Summary
Full Decision
ARBITRAL DECISION
Claimant: A… S.A.
Defendant: Tax and Customs Authority
I – REPORT
On 29 January 2016, the company "A…, S.A.", holder of tax identification number…, with head office at …, Building…, …, …, …-… ... (hereinafter referred to as the "Claimant"), submitted to the Administrative Arbitration Centre (CAAD) the request for constitution of an arbitral tribunal with a view to obtaining an arbitral decision, in accordance with the provisions of articles 2, no. 1, paragraph a) and 10 of Decree-Law no. 10/2011, of 20 January which constitutes the Legal Regime for Tax Arbitration (hereinafter designated as RJAT), seeking the declaration of illegality of the act of dismissal of the administrative review petition no. …2015…, and consequently, the tax acts of additional assessment of Value Added Tax (VAT) nos. 2015…, 2015… and 2015…, relating to the periods of 201306T, 201309T and 201312T, respectively.
In the request for arbitral decision, the Claimant chose not to appoint an arbitrator.
In accordance with no. 1 of article 6 and paragraph b) of no. 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed the undersigned as sole arbitrator, who accepted the appointment within the legally stipulated period.
The arbitral tribunal was constituted on 13 April 2016.
On 12 May 2016, the Defendant, duly notified for this purpose, submitted its response.
On the same date as the response, the Defendant informed that the administrative process was directly introduced into the CAAD platform.
The meeting provided for in article 18 of the RJAT was held on 14 September 2016, at 15:00, with both Parties in attendance.
Notified for this purpose, the Claimant and Defendant submitted written arguments on 28 September 2016 and 17 October 2016, respectively.
The position of the Claimant, expressed in the request for arbitral decision and in the written arguments, is, in summary, as follows:
· The corrections proposed by the Tax Inspection Services in respect of VAT are limited to the disallowance of VAT deductions claimed by the Claimant with expenses related to the recreational vessel "B…", namely those relating to the monthly rental payments arising from the financial leasing contract of that vessel.
· The Claimant disagrees with this position taken by the Tax Authority, and considers that the additional assessments are based on an error regarding the conditions for application of article 21 of the VAT Code.
· The Claimant was incorporated on 27 January 2012, whose corporate purpose consists of the "Purchase and sale of moveable and registered moveable property and/or its leasing; purchase and sale of moveable and registered moveable property for resale; management of moveable and registered moveable property, whether its own or third parties', as well as the organization of events".
· In this context, the Claimant, as lessee, on 14 February 2013, entered into a financial leasing contract with Bank C… S.A., in its capacity as lessor, relating to a recreational vessel called "B…", with effect from 27 February 2013.
· The financial leasing contract established the fixing of 36 rental instalments, the amount of the first instalment of € 1,685,974.09, with the remaining instalments calculated on the basis of an interest rate of 3.75 percentage points, as long as it remained in force, according to the method of constant and advance rental instalments, resulting in a value of € 135,974.09, with VAT at the legal rate in force (23%) being added to the amount of each instalment.
· Since the conclusion of the financial leasing contract to the present date, the Claimant has always made payment of the rental instalments plus the legal VAT.
· In fact, as the Claimant exercises the activity of leasing maritime and river transport means, effectively carrying out this activity, and since the invoices paid for financial leasing, on which VAT was charged, meet all the requirements imposed by article 36, no. 5 of the VAT Code, the right to deduction is subject to article 20 of the VAT Code and articles 167, 168 and 169 of the VAT Directive (Directive 2006/112/EC of the Council, of 28 November 2006).
· In this manner, the Claimant does not see why the right to deduction of VAT should be questioned.
· In this sense, by way of example, the Arbitral Tribunal has already ruled in the context of Process no. 59/2013-T and 398/2014-T, of 17.12.2013 and 15.01.2015, respectively, the Supreme Administrative Court, in process no. 01455/12 and 0613/11, of 07.10.2015 and 12.01.2012, respectively, and also the CJEU, in process C-98/98, of 08.06.2000, where matters entirely similar to the one at issue here were discussed.
· In fact, the Tax Authority's understanding, regarding the lack of registration in the National Register of Tourism Animation Agents (RNAAT) and the exclusive allocation of the property in the exercise of its activity, finds no support in national legislation, much less if we take into account the other rules, principles and case law guidance.
· For all of the foregoing, having the Tax Authority based the assessment acts on article 21 of the VAT Code, these suffer from the defect of breach of law, due to error in the factual and legal prerequisites, since we are dealing with expenses for purposes that are directly related to the exercise of its activity, thus violating the provision of article 20 of the VAT Code and articles 167, 168, 169, 176, 177 and 178 of the VAT Directive.
· The Claimant further notes that, should there be, in judicial or arbitral proceedings, interpretative doubts about the norms of EU Law, as is the case here, this Tribunal should raise a preliminary ruling request to the CJEU since it is solely for the CJEU to interpret norms of EU Law so that there is interpretative harmony in all Member States (cf. article 267 of the Treaty of Lisbon).
· Finally, given that the illegality of the additional VAT assessments is proven, and since a bank guarantee was provided to suspend the executive process no. …2015…, which has as its object the additional VAT assessment for the period of 201312T, the Claimant considers that it is entitled to the reimbursement of the costs incurred with the constitution of the aforementioned guarantee and furthermore entitled to indemnity interest.
The position of the Defendant expressed in the response and in the written arguments is, in abbreviated summary, as follows:
In fact, the Claimant invokes error in the prerequisites in the application of article 21 of the VAT Code, claiming that the rental instalments in question fall within the activity pursued by it and, in that measure, are intrinsically related to the pursuit of its corporate purpose, determining these as having a deductible character regarding the VAT incurred.
Such arguments, in the Defendant's view, are manifestly unfounded.
In fact, the provision of article 21 of the VAT Code excludes the right to deduction of certain expenses which, given their nature, allow the presumption that these may be used to satisfy private needs. This means that the legislator, although it admits that the goods or services identified in no. 1 may be intended for business purposes, by recognizing as difficult the control of their use, opted to exclude the possibility of deducting the respective VAT, thus avoiding the possibility of fraud. For this reason, the situations of exclusion from the right to deduction expressed therein are exceptional and relate to specific cases set forth by the national legislator in exhaustive terms, regardless of their use.
Moreover, with regard to the exclusions from deduction set out in article 21 of the VAT Code, the VAT Directive provides in its article 176 that "excluded from the right to deduction are expenses which do not have a strictly professional character".
Thus, its action is in accordance with Portuguese legislation and the VAT Directive, there being a restriction on the right to deduction which applies to certain specific goods, whose particularities have the merit of supporting such limitation.
Understanding, therefore, that there are not sufficient indications that would allow it to be sustained that the activity of operation of the recreational vessel "B…" had, in the periods in question, a character of exclusively business or professional exclusivity, thus permitting the deductibility of the VAT incurred with its acquisition.
The Defendant concluded for the total dismissal of the request for arbitral decision formulated, it being evident that the act which is the subject of the present proceedings is legally compliant.
II – QUESTIONS FOR DECISION
In view of the foregoing, in the preceding paragraphs, the principal question to be decided is as follows:
Do the decision to dismiss the administrative review petition no. …2015…, and consequently, the tax acts of additional assessment of Value Added Tax (VAT) nos. 2015…, 2015… and 2015…, relating to the periods of 201306T, 201309T and 201312T, respectively, issued by the Ministry of Finance, Tax and Customs Authority, Finance Department of…, Justice - Litigation Division, suffer from error in the factual and legal prerequisites, due to the defect of breach of law.
III – PRELIMINARY DETERMINATION
The Tribunal is duly constituted and has material jurisdiction, in accordance with articles 2, no. 1, paragraph a), 5, no. 2, and 6, no. 1, of the RJAT.
The request for arbitral decision is timely, in accordance with no. 1 of article 10 of the RJAT.
The parties have legal personality and capacity, are duly interested and are legally represented, in accordance with articles 4 and 10, no. 2, of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.
The proceedings do not suffer from defects that would render them invalid.
Having considered all of the above, a decision must be rendered.
IV – FACTUAL FINDINGS
Having regard to the administrative tax proceeding (PAT) and the documentary evidence attached to the file, it is now necessary to present the factual matter relevant to the understanding of the decision, which is established as follows:
A. The Claimant is classified, for VAT purposes, under the normal quarterly periodicity regime, as a taxable person with the right to full deduction of the tax. For Corporate Income Tax (CIT) purposes, the Claimant is covered by the general regime for determining taxable income (cf. pp. 84 and 85 of the PAT).
B. In the fiscal year 2013, the Claimant filed the required periodic VAT declarations, 201303T, 201306T, 201309T and 201312T (cf. doc. 5 to 8 attached to the Arbitral Petition).
C. Regarding the factual matter relevant to these arbitral proceedings, it is important to note only that the Claimant was subject to a tax inspection procedure carried out by the Tax Inspection Services of the Finance Department of…, through Service Order no. 2014…, of 20 November 2014, the said procedure being included in the control actions of tax losses in Model 22 declarations for CIT (cf. pp. 77 to 102 of the PAT).
D. In the course of the inspection action referred to above, the Tax Inspection proposed several corrections in VAT deducted in three periods of 2013, including those that resulted in the additional assessments now being contested, and in CIT in expenses incurred. In fact, the Claimant made, in the year 2013, deductions of the VAT contained in the rental instalments relating to a recreational vessel called "B…", and for CIT purposes the consideration of expenses in depreciation and expenses related to the said vessel. In the specific case, the Tax Inspection maintained that the expenses related to the said rental instalments cannot be deducted from the VAT incurred, in accordance with article 21, no. 1 of the VAT Code, also understanding that the expenses incurred with the use of the vessel do not meet the requirements to be considered tax-wise in light of paragraph e), of no. 1, of article 34 of the CIT Code (cf. pp. 77 to 102 of the PAT).
E. In compliance with the understanding expressed in the previous point, the Tax Inspection proceeded to correct the value of the VAT deducted in the rental instalments of the financial leasing contract of the said recreational vessel, determining the balances owed, and promoted tax corrections in box 07 of the Model 22 income tax declaration for CIT, thus determining tax shortfall in respect of VAT and CIT (cf. pp. 86 to 95 of the PAT).
F. As a result of the previous point, dated 19 May 2015, the Claimant was notified of the additional assessment acts for VAT nos. 2015…, 2015… and 2015…, and of additional assessment for CIT no. 2015…, dated 18 May 2015 (cf. doc. no. 12 to 14 and 18 attached to the Arbitral Petition).
G. The additional VAT assessments reflect the cancellation of the excesses reported in the periodic declarations for the quarters of 201306T, 201309T and 201312T, resulting in the determination reflected in assessment no. 2015… (201312T) in the amount of tax to be paid of € 34,538.54 (cf. doc. 12 to 14 attached to the Arbitral Petition).
H. The Claimant was served with the executive process no. …2015… having as its object the assessment mentioned in the previous point, having provided a bank guarantee in the amount of € 43,922.20, incurring costs with a total value of € 457.57, with the executive process remaining suspended (cf. doc. no. 22 to 24 attached to the Arbitral Petition).
I. The additional CIT assessment referred to in point E, was the subject of an administrative review petition on 21 July 2015, to which was assigned process no. …2015… (cf. Doc. no. 19 attached to the Arbitral Petition).
J. The aforementioned administrative review petition was judged to be well-founded and, consequently, the indicated CIT assessment was annulled (cf. Doc. no. 20 attached to the Arbitral Petition).
K. The additional VAT assessments referred to in point E, were also the subject of administrative review petitions on 7 and 10 August 2015, to which was assigned process no. …2015… (cf. pp. 4 to 62 and 114 of the administrative review procedure).
L. On 27 October 2015, the Draft Decision was notified to the Claimant, through official letter no. …, in accordance with and for the purposes of no. 5 of article 60 of the General Tax Code (cf. pp. 116 of the administrative review procedure).
M. The Claimant, through its representative, through a request dated 11 November 2015, exercised the right of hearing conferred upon it by the provision of article 60 of the General Tax Code (cf. pp. 118 to 129 of the administrative review procedure).
N. On 16 November 2015 it was notified of the dismissal of the request formulated in the Administrative Review Petition, through official letter no. … of 13 November 2015, by order of the Head of the Tax Justice - Litigation Division of the Finance Department of … (cf. pp. 132 of the administrative review procedure).
O. The Claimant was incorporated on 27 January 2012, with share capital of € 100,000.00, which is fully paid up, corresponding to 20,000 bearer shares with a nominal value of € 5.00, subscribed as follows: (i.) D…, in the amount of € 59,985.00 (11,097 shares), E… in the amount of € 40,000.00 (8,000 shares), F… in the amount of € 5.00 (1 share), G… in the amount of € 5.00 (1 share) and H… in the amount of € 5.00 (1 share) (cf. doc. no. 2 attached to the Arbitral Petition and pp. 84 of the PAT).
P. The board of directors is composed of D… (Chairman), I… (member) and J… (member) (cf. doc. no. 1 attached to the Arbitral Petition).
Q. The Company A… S.A. is a company whose corporate purpose consists of the "Purchase and sale of moveable and registered moveable property and/or its leasing; purchase and sale of moveable and registered moveable property for resale; management of moveable and registered moveable property, whether its own or third parties', as well as the organization of events", being registered for tax purposes with the activity of "leasing of maritime and river transport means" to which corresponds the CAE: … (cf. doc. no. 1 attached to the Arbitral Petition and pp. 87 of the PAT).
R. On 14 February 2013, the Claimant entered into a financial leasing contract with the company Bank C… S.A., with the start of its effect established, through an amendment to the said contract, on 27 February 2013, in which the object was a recreational vessel called "B…" (cf. doc. no. 2 to 4 attached to the Arbitral Petition).
S. The financial leasing contract established the following conditions: (i) the number of rental instalments is 36; (ii) the amount of the first instalment is € 1,685,974.09, with the remaining instalments calculated on the basis of an interest rate of 3.750 percentage points, according to the method of constant and advance rental instalments, resulting in a value of € 135,974.09; (iii) VAT at the legal rate in force is added to the amount of each instalment; (iv) the rental instalments are due monthly after the start of the contract term; (v) the residual value is € 126,000.00; (vi) the rental instalments, the residual value, and other expenses inherent to the execution of the contract are paid by debit to the current account of the lessee, opened with the lessor; (vii) the lessee undertakes to contract hull, machinery and equipment insurance of the vessel and also civil liability insurance that guarantees indemnities to third parties (cf. article 7 of the Response and doc. no. 3 attached to the Arbitral Petition).
T. The recreational vessel "B…" is registered in the International Register of Madeira Shipping with registration no. R-…, where Bank C… S.A. appears as the owner, and on the same vessel a financial lease is registered in favor of the Claimant (cf. doc. no. 2 attached to the Arbitral Petition).
U. The Claimant is registered with Tourism of Portugal I.P. by mere prior notification through the RNAAT – National Register of Tourism Animation Agents as of 24 September 2015 (cf. pp. 111 to 113 of the administrative review procedure).
V. In the year 2013, the Claimant's billing comprised 5 invoices, the 1st and 2nd relating to services provided, with clients K…. – Italy, in the amount of € 5,101.72 and € 75.00, respectively, exempt from VAT; the 3rd, 4th and 5th invoices relate to leasing in the amount of € 32,000.00, € 32,000.00 and € 124,000.00, all increased by VAT at the legal rate of 23%, to L…, M… and D…, respectively (cf. pp. 96 of the administrative review procedure).
W. In the year 2014, the Claimant's billing comprised 6 invoices, excluding those that were cancelled through credit notes, the 1st to D… in the amount of € 520,000.00, increased by VAT at the legal rate of 23%; the 4th, 5th, 6th, 7th and 8th invoices in the amount of € 60,000.00, € 64,000.00, € 60,000.00, € 175,000.00 and € 95,000.00, all increased by VAT at the legal rate of 23%, to L…, M…, N…, J… and I…, respectively (cf. pp. 97 of the administrative review procedure).
With regard to the facts set out in the previous paragraph, the documents attached to the file are relevant, as well as the administrative tax proceeding, all of which have been analyzed and weighed in conjunction with the pleadings, from which there results agreement regarding the factual matters presented by the Claimant in the request for arbitral decision.
There are no facts taken as unproven, because all facts relevant to the assessment of the request were taken as proven.
V – LEGAL GROUNDS
We shall now determine the applicable law to the underlying facts, in accordance with the question already set out (see above, no. 11).
That is, if the decision to dismiss the administrative review petition no. …2015…, and the underlying tax acts of additional assessment of Value Added Tax (VAT) nos. 2015…, 2015… and 2015…, relating to the periods of 201306T, 201309T and 201312T, respectively, issued by the Ministry of Finance, Tax and Customs Authority, Finance Department of…, Justice - Litigation Division, suffer from error in the factual and legal prerequisites, due to the defect of breach of law.
In the factual matter which is the subject of these arbitral proceedings, it has been proven that the Claimant is classified under the normal quarterly periodicity regime, as a taxable person with the right to full deduction of the tax. And, in general, proceeds to deduct the VAT contained in various expenses related, in particular, with activities of leasing of moveable property (cf. agreed facts Q., V. and W.).
In accordance with article 29, no. 1, paragraph g) of the VAT Code, taxable persons have the general obligation to have adequate accounting for the determination and inspection of VAT.
António Borges and Martins Ferrão understand that this is how it is explained that subjects who under commercial and tax law are obliged to have organized accounting, must also observe certain accounting obligations in order to obtain security and clarity in the recording of operations arising from the application of the VAT Code and necessary for the calculation of the tax, as well as to allow for its inspection (cf. in Accounting and Financial Reporting, 8th Edition, Editora Rei dos Livros, p. 114).
The preamble to the VAT Code explains clearly what the tax aims at and how it works, as follows:
"VAT aims to tax all consumption of material goods and services, encompassing in its scope all phases of the economic circuit, from production to retail, although the taxable base is limited to the value added at each phase.
Each economic operator's tax liability is calculated by the tax credit method, resulting in the following operation: the rate is applied to the overall value of the company's transactions, in a given period, and from the amount so obtained the tax it supported in the purchases of that same period, as shown in the respective purchase invoices, is deducted. The result corresponds to the amount to be paid to the State.
VAT, applied in a general and uniform manner throughout the economic circuit, presupposing the full passing on of the tax forward, corresponds to a taxation, at an identical rate, carried out only once, at the retail phase.
The tax credit method thus ensures that goods used in production by a company are not, ultimately, taxed: purchases are made with tax, but give rise to an immediate deduction in the respective payment period (except for very limited exceptions, intended to prevent fraudulent deviations)."
In fact, the exercise of the right to deduction of VAT constitutes one of the main characteristics of this tax, all in accordance with the regime established in the Sixth Directive of 1977 (Directive 77/388/EEC of the Council, of 17/5/1977), more precisely in its article 17, provision that establishes the rules for exercising the right to deduction of the tax, contemplating various objective and subjective requirements for the exercise of the same right.
Both the deduction of VAT and its reimbursement are subject to certain conditions provided for in the VAT Code that can be considered similar. Reimbursement consists of the return to the taxable person of the tax it has supported in excess during a certain time period. For its part, the mechanism of VAT deduction consists in the faculty that the taxable person has to be able to deduct from the tax incidental to the taxable operations it carried out the tax that was invoiced to it in its acquisitions of goods or services by other VAT taxable persons (cf. by way of example, Judgment of the Supreme Administrative Court, of 25.11.2004, Rec. 216/04 and judgment T.C.A.Sul 2nd Section, 16/4/2013, proc. 6280/12; Judgment of the South Central Administrative Court, of 10.04.2014, Proc. 7396/14).
In the case now under arbitral judgment, in the tax inspection carried out on the Claimant for the tax years 2012 and 2013, the Defendant had the need to make corrections to the VAT deducted by the Claimant in the year 2013 on the basis of the provision of article 21, no. 1, paragraph a) of the VAT Code, a correction which corresponds to the VAT supported by the Claimant in the payment of the rental instalments arising from the financial leasing contract relating to the recreational vessel called "B…", given its view that there are no sufficient indications that would allow the position that the activity of operation of that vessel had an exclusively business or professional character (cf. points C. and D. of the factual findings).
On the other hand, the Claimant argues that, as the vessel in question is essential to the exercise of its activity of leasing vessels, the provision of article 21, no. 2, paragraph a) of the VAT Code applies, and thus the provision of article 21 of the same Code does not apply to the specific case. Therefore, the assessment now contested is defective due to the breach of articles 21 of the VAT Code and 167, 168 and 169 of Directive 2006/112/EC of the Council, of 28 November 2006.
In accordance with article 20, no. 1 of the VAT Code, only the tax that has incurred on goods or services acquired, imported or used and that are relevant to the proper purposes of the activity of the taxable person is deductible. Where acquisitions are not intended for business purposes, the taxable person cannot proceed with the respective deduction in accordance with the cited provision.
This being the rule, the VAT Code establishes, on the other hand, in certain cases, the exclusion of the right to deduction. This is the situation of article 21 of the VAT Code.
The basis for such exclusion from the right to deduction lies in the fact that many of the situations provided for therein concern VAT supported on "inputs" in respect to which it is difficult, or even impossible, to control its propriety, with the aim, through exclusion, of preventing the deduction of tax supported with goods or services not essential to productive activity or easily divertible to private consumption, non-business and/or professional. The doctrine defines this norm as, in essence, a special anti-abuse provision in respect of VAT (cf. by way of example Gustavo Lopes Courinha, The General Anti-Abuse Clause in Tax Law Contributions for Its Understanding, Almedina, 2004, p. 91 et seq.).
In fact, the provision of article 21 of the VAT Code excludes the right to deduction of certain expenses which, given their nature, allow the presumption that these may be used to satisfy private needs. This means that the legislator, although it admits that the goods or services identified in no. 1 may be intended for business purposes, by recognizing as difficult the control of their use, opted to exclude the possibility of deducting the respective VAT, thus avoiding the possibility of fraud. The legislator sought to avoid the difficulties that would arise in the administration of the tax due to the litigation that would inevitably be generated on this matter, by establishing in the cited legal provision a set of goods and services excluded from the right to deduction, regardless of their use.
It is in this context and with the stated purpose that the exclusion from the right to deduction of tax provided for in article 21, no. 1, paragraph a) of the VAT Code appears, now under discussion, concerning "expenses relating to the acquisition, manufacture or importation, leasing, use, transformation and repair of passenger motor vehicles, pleasure boats, helicopters, aircraft, motorcycles and mopeds". It follows from this legal provision that one cannot, furthermore, deduct the VAT contained in the expenses with the leasing of pleasure boats.
However, paragraph a), no. 2 of article 21 of the VAT Code states that "the expenses mentioned in paragraph a) of the preceding number, when they concern goods whose sale or operation constitutes the activity of the taxable person (…)", are not excluded from the right to deduction.
It is therefore necessary to ascertain whether the expense relating to the rental instalments arising from the financial leasing contract which has as its object the recreational vessel "B…" can be framed as not excluded from the right to deduction, since those relate to a good (the vessel "B…") whose operation constitutes the object of its activity (cf. point Q. of the proven factual matter).
The Tax Authority in the exercise of its competence for inspection of compliance of the conduct of taxpayers with the Law, acts in the use of strictly binding powers, subject to the principle of legality, with the burden of proof of the existence of all prerequisites of the assessment act falling upon it, being able, for knowledge of the facts necessary for the decision of the proceeding, to use all means of proof admitted in law, in accordance with article 72 of the General Tax Code (cf. Judgment of the South Central Administrative Court, 2nd Section, of 16.04.2013, Proc. no. 5721/12).
As appears from the factual findings, the Claimant's corporate object includes the leasing of registered moveable property. In the International Register of Madeira Shipping the recreational vessel "B…" is registered under registration no. R-…, where the "Bank C… S.A." appears as the owner and on that same vessel a financial lease is registered in favor of the Claimant (cf. point Q. and T.).
In fact, it is now essential to ascertain whether the use and maintenance of the recreational vessel was actually for use within the framework of the Claimant's operational activity, as is provided by paragraph a), of no. 2, of article 21 of the VAT Code.
The essential activity of the Claimant and for which it is registered in the System for the Management and Registration of Taxpayers is the "Leasing of maritime and river transport means", CAE: … (cf. point Q. of the factual findings).
Decree-Law no. 108/2009, of 6 May, as amended by Decree-Law no. 95/2013, of 19 July, establishes the conditions of access to and exercise of the activity of tourism animation companies and maritime-tourism operators.
In accordance with its article 4, no. 2 "The tourism animation activities developed through the use of vessels for profit-making purposes are called maritime-tourism activities and include the following modalities: a) Maritime-tourism excursions; b) Vessel leasing with crew; c) Vessel leasing without crew; (…)", such as that of the Claimant.
Article 5 provides that only those entities registered in the National Register of Tourism Animation Agents (RNAAT) as maritime-tourism operators may carry out these activities.
As appears from the factual findings, point V., in the year 2013, the active operations carried out by the Claimant are exclusively maritime-tourism activities (vessel leasing with crew/without crew). Therefore, registration with the RNAAT is mandatory for the Claimant, although this one is only registered as of 24 September 2015 (point U. of the factual findings).
In this context, we can affirm that the Claimant was not registered as a Tourism Animation Agent, and as such, fit to exercise the activity it set out to do.
In fact, it is not a mandatory requirement for the Claimant to be able to deduct in the operation of the recreational vessel "B…" the VAT supported in the rental instalments. However, given the fact that we are dealing with a situation of VAT supported on "inputs" in respect to which it is difficult to control its propriety, which is the reason why article 21 of the VAT Code was created – a special anti-abuse provision in respect of VAT – the legalization of the Claimant's activity would aid in the control and verification of the criteria for use of the vessel and, consequently, in the right to deduction of the tax provided for in paragraph a), of no. 2, of article 21 of the VAT Code.
Moreover, in addition to the lack of licensing for the exercise of the Claimant's activity, there are serious indications that the vessel in question was used for private purposes.
It is in this context that points O., P., V. and W. of the factual findings arise, in the year 2013, of the total billing of the Claimant relating to the leasing of the recreational vessel "B…", as the Defendant ascertained, 65.96% was invoiced to the shareholder and Chairman of the Board of Directors of the Claimant. In the year 2014 it even worsened, the billing invoiced was again to the members of the Board of Directors of the Claimant, in a percentage exceeding 80%.
Now, we understand that the case under consideration is one of those in which it is not possible to verify that the use of the recreational vessel "B…" is exhausted in the exercise of the activity carried out – leasing of maritime and river transport means – because the Claimant was not legalized for this purpose, making it impossible to control and verify the criteria for use of the vessel, and in a percentage corresponding to more than half of its billing (65.96%, which worsened in the year 2014 to 80%) represents the satisfaction of the interests of the shareholders of the Claimant and not in favor of the activity it set out to carry out in an outlook of neutrality of the tax itself. Consequently, the right to deduction of the tax provided for in paragraph a), of no. 2, of article 21 of the VAT Code is excluded.
It being the case that, merely, the appearance of the exercise of an activity is not enough to permit the deduction of the VAT supported, which would be to subvert the spirit of the functioning of VAT, making fraud possible, because it must remain outside the tax relating to goods and services whose final consumer is the company itself that acquired them/its administrators, since these goods and services were not used to enable the obtaining of taxable income, but used for purposes alien to the company, which ultimately amounts to the generation of income.
Considering the foregoing in the preceding points, the claims made by the Claimant do not hold, therefore the right to deduction of VAT of expenses incurred with a recreational vessel, in circumstances such as those of the present case, is not possible, in accordance with article 21 of the VAT Code.
Consequently, the requests for indemnity interest and reimbursement of costs associated with the bank guarantee provided in the context of executive process no. …2015…, in which the object is the additional VAT assessment for the period of 201312T, cannot be attended to.
VI – DECISION
We hereby decide in this Arbitral Tribunal to find that the Claimant has no basis for its claims, such that the tax assessment effected by the Tax Authority should remain in the legal order.
The value of the case is fixed at € 34,996.11, in accordance with article 97-A, no. 1, a), of the Tax Procedure and Process Code, applicable by virtue of paragraphs a) and b) of no. 1 of article 29 of the RJAT and of no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.
The amount of costs is fixed at € 1,836.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Claimant, since the request was not successful, in accordance with articles 12, no. 2, of the RJAT, and article 4, no. 4, of the cited Regulation, as well as of Table I attached to the latter.
Let notification be made.
Lisbon, 13 December 2016.
The Arbitrator
(Jorge Carita)
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