VAT Liquidation Expiry and Refund of Unduly Paid Tax: CAAD Arbitral Decision 48/2015-T

ARBITRAL DECISION

The arbitrators Fernanda Maçãs (arbitrator president), Clotilde Palma and Emanuel Augusto Vidal Lima, appointed by the Deontological Council of the Centre for Administrative Arbitration to constitute the Arbitral Tribunal, established on 13/4/2015, agree as follows:

I. Report

1. The Company Bank A…, S.A., NIPC …, submitted a request for constitution of a collective arbitral tribunal, under the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter designated only as RJAT), in which the Tax and Customs Authority (AT) is the Respondent.

2. The claim subject to the arbitral request consists of the appreciation of the legality of the assessments of Value Added Tax and compensatory interest, relating to the taxation period 2010.01, in the total amount of €1,892,175.87.

2.1. The Claimant concludes by arguing for the "illegality of the corrections made by the AT to the VAT returns presented by B…" and requests:

A. As the main claim:

(i) The annulment of the VAT assessment statements no. … in the amount of €1,614,862.03 and respective compensatory interest, as illegal;

(ii) The consequent refund to the Claimant of the amount of €839,947.39, and

(iii) Compensation for guarantee indebtedly provided, under the terms of article 53 of the LGT and article 171 of the CPPT.

B. As a subsidiary claim:

Referral for preliminary ruling regarding the interpretation of subparagraph a) of no. 27 of article 9 and article 90, both of the CIVA.

1. The request for constitution of the arbitral tribunal was accepted by the Excellency the President of the CAAD and automatically notified to the Tax and Customs Authority on 30/01/2015.

3.1. The Claimant did not proceed with the appointment of an arbitrator, so, under the provisions of subparagraph a) of no. 2 of article 6 and subparagraph b) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated their acceptance of the assignment within the applicable period.

3.2. On 25-03-2015 the parties were duly notified of such appointment, and did not express any intention to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11, no. 1, subparagraphs a) and b), of the RJAT and articles 6 and 7 of the Deontological Code.

3.3. Thus, in accordance with the provisions of subparagraph c) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, the collective arbitral tribunal is regularly constituted on 13-04-2015.

1. To substantiate the request for arbitral pronouncement the Claimant alleges, in summary, the following:

a) On 2009-05-29, the Claimant (then still under the name of Bank C…, SA) acquired the company D… (Portugal), SGPS, SA, an entity that held 100% of the share capital and voting rights of B… and E…, Lda., initiating a merger process through incorporation by which the assets and liabilities of entities D…, B… and E… became entirely owned by the Claimant (incorporating company);

b) Between 1990-11-01 and 2010-01-28, B… was a financial institution that was essentially engaged in the activity of granting specialized credit, regulated by the General Regime for Credit Institutions and Financial Companies and subject to supervision by the Bank of Portugal;

c) Among the financial services provided by B... to its customers the following were particularly noteworthy: automobile credit, automobile leasing, financial leasing, point-of-sale credit, personal revolving credit and private card and loyalty, charging a diverse set of banking commissions related namely to: credit recovery expenses, return expenses, promissory note issuance expenses, early termination commission, administrative commissions and banking file commission (articles 3 and 4 of the Petition);

d) During the years 2006 to 2009, B... considered these commissions to be independent service provisions in relation to the credit granting process and, to that extent, considered that these were operations subject to VAT and not exempt from it, resulting, based on this understanding, in the delivery of VAT to the State, in relation to the aforementioned years, in the amount of € 1,614,862.03;

e) Its computer systems (designated "N…" and "M…"), where all credit operations were managed, were configured to calculate VAT internally, at the normal rate, calculated "inside" the value of the commission indicated in the price tables disclosed by clients (article 9);

f) With this procedure, B... bore entirely the effective burden of the VAT calculated on the aforementioned operations, since in the majority of documents issued to clients to prove the collection of commissions (in the form of statements, letters, receipts or others) it only made reference to the total value of the commission, without mentioning the value of VAT (article 14);

g) Of the aforementioned amount of € 1,614,862.03, only € 117,794.22 correspond to commissions charged to VAT taxable persons, with the total of € 1,497,067.81 relating to commissions charged to individuals (article 17);

h) In the context of the aforementioned merger process, the consultant "F..." was requested by the Claimant and by B... to carry out an audit, and a report was drawn up concluding that the aforementioned commissions should, under the provisions of article 16, no. 5, subparagraph b), of the CIVA, and also in accordance with the jurisprudence of the Court of Justice of the European Union, follow the same VAT regime applicable to credit granting operations, that is, VAT exemption and its taxation under Stamp Duty (articles 26 to 27);

i) In accordance with the recommendations of "F..." B... carried out the following regularizations in its favor, "inserting in field 40 of the periodic VAT returns of October, November and December 2009, the following values, totaling the aforementioned amount of € 1,614,826.03" (articles 29 and 30):

‒ "October 2009: € 480,646.47;

‒ November 2009: € 1,106,201.30; and

‒ December 2009: € 28,014.26";

j) Additionally, B... carried out a voluntary regularization of Stamp Duty which it considered to be outstanding, also voluntarily paying the respective compensatory interest and penalties for delay, in the amount of € 517,854.06 (article 32);

k) On 2010-07-30, the Claimant, as legal successor to B..., requested authorization from the AT to use the VAT credit, in the amount of € 846,657.93, declared by B... in the last periodic VAT return that it filed (corresponding to January 2010, that is, 1001) (articles 36 to 38);

l) The request was rejected by the AT on the basis that the documentation timely requested by the competent services of the AT had not been exhibited. However, in the information that supported the rejection order it was also stated that, by virtue of the incorporated company (B...) already being closed, the Claimant was entitled to request its respective official refund (articles 39 to 43);

m) On 2012-12-27, the Claimant submitted a request to that effect, which triggered a tax inspection action by the AT in order to verify the legitimacy of the request for official refund of VAT;

n) By means of official letter no. …, of 2014-07-14, the Claimant was notified of the tax inspection report which justified a correction in favor of the State, in terms of VAT, in the total amount of € 1,614,826.03;

o) "(…) recently," (…), the Claimant was "notified of the VAT assessment statements no. … and compensatory interest no. …, in the amounts of € 1,614,862.03 (and not € 768,204.10, as expected) and € 277,313.84, respectively, whose period for voluntary payment ended on 31.10.2014 (cfr. document no. 18, which is attached)";

p) In article 64 of the Arbitral Request the Claimant summarizes the legal arguments according to which such tax assessments and compensatory interest are illegal as a result of:

a. "having been issued after the lapse of the deadline established in article 45, no. 4 of the General Tax Law (hereinafter "LGT") and in article 94, no. 1 of the VAT Code;

b. being manifestly excessive, due to gross error, in light of what results from the Tax Inspection Report itself issued by the services of the AT;

c. violating the right that assisted the Claimant of, in accordance with the provisions of the current article 98, no. 2 of the VAT Code, proceeding with the correction of the VAT liquidated in excess in the periods comprised between the years 2006 and 2009;

d. violating the right that assisted the Claimant of being refunded the amount of € 839,947.39."

q) In particular, with regard to the statute of limitations on the right to assess taxes, the Claimant argues, among other things:

• "There remain thus no doubts that the VAT considered outstanding resulted from the corrections to the regularizations made by B... in October, November and December 2009" (article 73 of the Request);

• "The very conclusion (on page 21/23) of the Tax Inspection Report underscores that, from the correction in the amount of € 1,614,862.03 made to the regularizations recorded by B... in the returns for October, November and December 2009, tax resulted in favor of the State, in the amount of € 768,204.10" (article 74 of the Request)";

• "In accordance with the provisions of article 45, no. 1 of the LGT, "The right to assess taxes lapses if the assessment is not validly notified to the taxpayer within four years, when the law does not establish another"" (article 76 of the Request);

• "Article no. 4 of this article adds that the "statute of limitations period is counted (…) in value added tax (…) from the beginning of the civil year following that in which (…) the tax becomes exigible (…)"" (article 77 of the Request);

• "Now, counting the statute of limitations period "from the beginning of the civil year following that in which (…) the tax becomes exigible", it is necessary to conclude, in view of regularizations that took place, in 2009, by deduction from the VAT exigible in this same period, that, in the present case, the statute of limitations period for the right to assess tax is counted from 01.01.2010, having ended on 31.12.2013 (four years)" (article 90 of the Request);

• "From which results, without margin for doubt, that the assessment sub judice violated the statute of limitations foreseen in article 45 of the LGT" (article 91 of the Request);

r) The AT will argue that the exigibility of the assessed VAT occurred in January 2010, since "it decided that "the correction in this tax in the total value of € 1,614,862.03, (…) will be reflected in field 41 of the periodic return for the month of January 2010" (cfr. page 21/23 of the Tax Inspection Report)" (articles 92 and 93 of the Request);

s) This is, however, according to the Claimant a "(clumsy) attempt to conceal that the VAT considered outstanding concerns the periods of October, November and December 2009" (article 94 of the Request);

t) Invoking the doctrine of the Decision of the STA, of 12.07.2007, in case no. 0303/07, the Claimant concludes: "having the aforementioned four-year statute of limitations period for the VAT deducted by B... in October, November and December 2009, in the global amount of € 1,614,862.03, as mentioned above, already elapsed, the AT could only, at most, reject the refund of tax requested by that entity, in the amount of € 846,657.93, but could not – never – assess the VAT (allegedly) outstanding, by statute of limitations of its right to assess" (article 116 of the Request).

1. The Tax and Customs Authority (AT) submitted a reply and attached instructional records, invoking, in summary, the following:

5.1. By way of challenge:

The regularizations made by B... were manifestly improper, as illegal, with the following arguments:

a) The contested facts in the proceedings constitute situations of issuance of inaccurate invoices, provided for in article 78, no. 3, of the CIVA, so that, in cases where excessive tax has been assessed, the correction of VAT can only be carried out within two years (article 60 of the Reply);

b) It further states that, as such, it results that the correction of the inaccuracy of the invoices issued by the Claimant, regarding the subjection and amount of VAT assessed, is effected by means of the issuance of credit notes and new invoices, under the terms of articles 29, nos. 1 and 7, 36, 44, 45 and 78 of the CIVA (article 63);

c) Only in the possession of such elements could they be recorded in field 40 of the periodic return relating to the period in which the competent regularizations were made, which did not happen. In this regard, it recalls the jurisprudence resulting from the Decision of the Central Administrative Court South, rendered in the context of Case no. 05275/12, of 2012-03-12, and also from the Decision of the Supreme Administrative Court rendered in the context of case no. 01006/04, of 2005/16/02 (articles 64 to 66);

d) Indeed, the inspection services were able to draw two conclusions (article 53):

a. In relation to external documents issued with mention of VAT, clients should have become aware of the VAT correction and been refunded by B..., as provided for in no. 5 of article 78 of the CIVA;

b. In relation to external documents without mention of VAT, clients should have been refunded the respective VAT by B..., under the provisions of no. 5 of article 78 of the CIVA.

e) In summary, the AT alleges that, "the correction of the inaccuracy of the invoices issued by the Claimant over the years 2006 to 2009 regarding the subjection and amount of VAT assessed is carried out by means of the issuance of credit notes and new invoices, under the terms of articles 29, no. 1 and 7, 36, 44, 45 and 78 of the VAT Code", and that "only in the possession of such elements could they be relevant in field 40 of the periodic return relating to the period in which the competent regularizations were made, which did not happen" (articles 63 and 64 of the Reply);

f) In the Reply the AT further states that to permit the regularization of VAT in its favor, of an amount that it assessed and received from its clients (taxable persons and final consumers), would translate into unjust enrichment, which national law and community law do not allow;

g) With regard to the statute of limitations of the assessment invoked by the Claimant, the AT argues with the "Decision of the Supreme Administrative Court (STA), rendered in the context of case 0303/07, of 12 July 2007, «To assess whether the prerequisites of the right to refund are met, the Tax Administration is not limited by the statute of limitations on the right to assess, being able to make corrections to the returns of taxpayers relating to the period for which the refund is requested, even if prior to that statute of limitations period»" (article 83 of the Reply);

h) As stated in the cited decision "as follows from the provisions of no. 8 of the same article [22], refunds are made «when due», that is, after confirmation that in the period to which the refund request relates the total deduction of tax entitled exceeds the amount due for all taxable operations. To effect this confirmation, the Tax Administration may make corrections to the returns of taxpayers, relating to the period of time to which the refund relates, and may also require them to submit additional documents and information, as follows from the provisions of no. 10 of the same article" (article 84 of the Reply);

i) "Being that, under the terms of article 45, no. 3, of the LGT, «in case any deduction or tax credit has been made, the statute of limitations is that of the exercise of that right»" (article 86 of the Reply).

5.2. Beyond these allegations, relating to the merits of the case, the Respondent, in her reply, defended herself by way of preliminary exception, having invoked:

a) The lack of material jurisdiction of the arbitral forum as to the subject matter;

b) Lis pendens.

5.2.1. As to the exception of lack of material jurisdiction, the Respondent alleges, among other things:

a) That the "assessment statements" do not translate acts of assessment of taxes for purposes of evaluating whether the same are affected by any illegality;

b) It is verified that what the Claimant intends, as appears at the end of her initial Petition, is the annulment of the VAT assessment statement and not of an additional tax assessment. Witness to this are articles 117 to 120 of the Claimant's Petition, as illustrative of this point (articles 1 to 4);

c) It turns out that the aforementioned "assessment statement" is nothing more than the result of the reconciliation between the refund requested by B... and the tax regularizations that it made in its favor, under the provisions of article 78 of the CIVA, which were not accepted as improper (article 5);

d) Thus, in line with what was decided in the Arbitral Decision of 24 February 2015, rendered in case no. 468/2014-T, it is not within the competence of this jurisdiction to assess the legality or illegality of tax regularizations in favor of taxable persons (article 6);

e) On the other hand, when the Claimant requests that its refund request resulting from the credit that B... presented in the last return it filed in the amount of € 846,657.93 be granted, it formulates a request that cannot be examined within the scope of arbitral jurisdiction, as it is outside its material competence.

5.2.2. As to lis pendens, the Respondent alleges, among other things:

a) There is the exception of lis pendens in relation to the action for recognition of a right in tax matters that is pending in the Tax Court of Lisbon, and to which corresponds case no. 2830/14.7BELRS, in which the herein Claimant petitions «for recognition of the right of Claimant (as legal successor to B...), conferred by article 98, no. 2, of the CIVA to refund of the amount of € 839,947.39 which, in her understanding, corresponds to tax paid in excess in favor of the State» (article 21);

b) According to the AT, the Claimant, in "the context of the present arbitral action, requests, ultimately, that she be granted the refund in the amount of € 839,947.39", basing the request, in both cases, on the same facts and the same legal arguments", so that there is clear identity as to the parties, the request and the cause of action, under the terms of article 581 of the CPC (articles 22 to 24 of the Reply).

1. On 24 June 2015 the meeting provided for in article 18 of the RJAT took place, under the terms and with the content as recorded in the respective Minutes.

In response to the invitation addressed by the Tribunal to the Claimant to clarify the request, once the incongruity between the request (in which it speaks of challenging corrections) and the cause of action (from which various articles of the arbitral request it is extracted that the Claimant wishes to challenge the additional VAT assessments) was manifest, it accepted the invitation "declaring that one argues for the illegality requesting the annulment of the VAT assessment attached to the records, a request that was already contained in the Initial Petition although not with the necessary clarity".

For its part, in exercise of the right to be heard, in the use of the word, the representative of the Respondent declared not to object to such correction.

With regard to the matter of exception raised by the AT as to the lack of jurisdiction of the Arbitral Tribunal and lis pendens in relation to the refund request, the Tribunal also invited the taxpayer to pronounce itself on the exceptions invoked and to correct the request. In this case, the Claimant preferred to maintain the request and leave the decision on the issue to the discretion of the Tribunal.

The right to be heard was exercised by the representative of the Respondent, who declared that she had nothing to object to.

As neither of the parties requested that the exceptions invoked be immediately known and decided, it was decided not to immediately rule on them. Furthermore, it was deliberated, with the agreement of the parties, that they could present successive written allegations, within a period of fifteen days, it being noted that "the period for the taxpayer will begin counting with the attachment to the records of the alleged understanding of the AT which substantiated the non-issuance of an invoice in the contested operations, or with the end of the period granted for that purpose and the period for the AT will begin counting from the notification of the written allegations of the taxpayer". Finally, 12 October was set for the rendering of the arbitral decision.

By order, of 23 September 2015, the request submitted by the Claimant, following the invitation made by the Tribunal at the meeting of article 18 of the RJAT, to attach evidence documents to the records was granted.

1. The Claimant and the Respondent submitted written allegations, maintaining, in the essential respects, their arguments. With its allegations the Claimant attached two opinions, with which the Respondent disclosed disagreement.

II. Clarification of Procedural Issues

8.1. Jurisdiction of the tribunal

The Respondent raises, in her reply, the lack of jurisdiction of the arbitral forum as to the subject matter and lis pendens.

8.1.a. Exception of lack of jurisdiction of the Tribunal as to the subject matter

At the end of the arbitral request, the Claimant formulates the request in the following manner:

"Under which terms (…) one argues for the illegality of the corrections made by the AT to the VAT returns presented by B..., requesting: (i) the consequent annulment of the VAT assessment statements no. …. in the amount of €1,614,862.03 and respective compensatory interest, as illegal, (ii) the consequent refund to the Claimant of the amount of €839,947.39, and (iii) compensation for guarantee indebtedly provided, under the terms of article 53 of the LGT and article 171 of the CPPT".

In the reply the Respondent raises the lack of material jurisdiction of the tribunal based on two grounds:

a) The assessment statements do not translate acts of assessment of taxes and what the Claimant intends is the annulment of the assessment statements and not of an additional assessment;

b) By requesting that it be granted the refund request, the Claimant formulates a request that cannot be examined within the scope of arbitral jurisdiction.

Upon notification of the scheduling of the hearing provided for in article 18 of the RJAT, the Tribunal included in the agenda the "invitation to correct procedural document" and hearing of the parties for pronouncement on "the matter of exceptions" and "exercise of the right to be heard".

At the aforementioned hearing, the Tribunal communicated to the parties, in compliance with the agenda previously mentioned, the existence of an irregularity, capable of being cured, in the request formulated by the Claimant, inviting it to reformulate, if it wished, such pretension, so as to make it more perceptible and coherent with the content of the initial request. Before such invitation, the Claimant reformulated the request "declaring that one argues for the illegality requesting the annulment of the VAT assessment attached to the records (…)".

In exercise of the right to be heard, the representative of the Respondent declared not to object to such correction, thus consisting the object of the arbitral request in the annulment of the additional VAT assessment no. … and respective compensatory interest.

It is thus understood that the correction of the arbitral request is granted, which renders the alleged exception based on this argument moot.

8.1.b. Exception of lack of jurisdiction of the Tribunal as to the subject matter regarding the refund request

As to the lack of jurisdiction of the Arbitral Tribunal regarding the refund request, the Tribunal invited the taxpayer to pronounce itself on the exceptions invoked and invited it to correct the request.

However, the taxpayer preferred to leave the decision on the issue to the discretion of the Tribunal.

The right to be heard was exercised by the representative of the Respondent, who declared that she had nothing to object to.

Thus being, it falls to decide.

As seen, the Tax and Customs Administration alleges that the second request formulated by the Claimant "(ii) the consequent refund to the Claimant of the amount of € 839,947.39", what is at issue is the rejection of a refund request, and there is not the slightest doubt that this is not a tax act of assessment susceptible to being affected by any illegality" (article 12 of the Reply).

Under the terms of the provisions of article 2, no. 1, of the RJAT, arbitral tribunals are, in tax matters, competent to know: "a) The declaration of illegality of acts of assessment of taxes, of self-assessment, of withholding at source and of payment on account; b) The declaration of illegality of acts of determination of the taxable base when not giving rise to the assessment of any tax, of acts of determination of the taxable amount and of acts of fixing patrimonial values".

For its part, according to article 2, subparagraph a) of Administrative Order 112-A/2011, of 22 March, by which the Tax Administration bound itself to the jurisdiction of the arbitral tribunals operating with the CAAD, there are expressly excluded from the scope of the Tax Administration's submission to the jurisdiction of the arbitral tribunals, the "claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment on account that have not been preceded by recourse to the administrative route under the terms of articles 131 to 133 of the Code of Tax Procedure and Process".

Which means that the jurisdiction of the arbitral tribunals operating at the CAAD is limited to the declaration of illegality of acts of the types referred to in article 2 of the RJAT, being thus before a mere contentious action for annulment, structured according to the procedural model prior to the reform of administrative contentious proceedings of 2002-2004, which continues to govern tax contentious proceedings.

Furthermore, it is understood that the jurisdiction of the arbitral tribunals is restricted "to activity connected with acts of assessment of taxes, being outside its jurisdiction the assessment of the legality of administrative acts of total or partial rejection or revocation of exemptions or other tax benefits, when dependent on recognition by the Tax Administration, as well as other administrative acts relating to tax questions that do not involve assessment of the act of assessment, to which subparagraph p) of no. 1 of article 97 of the CPPT refers"[1].

Given the legal framework mentioned above, to ascertain the jurisdiction of the Arbitral Tribunal it is necessary to examine the content of the challenged act, in order to verify to what extent it involves or does not involve the assessment of an act of assessment.

According to some doctrine, the concept of VAT refund used for the purposes of nos. 4 et seq. of article 22 of the VAT Code corresponds to a situation in which, from the balance calculated in the period, there results a VAT credit in favor of the taxable person which will be used in subsequent periods (in a running account logic), unless it uses the faculty to request the refund thereof, thus avoiding its carryover and application in subsequent periods. In such a way that "the refund request, as well as its assessment by the Tax Administration do not constitute legal facts, since they do not per se constitute any fact that determines a legal alteration in the situation of either of the parties"[2].

Doctrine which is followed by the jurisprudence of the STA, contained in the Decision of 12/7/2007, case no. 0303/07, where it can be read, among other things, that only "acts of assessment, in the strict sense", provoke "a modification in the taxpayer's tax situation, defining the existence of an obligation (which through such act becomes certain, liquid and enforceable, including by coercive means in the case of non-voluntary compliance)", which is not the case with acts rejecting the refund of VAT, as from them no obligation results for taxpayers that they did not have previously." In the same sense, cfr., among others, the Arbitral Decision, of 4 April 2014, case no. 238/2013-T, where it can be read that as regards the refund request, the jurisdiction of the arbitral tribunals operating at the CAAD is not expressly provided for to assess the legality of acts of rejection of requests for refund of amounts paid, in compliance with previous acts of assessment.

In the case at hand, the refund request is configured as an act consequent to the annulment of the assessment. It happens that, as mentioned above, presupposing the Claimant's request the assessment of the legality of acts of refund, which are independent of the act of assessment, thus, one cannot even speak of an act consequent to the annulment of the assessment.

Under which terms, the Respondent being correct as to the absolute lack of jurisdiction of this Tribunal to know of the matter to which the present proceedings relates, the Claimant's second request being, the preliminary exception alleged by it is held to be well-founded.

8.1.c. As to the exception of lis pendens

The Tax and Customs Administration alleges that, should the arbitral tribunal find itself competent to assess the refund request, "there would always be a situation of lis pendens in relation to the action for recognition of a right in tax matters pending in the Tax Court of Lisbon, to which corresponds case no. 2830/14.BELRS, in which the herein Claimant petitions «for recognition of the right of the claimant (as legal successor to B...), conferred by article 98, no. 2, of the VAT Code, to refund of the amount of € 839,947.39 which, in her understanding, corresponds to tax paid in excess in favor of the State»".

It happens that, concluding in the previous point, by the absolute lack of jurisdiction of this Tribunal ratione materiae to know the request relating to VAT refund, the interest in knowing the invoked exception of lis pendens is precluded.

8.2. In accordance with the above, it is declared that the tribunal is regularly established and materially competent to know of the present action, as regards the assessment of the other requests.

8.3. The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented (articles 4 and 10, no. 2, of the RJAT and article 1 of Administrative Order no. 112-A/2011, of 22 March).

8.4. The proceedings do not suffer from any nullities.

8.5. There are no other circumstances that prevent knowledge of the merits of the case.

III. Merits

III.1. Factual Matter

1. Proven Facts

9.1. With relevance for the assessment and decision of the questions raised, preliminary and as to merit, the following facts are taken as established and proven:

• The Claimant is a joint-stock company, incorporated on 27 January 2010, and results from the change of company name of Bank C… which incorporated by merger the companies D…, B... and E, which were dissolved by that means (article 29 of the Reply);

• "B... was a financial institution which, between 05.11.1990 and 28.01.2010, was essentially engaged in the activity of granting specialized credit to individuals and independent professionals, for the acquisition of durable consumer goods and services" (article 1 of the Request);

• In the context of commercial relations with clients B... charged a diverse set of banking commissions assessing VAT by considering that these were subject to VAT and not exempt from it (article 9 of the Request and article 38 of the Reply);

• A study by F..., SROC, concluded that the commissions charged to its clients were subject to Stamp Duty and, as such, incorrectly classified in terms of VAT (articles 39 and 40 of the Reply and articles 23 and 24 of the Request);

• The aforementioned study concluded that the aforementioned commissions were exempt from VAT (article 41 of the Reply and articles 25 to 28 of the Request);

• Taking into account the aforementioned study, B... proceeded with regularizations in its favor, inserting in field 40 of the periodic VAT returns of October, November and December 2009 the following amounts: a) October 2009: € 480,646.47; November 2009: € 1,115,350.98 "(…)"; and December 2009: € 28,014.26. (as per document no. 5, which is attached) – article 30 of the Request and Tax Inspection Report;

• "As a result of the VAT regularizations above referred to made in the periodic returns of October to December 2009, B..., upon filing the periodic return of January 2010 (which was the last filed by this entity) found itself in a situation of tax credit in the amount of € 846,657.93, a value that it recorded in its favor (cfr. document no. 9, which is attached)"- article 36 of the Request;

• On 30/07/2010, the Claimant requested authorization to use a VAT credit in the amount of € 846,657.93, from the incorporated company (B...) declared by it in its last return (cfr. document no. 10, which is attached) - article 38 of the Request and Tax Inspection Report;

• On 17.05.2011, the Claimant was notified to present, within the period of 10 days, to the Tax Inspection Services Direction evidence elements of the tax credit held by B..., so that the services could proceed with its respective validation, to which it did not respond (cfr. document no. 11, which is attached) - articles 39 and 40 of the Request and Tax Inspection Report;

• On 05.01.2012, the Claimant was notified "of the order dated 30.12.2011 rejecting the request to use the VAT credit in the amount of € 846,657.93," (cfr. document no. 12, which is attached )- article 41 of the Request and Tax Inspection Report;

• In point 13 of the information that supported the aforementioned order, it provided: "(…) once the incorporated company is closed, it has "the right to request the respective official refund to the Collection Services Direction, Voluntary Collection Division – VAT" (Tax Inspection Report);

• The Claimant filed, on 27.12.2012, such a request with that Services Direction (cfr. document no. 13, which is attached) – article 44 of the Request and Tax Inspection Report);

• Following the request made an internal inspection action was carried out which aimed to "verify the legitimacy of the request for official refund of VAT" (Tax Inspection Report);

• B... proceeded with the reclassification of applicable taxes for each of the service provisions resulting, exclusively, from consumer credit contracts, by means of regularization of the tax made in field 40 of the periodic VAT returns, according to the terms described in the following table (article 42 of the Reply and Tax Inspection Report):

• Being that the accumulated balances of VAT deducted (regularized) in each of the months break down as follows (article 43 of the Request):

Within the inspection procedure, it was still possible to stratify, by VAT taxable persons and by individuals, the VAT deducted in the months of October, November and December 2009, being summarized as follows:

By means of official letter no. …, of 14.07.2014, the Claimant was notified of the tax inspection report ("Tax Inspection Report"), which concludes:

"Given the conclusions drawn above, more specifically as to the fact that the taxable person did not comply with the provisions of either no. 3 or no. 5, both of article 78 of the VAT Code, tax correction results in this tax in the total value of € 1,614,862.03, which will be reflected in field 41 of the periodic return for the month of January 2010;

• On 12/08/2014 the VAT assessment statements no. … and compensatory interest statements no. … were issued, in the amounts of € 1,614,862.03 (and not € 768,204.10, as expected) and € 277,313.84, respectively, whose period for voluntary payment ended on 31.10.2014 (cfr. document no. 18, attached by the Claimant and article 58 of the Request);

• Not having the Claimant paid the aforementioned amounts, it was cited for the institution of tax enforcement proceedings (no. … 2014 …) brought against it by the AT services (cfr. document no. 19, attached by the Claimant and article 59 of the Request);

• To avoid the continuation of the aforementioned tax enforcement proceedings and the consequent realization of seizures of assets and rights existing in its patrimony, the Claimant presented, on 02.01.2015, with the AT services, the competent bank guarantee, in the amount of € 2,399,902.33, as well as request in which it requested the suspension of such proceedings (cfr. document no. 20, attached by the Claimant and article 60 of the Request);

• On 29 January 2015, the Claimant filed the request for constitution of the arbitral tribunal which gave rise to the present proceedings.

9.2. Substantiation of Factual Matter

The proven facts were based on the position assumed by the Parties and not contested, critical analysis of the documents attached to the records by the Claimant, which were not challenged, as well as the content of the Tax Inspection Report.

9.3. There are no other facts with relevance for assessment of the merits of the case that were not proven.

III.2. Matter of Law

A- On the Statute of Limitations of the Right to Assess

It is necessary, first of all, to decide the question of the statute of limitations on the assessment subject to the proceedings, as its granting precludes the analysis of the others.

Let us see.

1. VAT, as a tax on consumption, is characterized essentially as a typical indirect tax, which bears on each of the transactions or service provisions and allows "taxable persons to relieve themselves of the burden of the tax borne upstream and ensuring that the taxation bears, at each stage of the economic circuit, on the value added, being borne, principally, by the final consumer"[3]. Each taxable person assesses tax, at the applicable legal rate, on its sales or service provisions, making it increase the taxable value contained in the invoices or equivalent documents that it passes to its clients. At the end of each period (the month, or the quarter) the taxable person delivers to the public coffers only the difference between the tax thus passed on in its active operations and the tax borne in its acquisitions and contained in the invoices of which it was the recipient.

The calculation of VAT payable or VAT to be recovered constitutes the result of the operation of tax assessment, which is, as a rule, carried out by the taxable persons themselves (self-assessment). As it is considered (in the opinion attached to the records) by G……/H… "resulting from the concept of assessment, as calculation of the VAT relating to each taxation period made by the taxable person, whether a positive value – VAT owed to the public coffers – or a negative value – tax credit against the public coffers, then it should be concluded that both situations should be viewed, simply and solely, as values of the periodic VAT calculation integrating thus, and in both cases, the concept of assessment[4]."

From another perspective, there tends to be a distinction between VAT assessed by the taxable person in the active operations it carries out and VAT deducted by virtue of passive operations associated with its activity, being considered that "only as regards tax assessed by the taxable person in its outputs are the notions of tax event and exigibility applicable", designately, for purposes of applying the statute of limitations rules (article 45 of the LGT). As for VAT in which the taxable person incurs in its inputs, it is not generated in its legal sphere nor is it exigible to it, constituting (…) a credit that it may or may not mobilize against the State, exercising the right to deduction[5].

The doctrine converges, however, that it is through the right to deduction that a structural principle of the tax is guaranteed (that of neutrality), as it is through the exercise of this right "that the taxable person is guaranteed relief from the tax paid in the acquisition of the essential and necessary inputs for the pursuit of an economic activity (…)"[6].

However, the legislator, in homage to other essential principles of the legal order, such as those of legal certainty and security, and on the grounds of the principle of proportionality, establishes, in article 98, no. 2, of the CIVA that the "right to deduction of tax", or to "refund of the tax paid in excess", may only be exercised by the taxable person up to 4 years after the birth of the right to deduction or overpayment of tax[7].

However it is understood, it is verified that the Portuguese legislator, although with different rules for the exercise of the respective right, opted to establish an equal deadline, both for the statute of limitations of the right to deduction and for the right to assess, which, as we shall see, is also four years.

From these concepts must be distinguished the situation of VAT refund, to which nos. 4 et seq. of article 22 of the VAT Code refer, where it is established that "whenever the deduction of tax entitled exceeds the amount due by taxable operations, in the corresponding period, the excess is deducted in the following tax periods", setting forth the necessary conditions for the taxable person to be able to request the refund of such credit.

To the concept of refund here used the statute of limitations period of article 98 of the CIVA is not applicable, as the scope of application of article 22 of the CIVA covers only those situations in which the assessment and deduction of tax were carried out correctly resulting from their balance a VAT credit in favor of the taxable person, which will be used in following periods (in a running account logic) conferring on the taxable person the faculty to request the refund thereof and thus avoid its carryover and application in subsequent periods.

Thus it is understood that to this refund is not applicable, moreover, any statute of limitations period, the taxable person having the right to obtain the refund of a VAT credit generated without temporal limitation, that is, originating from deduction of tax in periods which are beyond the general statute of limitations period (of 4 years)[8].

Similarly, also on the side of the Tax Administration, this is not here limited by the statute of limitations on the right to assess[9], because upon assessing the existence of the prerequisites of a refund request it merely makes corrections to the VAT credit, wholly or partially rejecting the refund and thus correcting the running account of the taxable person. Which means that from the total or partial rejection (express or implicit) of a refund request no obligations result for taxable persons that they did not have previously.

As was noted in the Decision of the STA, of 12/7/2007, case no. 303/07, "in so far as the refund request relates to the totality of the tax relations relating to a determined period, its definitive content is necessarily yet to be defined, so it cannot be justified, by the reasons of legal certainty underlying the regime of the statute of limitations on the right to assess, that there be restrictions on the ascertainment and relevance of the facts that matter for their definition".

Article 45 of the LGT regulates the statute of limitations on the right to assess, having as its object acts of "assessment of taxes, which are acts that declare a tax obligation, that is, cause a modification in the taxpayer's tax situation, defining the existence of an obligation (which through such act becomes certain, liquid and enforceable, including by coercive means in the case of non-voluntary compliance)", being only in relation to these acts "that it is justified, for evident reasons of legal certainty, that the period of time in which such acts can be carried out be limited" (cfr. the cited Decision of the STA).

In fact, "The statute of limitations on assessment viewed as the period during which assessment may be subject to alterations, either by the taxable person (self-assessment), or by the tax services, which will always be able to introduce corrections that are shown to be due and not considered by the taxable person", is found in article 94 of the CIVA, which refers to articles 45 and 46 of the LGT.

Article 45, no. 1, of the LGT, provides that the "right to assess taxes lapses if the assessment is not validly notified to the taxpayer within four years, when the law does not establish another", adding in no. 4 of the same provision that the statute of limitations period is counted (…) in value added tax (…) from the beginning of the civil year following that in which (…) the tax becomes exigible (…)".

In accordance with the referred provisions, the Tax and Customs Administration thus has four years, to determine the tax debt through the timely assessment, and to accept or correct self-assessments.

As we have seen, constituting assessment an appraisal of the VAT relating to each taxation period, when such appraisal translates into a positive value, which entails VAT to be delivered to the public coffers, this means that the value of VAT that bore on the sales or service provisions made by the taxable person (the VAT which the taxable person is obliged to pass on in the active operations carried out), exceeds the value of the tax borne at the upstream in the business operations associated with its activity (passive operations) and which is deductible.

For its part, when the balance of the equation is negative it means that, on the contrary, the VAT borne by the taxable person in the passive operations, at the upstream and deductible, exceeded the value of the tax invoiced in the downstream operations.

As it is considered (in the Opinion attached to the records) by G…/ H…, although this is the most common explanation, the truth is that not always is the "(…) negative value for the result of the assessment due to the existence of a deductible tax exceeding that assessed in the active operations", being able instead to result from "corrections to VAT invoiced to clients, due to returns, terminations motivated by material errors, due to various commercial actions, or also due to error as to the prerequisites relating to the tax-legal classification –of operations carried out, either at the upstream or the downstream."

In this sequence, the VAT Code provides a regularization regime, in favor of the State and taxable persons, which is found in article 78 of the VAT Code, which establishes, in an imperative manner, a set of rules to which taxable persons are obliged to comply in the subsequent regularization of VAT assessed and deducted[10], to be effected through the periodic return.

It is established fact that, in the case of regularizations in favor of the State, the rules set forth in the aforementioned provision should be conformed with the general statute of limitations period of four years enshrined in no. 4 of article 45 of the LGT, counted, as we have seen, from the beginning of the civil year following that in which the exigibility of the tax occurred, "after which the respective adjustments shall cease to be exigible" [11].

Having reached here, let us examine the case at hand.

1. In the situation sub judice, as results from the proven factual matter, the taxable person (initially B...) considered (incorrectly) that the operations it carried out were subject to VAT, when, according to it later ascertained (through a study prepared for that purpose by F...), the commissions charged by it should be considered exempt from VAT, as they represented further consideration for financial services. Instead of being subject to VAT, those operations were subject to Stamp Duty, and B... proceeded with the regularization of the Stamp Duty on the commissions charged to its clients in the value of € 517,854. Simultaneously the taxable person proceeded with VAT regularizations, relating to a temporally expanded horizon going from 2001 to 2009, which it presented in its periodic returns of October, November and December 2009, in the value of € 1,614,862.

The volume of VAT regularizations made in the aforementioned returns generated a tax credit in favor of B... which at the end of that year translated into the amount of € 846,657.93.

Given its cessation of activity due to its incorporation in the AA… group, occurring at the beginning of 2010, B... requested from the Tax and Customs Administration the refund of tax credit calculated in the periodic return of January 2010.

This initial request came to be expressly rejected, by order of 30/12/2011, notified on 5/1/2012, which recognized to the herein Claimant the right to request its respective refund, which it came to do on 27/12/2012.

It was following this latter request that the Tax and Customs Administration initiated the inspection proceedings, in which the Tax and Customs Administration made corrections in favor of the State in the value of € 1,614,862.03, basing this correction on the circumstance that the regularizations made by the taxable person, in the value of € 1,615,075.5, did not comply with the provisions of nos. 3 and 5 of article 78 of the CIVA.

This proceeding came to culminate with the notification to the Claimant of an additional VAT assessment in the value € 1,614,862.03, doing so by correction to the periodic return presented by B... in January 2010, and notified to the Claimant in September 2014.

Whatever understanding one may have on the legal classification of the VAT regularizations carried out by B..., the truth is that we are in the presence of regularizations to the tax assessed by error as to the prerequisites of the legal-tax classification of the financial operations, which would have resulted, by erroneous application of law, and from the perspective of the taxable person, overpaid tax. In this sense goes, moreover, an email dated 21/03/2014, transcribed in the "Tax Inspection Report", in which the herein Claimant clarifies the following "(…) Bank A…, SA., considers that the provision in reference (no. 5 of article 78 of the VAT Code) is not applicable to the situation at issue. In fact, the VAT regularized by the Bank in its favor, recorded in field 40 of the schedules 06 of the periodic VAT returns in reference, consists of tax that was delivered in excess to the State, by virtue of an incorrect qualification of the operations within the scope of which it assessed such VAT."

Notwithstanding the ambiguous sense of the expression "refund request", the truth is that as it is considered by G…/H…, it was in substance, only a matter of exercising, through the mechanism of self-assessment, the right to the restoration of a tax that had been improperly paid.

"The regularizations carried out, which were intended solely to obtain the restoration of improper taxes, were duly set forth in the periodic returns of VAT, relating to the months of October, November and December 2009, so that the tax services had knowledge of them. That is, they were in a position to question their nature, analyze and correct, if they so understood. But always within the statute of limitations period, the same is to say, until the end of the civil year 2013. By notifying the taxable person of corrections to the assessments of those months in September 2014, by additional assessment dated 12 August 2014, these do not produce effects by statute of limitations of the right to assess", under the terms of article 45, nos. 1 and 4, of the LGT.

Even if it were to be ascertained that a true refund request was at issue, a question which is outside, as we have seen, the object of the present action, the truth is that the Tax and Customs Administration could not, following the assessment of that request, make an additional assessment beyond the four years referred to in article 45, no. 4, of the LGT.

And contrary to what the AT defends, the regime of article 45, no. 3, of the LGT cannot be invoked here, deferring the initial date of the exercise of the right to assess to the date of the refund request.

Beyond other reasons strictly tax and which relate to the sense and scope of the concepts used, the reasons of certainty and legal security underlying the tax legal relationship, which preside over the establishment of the statute of limitations periods for assessment, require that the initial date of such period be previously fixed and be the same for all, and cannot have a casuistic nature and depend on the availability of the taxable person to present refund requests.

Once again, with G… / H…, "The fact that, only in a subsequent return one opts for the refund request, does not imply that a new statute of limitations period is opened, by that fact, (neither for the tax administration nor for the taxpayer, (…)."

As was noted in the Decision of the STA above mentioned (of 12/7/2007, case no. 303/07), the Tax and Customs Administration can make corrections to the returns of taxpayers, relating to the period to which the refund relates, but, upon assessing the existence of the prerequisites of the VAT refund, is limited by the statute of limitations on the right to assess.

Finally, it is important to consider that the circumstance that the VAT regularizations practiced by B... generated, according to its perspective, a credit that passed to its return of January 2010, is irrelevant for the calculation of the statute of limitations period provided for in article 45, no. 4, of the LGT, in so far as the tax relates to the periodic returns of October, November and December 2009.

In sum, the additional assessment practiced by the Tax and Customs Administration in September 2014, shows itself to be manifestly untimely, since the statute of limitations period for the correction of each of the operations in question had ended in October, November and December 2013, respectively.

Under which terms it is held that the alleged statute of limitations on the additional VAT assessment (no. 14018440) and respective compensatory interest, subject to the present arbitral request, is well-founded.

B- Moot Issues

As the request for arbitral pronouncement proceeds on the grounds of the defect of statute of limitations of the right to assess, which assures effective and stable protection of the Claimant's rights, knowledge of the other defects imputed to the tax act in question is rendered moot.

In fact, it follows from the establishment of an order of knowledge of defects, in article 124 of the CPPT, that once a defect that prevents the renewal of the challenged act is held to be well-founded, there is no need to assess the others imputed to it. If it were always necessary to know of all defects it would be indifferent the order in which their knowledge was made.

C- As to the Payment of Compensation for Indebtedly Provided Guarantee, under the Terms of Article 53 of the LGT

The second substantive legal question to be decided is whether the Claimant has, as it petitions, the right to compensation for the losses resulting from the provision of collateral to suspend the tax enforcement proceedings.

With relevance for the decision, it results from the proven factual matter that:

• "Not having the Claimant paid the aforementioned amounts, it was cited for the institution of tax enforcement proceedings (no. … 2014 …) brought against it by the AT services" (cfr. document no. 19, attached by the Claimant and article 59 of the Request);

• "To avoid the continuation of the aforementioned tax enforcement proceedings and the consequent realization of seizures of assets and rights existing in its patrimony, the Claimant presented on 02.01.2015, with the AT services, the competent bank guarantee", in the amount of € 2,399,902.33, "as well as request in which it requested the suspension of such proceedings" (cfr. document no. 20, attached by the Claimant and article 60 of the Request).

Let us see.

Article 53 of the LGT, which, under the heading, "Guarantee in Case of Indebtedly Provided Guarantee", provides the following:

"1. The debtor who, to suspend enforcement, offers bank guarantee or equivalent shall be compensated wholly or partially for the losses resulting from its provision, provided it has maintained it for a period exceeding three years in proportion of the time pending administrative review, challenge or opposition to enforcement which have as their object the guaranteed debt.

1. The period referred to in the preceding number does not apply when it is verified, in gracious claim or judicial challenge, that there was error attributable to the services in the assessment of the tax.

2. The compensation referred to in number 1 has as its maximum limit the amount resulting from the application to the guaranteed value of the rate of compensatory interest established in law and can be requested in the actual proceedings of gracious claim or judicial challenge, or autonomously.

3. Compensation for provision of indebtedly provided guarantee shall be paid by deduction from the collection of the tax of the year in which payment was made."

From the combination of nos. 1 and 2 it is extracted that, in case of error attributable to the services in the assessment of the tax, the debtor is compensated for the losses resulting from the provision of the guarantee independently of the time for which he had to maintain it.

In the case at hand, the error from which the assessment whose legality is questioned suffers results from error of the services as to the legal prerequisites. Furthermore, the additional assessment subject to challenge was entirely the initiative of the Tax Administration and the Claimant in no way contributed to it being made, in the terms in which it occurred, so the error is attributable exclusively to the Tax Administration itself.

The Claimant states to have paid bank guarantee, in the amount of € 2,399,902.33, so it has the right to be compensated for such expense and also for other subsequent ones, which come to be proven.

Not having elements available that permit determination of the amount of compensation, the condemnation will have to be made having as reference the sum that was proven to have been expended plus what comes to be assessed in execution of the present decision (cfr. article 609 of the Code of Civil Procedure and article 565 of the Civil Code).

IV. Decision

Under which terms this Tribunal agrees to:

• Hold well-founded the preliminary exception of absolute lack of jurisdiction, as to the subject matter, to know of the refund request;

• Hold well-founded the request for annulment of the additional VAT assessment (no. …) and respective compensatory interest, subject to the present arbitral request;

• Hold well-founded the Claimant's request as to the right to payment of compensation for provision of guarantee to suspend the tax enforcement proceedings no. … 2014 … and condemn the Tax and Customs Authority to pay the compensation that comes to be assessed in execution of the present decision.

V. Value of the Proceedings

In accordance with the provisions of article 315, no. 2, of the CPC and 97-A, no. 1, subparagraph a), of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings the proceedings is assigned the value of € 1,614,862.03.

VI. Costs

Costs, in the amount of €21,420, borne by the Tax and Customs Authority under the terms of article 22, no. 4, of the RJAT and Table I attached to the Regulation of Costs in Tax Arbitration Proceedings.

Lisbon, 3 October 2015.

The arbitrators,

Fernanda Maçãs

Clotilde Palma

Emanuel Augusto Vidal Lima

[1] Cfr. JORGE LOPES DE SOUSA, Commentary on the Legal Regime of Tax Arbitration, Guide to Tax Arbitration, Almedina, 2013, p. 105.

[2] Cfr. AFONSO ARNALDO/TIAGO ALBUQUERQUE DIAS, "After All, What Is the Deadline for Deducting VAT? Statute of Limitations Rules and (In)Legal Certainty", VAT Notebooks 2014, Almedina, p. 33.

[3] JOÃO CANELHAS DURO, "Deduction of VAT, Regularizations and Review of Self-Assessment", VAT Notebooks 2015, p. 327.

[4] A concept that appears to obtain reception in article 22, no. 1, of the CIVA when referring to the fact that the right to deduction is born at the moment the deductible tax becomes exigible, "being effected by subtraction from the overall amount of tax due by the taxable operations of the taxable person, during a declaration period, of the amount of deductible tax, exigible during the same period."

[5] Cfr. SÉRGIO VASQUES, Opinion attached to the records.

[6] Cfr. AFONSO ARNALDO and Others, "After All, What Is the Deadline for Deducting VAT? Rules of Statute of Limitations and (In)Legal Certainty", VAT Notebooks 2014, p. 20.

[7] There is not, however, uniformity from the outset in the doctrine on the sense and scope of the expressions "right to deduction" or "refund of improperly paid tax". Some authors, distinguishing between a right to deduction proper sensu, as an originary right to deduction, and deduction in the broad sense, which includes corrections to deduction initially made, defend that the statute of limitations period of article 98, no. 2, of the CIVA encompasses both situations (cfr. AFONSO ARNALDO and Others, ibid., p. 32). For others, the deduction of tax is considered exercised with the filing of the return for the period, based on the accounting record in which the supporting documents are reflected, independently of whether the burden was considered in its entirety, partially or even unconsidered in self-assessment. After that moment, any correction to the deduction thus exercised constitutes a regularization (JOÃO CANELHAS DURO, ibid., p. 330).

[8] Cfr. AFONSO ARNALDO and Others, ibid., pp. 34/35.

[9] In the sense that refund to which article 22 of the CIVA refers is not applicable any statute of limitations period, this matter being outside the field of application, either of the provision in no. 2 of article 98 of the CIVA, or of the provision in no. 3 of article 45 (cfr. AFONSO ARNALDO and Others, ibid., p. 34).

[10] Cfr. ALEXANDRA MARTINS and OTHER, "VAT Regularizations", VAT Notebooks 2014, pp. 59 et seq.

[11] Cfr. ALEXANDRA MARTINS and OTHER, ibid., p. 60.