assessment of tax not being withdrawn when the same operator simultaneously carries out domestic sales to private individuals or non-taxable persons of VAT, i.e., B2C sales.

This is equivalent to saying that, for non-established taxable persons and without tax representative in Portugal, but with VAT registration in our country, situations of tax assessment coexist with situations in which the reverse charge rule of the taxable person applies.

In this context, it is worth emphasizing that the understanding conveyed by the TA in Circular Letter No. 30073/2005, in determining, imperatively, the assessment of VAT by "mere VAT registrations", seems to want to equate a "mere VAT registration in Portugal" with an establishment, for VAT purposes, in our country([vi]).

An equivalence which has, however, no factual-legal basis, as stated above. On the contrary, it is acknowledged by both parties that the Claimant does not have a stable establishment in our country.

In fact, to qualify a given reality as a stable establishment within the VAT sense, it is necessary to demonstrate, in Portugal, "any establishment, different from the seat of the economic activity (…) characterized by a sufficient degree of permanence and an adequate structure, in terms of human and technical resources, which enables it to receive and use the services that are provided for the needs of that establishment"([vii]-[viii]).

Second Condition – The Purchaser is the "VAT Debtor"

The second condition of applicability of the reverse charge regime is also satisfied in the concrete situation, given the fact that the Claimant's Portuguese customers – the purchasers of goods – assumed the fulfillment of the obligations of declaration and performance of VAT associated with the goods transfers carried out by the Claimant, proceeding with the proper self-assessment of the tax.

On Circular Letter No. 30073/2005

Sixth, it is worth noting that the Inspection Report bases the VAT assessment contested here on administrative guidance conveyed by Circular Letter No. 30073/2005.

As clarified by Casalta Nabais (Tax Law, 6th ed., Almedina, p. 197) in what is now settled case law([ix]): "the so-called administrative guidelines, traditionally presented in the most diverse forms such as instructions, circulars, circular letters, circular documents, normative rulings, regulations, opinions, etc." constitute "internal regulations that, as they are intended only for the tax administration, only the latter must obey, being thus binding only for the organs hierarchically below the issuing organ. Therefore, they are not binding either for individuals or for courts. And this whether they are organizational regulations, which define rules applicable to the functioning of the tax administration, creating methods of work or modes of action, whether they are interpretive regulations, which proceed to the interpretation of legal (or regulatory) provisions. It is true that they densify, clarify or develop legal provisions, previously defining the content of acts to be carried out by the tax administration when applying them. But this does not turn them into a standard of validity for the acts they support. In fact, the assessment of the legality of acts of the tax administration must be effected by direct confrontation with the corresponding legal provision and not with the internal regulation, which intervened between the rule and the act".

It follows from the direct confrontation between the contents of Circular Letter No. 30073/2005 and the norm contained in Article 2, No. 1, subparagraph g) of the VAT Code that the former materializes an innovative regulation on the subject of tax incidence, devoid of legal support, in addition to emptying of content the application of the reverse charge rule of the taxable person when goods transferors or service providers possess a "mere VAT registration" in Portugal.

It is concluded, therefore, for the reasons given, that this Circular Letter, not only lacks binding force heteronomously for the Claimant and for this Tribunal, but is illegal due to violation of law.

The fact that the TA is bound by the generic guidance contained in Circular Letter No. 30073/2005, pursuant to No. 1 of Article 68-A of the LGT, does not transform its content into a rule with external efficacy, particularly when the same is in violation of the law.

Seventh and finally, a reference to indicate that the interpretation adopted by the TA is pointed out in the doctrine as isolated among Member States that have opted to transpose the prerogative granted by the current Article 194 of the VAT Directive, as is the case with Spain and France, as noted by Afonso Arnaldo (in op. cit. footnote 6)."

As to the argument of the Respondent that if the Claimant assumed the nature of a non-resident taxable person, it should have formulated its refund request under the special refund regime applicable to non-established taxable persons in national territory, the same does not proceed, as such regime does not apply universally to all non-established taxable persons (which for simplification the TA designates as non-resident, although this is a concept not applicable in VAT).

First, that refund regime is excepted when these taxable persons in addition to the operations in which they apply the "reverse charge" (self-assessment by the purchaser) carry out other operations in which they assess VAT under the general terms, as not all assumptions of self-assessment are met, as happened with the domestic market sales carried out by the Claimant to a company of the Group, in October 2016, not encompassable within self-assessment, in the teleological interpretation above referred to (in accordance with the preamble of Decree-Law No. 179/2002, of 3 August), which is considered correct, that the special discipline of Article 2, No. 1, subparagraph g) in appreciation aims at cases where the purchasers are VAT taxable persons established in national territory.

Thus, it is the Directive 2008/9/EC of the Council itself, of 12 February 2008, which defines the procedures for VAT refund to non-established taxable persons in the Member State of refund, which, in its Article 3, stipulates that only certain non-established taxable persons (in the Member State of refund) are covered by its scope of application, specifically those that meet the following conditions:

• During the refund period, they did not have, in the Member State of refund, the seat of their economic activity, nor a stable establishment from which they carried out operations, nor, in the absence of a seat or stable establishment, their domicile or habitual residence;

• During the refund period, they did not carry out any delivery of goods or provision of services considered effected in the Member State of refund, with the exception of the following operations:

i) transport services and accessory services, exempt under Articles 144, 146, 148, 149, 151, 153, 159 or 160 of Directive 2006/112/EC,

ii) deliveries of goods and provisions of services for which the recipient is the tax debtor pursuant to Articles 194 to 197 and Article 199 of Directive 2006/112/EC.

Directive which is backed by Article 5 of the Annex to Decree-Law No. 186/2009, of 12 August, which establishes the Regime for VAT Refund to Non-Established Taxable Persons in the Member State of Refund and transposes it.

It is concluded, therefore, that the status of a taxable person not established in Portuguese territory, which assists the Claimant, is not incompatible or contradictory with the usual refund procedure provided for in Article 22 of the VAT Code and complementary legislation applicable to the generality of taxable persons who are bound by the obligation of submission of periodic VAT returns, pursuant to Articles 29, No. 1, subparagraph c) and 41 of the VAT Code.

In Conclusion,

The Claimant, in applying the reverse charge rule of the taxable person in local sales (goods transfers) to customers established in national territory, in not charging VAT to them, did nothing more than apply the law and respect the will of the legislature.

The fact that the Claimant assessed VAT on domestic sales made to the Group company, B... SARL, TIN..., is not inconsistent with the foregoing, as the purchaser may be an entity not established in Portugal, as emerges from the VAT number assigned to it, in an interpretation consistent with the preamble of Decree-Law No. 179/2002, of 3 August, according to which the self-assessment regime provided for in subparagraph g) of No. 1 of Article 2 of the VAT Code should only be applied if the purchasers are taxable persons established in Portugal.

Moreover, the fact that the Claimant has a "VAT registration" in Portugal does not preclude the application of the reverse charge regime provided for in Article 2, No. 1, subparagraph g) of the VAT Code, a rule which coexists with the situations in which the application of subparagraph a), of No. 1, of the same article is due, whenever the assumptions of application thereof are met.

Thus, the contested VAT assessment act in this arbitral proceeding is marred by error in the assumptions of fact and law, being illegal and voidable, in accordance with the provisions of Article 163, No. 1 of the Code of Administrative Procedure, applicable by remission of Article 29, No. 1, subparagraph d) of the RJAT.

Compensatory and Default Interest

Article 35, No. 1 of the LGT provides that compensatory interest is due "when, due to a fact attributable to the taxable person, the assessment of part or all of the tax due or the remittance of tax to be paid in advance, or withheld or to be withheld under tax substitution, is delayed".

In the situation at hand, it was concluded that the contested VAT assessment is invalid due to violation of law due to error in the assumptions causing voidability. Thus, the constitutive assumption of any compensatory interest obligation is not met, as there was no delay in the assessment of tax (VAT) that was due.

In these terms, the assessment of compensatory interest corresponding to the said correction must be annulled due to violation of law.

As for default interest, pursuant to Article 6 of Decree-Law No. 73/99, of 16 March, which establishes the regime for default interest on debts to the State and other public entities, debtors may challenge the respective assessment pursuant to the terms and grounds now provided in the CPPT (at the time in force was the CPC), so the proper procedural form for the discussion of such interest is judicial challenge, as it is there that the legality of the tax debt on which they fall is discussed, as decided by the judgment of the SCAC, of 26 June 2012, case No. 4704/11.

Given the equation of the arbitral action with the process of judicial challenge, and the accessory (and dependent) character of default interest on the tax provision, it appears to fall within the powers of cognition and pronouncement of Arbitral Tribunals, the appreciation and declaration of the (il)legality of default interest when these respect a tax debt whose legality is being discussed in the arbitral process.

Considering that default interest is calculated on the tax debt and that, in the situation at hand, this debt is annulled pursuant to and for the reasons set out above, the acts of assessment of such interest share, in consequence, the same defects and, therefore, must also be annulled.

Refund of Compensatory and Default Interest

As to the appreciation of the request for VAT refund by this Tribunal, the same was excluded, due to lack of material jurisdiction.

However, it is important to decide on the refund of compensatory and default interest which affected the VAT assessment and which, as emerges from the evidence, were paid. Since the assessment is annulled, the restorative and constitutive effect of the annulment pronouncement determines that the sums be reimbursed which would not have been collected if the illegal act had not been issued, so it is concluded in favor of this request.

Indemnifying Interest

The right to indemnifying interest is grounded in the principle of responsibility of public entities (cf. Article 22 of the Constitution)[4] and is governed by Article 43 of the LGT which, in its No. 1, makes it dependent on the occurrence of error attributable to the services from which resulted the payment of a tax provision superior to that legally due.

This provision states that "[i]ndemnifying interest is due when it is determined, in gracious claim or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount superior to that legally due".

In the situation at hand, the TA's wrong interpretation and application of rules of tax incidence is at issue, and