Summary
Full Decision
Claimant: A...
Respondent: Tax and Customs Authority
ARBITRAL DECISION
The arbitrators José Baeta de Queiroz, João Taborda da Gama and Emanuel Augusto Vidal Lima, designated by the Ethics Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, are in agreement as follows:
I – REPORT
A…, with registered office in …, NIPC…, area of the Tax Office of …, requested, on 31 July 2016, the constitution of an arbitral tribunal, for the assessment and decision of the request for an arbitral pronouncement against the Tax and Customs Authority (AT), seeking the declaration of illegality of additional assessments of Value Added Tax (VAT) and compensatory interest made on the basis of technical corrections and relating to the years 2012 to 2015, on the grounds provided in paragraph a) of Article 99 of the Code of Tax Procedure and Process (CPPT).
The additional assessments that the Claimant identifies, of VAT and compensatory interest, are as follows:
- no. … of € 259,179.40, for period 1207M, relating to the difference between the VAT declared and the VAT due from the issuance of invoice no. …, dated 22-07-2012, of € 2,195,700.00;
- no. … of € 202,274.07, for period 1212M, relating to the difference between the VAT declared and the VAT due from the issuance of invoice no. …, dated 31-12-2012, of € 2,440,529.74);
- no. 2016 … of € 24,893.56, of compensatory interest for delay in payment of tax due, in the terms of the foregoing, in the amount of € 202,274.07;
- no. 2016… of € 366,137.28, of VAT for period 201306, relating to the difference between the VAT declared and the VAT due from the issuance of invoice no. …, dated 18-06-2013, € 2,697,600.00. In the reference for payment there is certainly, by mistake, the amount of € 716,137.28, which the Claimant also contests, if perchance it is the amount due;
- no. 2016 … of € 37,757.28, of compensatory interest for delay in payment of tax due, in the terms of the foregoing, in the amount of € 366,137.28;
- no. 2016 … of € 136,403.98, for period 201309, relating to the difference between the VAT declared and the VAT due from the issuance of invoice no. …, dated 30-09-2013, of € 899,200.00;
- no. 2016 … of € 12,706.12, of compensatory interest for delay in payment of tax due, in the terms of the foregoing, relating to period 201309, in the amount of € 136,403.98;
- no. 2016 … of € 86,732.39, of VAT for period 201312, relating to the difference between the VAT declared and the VAT due from the issuance of invoice no. …, dated 31-12-2013, of € 1,524,685.77;
- no. 2016 … of € 7,214.23, of compensatory interest for delay in payment of tax due, in the terms of the foregoing, in the amount of € 86,732.39;
- no. 2016 … of € 180,842.82, for period 201405, relating to the difference between the VAT declared and the VAT due from the issuance of invoice no. …/…, dated 30-05-2014, of € 1,400,000.00;
- no. 2016 …, of € 12,069.40, of compensatory interest for delay in payment of tax due, in the terms of the foregoing, in the amount of € 180,842.82;
- of € 226,986.30, resulting from reversal of an assessment and adjustment of a VAT assessment, both of 2014, as per document 2016 …;
- no. 2016 … of € 224,970.76, for period 201409, relating to the difference between the VAT declared and the VAT due from the issuance of invoice no. …/…, dated 03-09-2014, of € 1,050,000.00;
- no. 2016…, of € 11,982.00, of compensatory interest for delay in payment of tax due, in the terms of the foregoing, in the amount of € 224,970.76;
- no. 2016…, of € 31,007.65, of VAT for period 201411, relating to the difference between the VAT declared and the VAT due from the issuance of invoice no. …/…, dated 18-11-2014, of € 700,000.00;
- no. 2016…, of € 1,437.39, of compensatory interest for delay in payment of tax due, in the terms of the foregoing, in the amount of € 31,007.65;
- no. 2016 … of € 317,366.92, of VAT for period 201412, relating to the difference between the VAT declared and the VAT due from the issuance of invoices nos. …/…, dated 05-12-2014, of € 350,000.00 and …/…, dated 31-12-2014, of € 432,022.45;
- no. 2016…, of € 13,703.29, of compensatory interest for delay in payment of tax due, in the terms of the foregoing, in the amount of € 317,366.92;
- no. 2016…, of € 256,916.77, of VAT for period 201504, relating to the difference between the VAT declared and the VAT due from the issuance of invoice no. …/…, dated 29-04-2015, of € 1,823,910.44;
- no. 2016…, of € 7,686.38, of compensatory interest for delay in payment of tax due, in the terms of the foregoing, in the amount of € 256,916.77;
- no. 2016 … of € 249,911.88, of VAT for period 201507, relating to the difference between the VAT declared and the VAT due from the issuance of invoice no. …/…, dated 2014/12;
- no. 2016…, of € 4,984.54, of compensatory interest for delay in payment of tax due, in the terms of the foregoing, in the amount of € 249,911.88,
which totals, according to the Claimant, the amount of € 2,888,730.19.
The request for constitution of the arbitral tribunal was accepted by the Esteemed President of CAAD and automatically notified to the AT.
Pursuant to the provisions of paragraph a) of paragraph 2 of Article 6 and paragraph b) of paragraph 1 of Article 11 of the RJAT, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the Ethics Council designated as arbitrators of the Collective Arbitral Tribunal the undersigned, who communicated acceptance of such charge within the applicable period.
The parties were notified of this designation and did not raise any impediment.
The Collective Arbitral Tribunal was constituted on 24 November 2016, in accordance with the provisions of paragraph c) of paragraph 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 Tax and Customs Authority submitted a reply in which it defended itself by contesting the claim, defending the legality of its action and, consequently, the rejection of the request.
On 5 January 2016 the meeting provided for in Article 18 of the RJAT was held in which, with the arbitrators and representatives of the Claimant and the Respondent present, witness evidence was produced, the parties were notified of written submissions, and the date of 3 March 2017 was set as the date for the issuance of the arbitral decision, later transferred to 3 April 2017.
Claimant and Respondent submitted written submissions in which they reaffirmed their initial positions.
II - CLARIFICATION
The Arbitral Tribunal is competent and was regularly constituted.
The parties have legal personality and capacity, are legitimate and are duly represented, pursuant to Articles 4 and 10 of the RJAT and Article 1 of Ordinance no. 112-A/2011, of 22 March.
The proceedings do not suffer from any nullities and there are no exceptions or prior questions that prevent the tribunal from adjudicating on the merits.
III. MERITS
III.1. FACTUAL MATTERS
III.1.1. FINDINGS OF FACT
Relevant to the assessment and decision of the legal issues raised, the following facts are established:
1)
The Claimant is a second-degree cooperative, established by deed of 19 May 1992 for the primary purpose of industrially utilizing the by-products of olive oil extraction carried out by the associated cooperatives - pomace, virgin pomace, or pomace as such.
2)
The Claimant acquires this pomace from said cooperatives and other olive mills, and dries it accordingly, obtaining the so-called dried pomace.
3)
Until 2010, the Claimant carried out, in its facilities, not only the drying of virgin pomace, obtaining dried pomace, but also extracted from it and commercialized olive pomace oil.
4)
In 2011, the Claimant, in order to benefit from support within the Community Support Framework in force (2007/2013, designated as PRODER), with a view to investments in the transformation and commercialization of agricultural products, and because the activity of commercialization of olive pomace oil was not eligible for the allocation of such support, ceased extracting olive pomace oil and limited its activity to the drying of virgin pomace, which, transformed into dried pomace, it sells to company B…, Lda., which extracts and commercializes the oil from that dried pomace.
5)
B…, Lda. has as its corporate purpose, the "Conduct of the olive mill industry and extraction of pomace oil, milling of cereals, wholesale and export trade of olive oil and other related branches".
6)
The Claimant held, on 30 November 2010, more than 96.23% of the capital in B…, Lda., and is now the owner of all of it.
7)
The Claimant (first party) and B…, Lda. concluded, on 30 November 2010, a contract which contains the following:
"1. Both parties pursue the same corporate purpose, in various sectors of their respective business activity, namely, in the process leading to the production of vegetable oils from olive pomace, and it makes no sense, being indeed economically inefficient, that both own the same operating and infrastructure capital.
2. This group relationship not only advises but requires that between both parties there be established forms of collaboration in various areas of infrastructure and the productive process, in order to obtain productivity gains, through the elimination of duplication of structures and the utilization of synergies.
Considering the foregoing considerations, both parties agree to the following:
FIRST
(Assignment)
1 The second party assigns to the first party the use and enjoyment of physical facilities belonging to it, at the location of its registered office, in…, for annual periods, beginning on 01 January of the current year, to which this contract relates its effects, renewable for equal periods of time as long as there is no notice of termination, given in writing, by one party to the other, with at least two months' notice before the end of each annual period of the contract.
2 The first party may, in the assigned locations, install the structures it requires for the exercise of its activities, whether of an administrative, commercial, industrial or service nature.
3 The first party shall pay to the second party the annual amount of sixty thousand euros (€ 60,000.00) for the assignment referred to in the preceding paragraph, in equal and successive monthly installments, or in a single annual installment, as they may agree and as shall be in the interest of both.
SECOND
(Drying of pomace)
In the physical space assigned, mentioned in the preceding Clause, is included the area in which the first party, with physical and human means belonging to it, carries out the activity of drying of olive pomace.
THIRD
(Provision of Services)
1 By this contract, the first party undertakes to provide services to the second party, of a technical and human nature, in the activity that the latter develops in the extraction of olive pomace oil.
2 This provision of services, is governed by the terms and time periods stipulated in Clause One, namely, as regards termination.
3 The first party shall be responsible for all expenses of the productive process of oil extraction, namely, for the maintenance, conservation and repair of the equipment used in the extractive activity.
4 The second party shall pay the first party compensation for the provision of services it receives from it, the amount of which shall be determined annually by agreement, taking into account the specific circumstances that occur, in terms of the quantity of work produced, quality of the product, selling price and other variables that should be considered."
8)
In 2012 the Claimant issued, in the name of B…, Lda., invoices in the amount of € 4,636,229.74 (VAT not included), of which it appears they relate to the sale of dried olive pomace.
9)
In 2013 the Claimant issued, in the name of B…, Lda., invoices in the amount of € 5,121,485.77 (VAT not included) of which it appears they relate to the sale of dried olive pomace.
10)
In 2014 the Claimant issued, in the name of B…, Lda., invoices in the amount of € 3,932,022.45 (VAT not included) of which it appears they relate to the sale of dried olive pomace.
11)
Between January and July 2015 the Claimant issued, in the name of B…, Lda., invoices in the amount of € 2,876,418.90 (VAT not included) of which it appears they relate to the sale of dried olive pomace.
12)
In all the aforementioned invoices the Claimant assessed VAT at the reduced rate of 6%, considering that the pomace sold fell within item 3.8 of List I attached to the VAT Code.
13)
In the years 2013, 2014 and 2015 the Claimant invoiced B… € 569,560.25, € 728,152.35 and € 846,005.58, respectively, in respect of provision of extraction services, charging VAT at the rate of 23%.
14)
B…, Lda. benefited, as an industrial company in the sector, from tax exemption on the acquisition of hexane, a solvent product used in the extraction of olive oil, being the party that acquired it.
15)
The Claimant subsequently obtained the same tax benefit, as of 30 September 2014, beginning to acquire the hexane in its own name.
16)
In 2015 the Claimant was subject to an external inspection, following which the AT introduced various technical corrections, proceeding with additional assessments, considering that VAT was outstanding for the years 2012, 2013, 2014 and 2015, and relating to the aforementioned invoices, in the amount, respectively, of € 788,159.06, € 870,652.58, € 668,443.81 and € 488,991.22, totaling € 2,816,246.66.
17)
According to the AT, the outstanding amounts correspond to the difference between the VAT assessed at the reduced rate of 6% and what it considered due, at the normal rate of 23%, on the understanding that the product sold was olive pomace oil and not dried olive pomace.
18)
The AT's understanding was based, in summary, on the fact that, "Supporting A… with the costs of the productive process of oil extraction, namely, the costs of electrical energy, with the analyses of the quality of the final product, with operating personnel and consumables for extraction, it was concluded that there is control of the productive process of that product, which it subsequently commercializes".
Being in the case of [… the sale of olive pomace oil", which was incorrectly invoiced as dried olive pomace".].
Wherefore [… all of A…'s invoicing to B… is taxed in VAT at the normal rate, namely, at the VAT rate applicable to the sale of olive pomace oil", by characterization of the transaction in paragraph 1 of Article 3 of the VAT Code.].
19)
The AT further noted that the Claimant is owner of oil storage tanks; sells and uses in own consumption extracted olive pomace, which results from oil production, without there being an acquisition document; uses hexane in the extraction of oil, without there being an acquisition invoice; the quantities described as pomace are equal to those described as extraction services.
III.1.2. FINDINGS OF FACT NOT PROVEN
1. No other facts relevant to the legal decision were proven.
III.1.3. REASONING OF THE DECISION ON FACTUAL MATTERS
The factual basis was established on the basis of critical analysis of the administrative file and other documents in the record, which are hereby deemed reproduced and whose authenticity and veracity were not contested by either party, as well as the witness evidence produced and the statements of the parties, and it is certain that both the declarant and the witness demonstrated broad knowledge of the facts and proceeded with evident impartiality.
III.2. LEGAL MATTERS
The dispute that opposes the Claimant to the AT is exposed in a few lines.
The Claimant invoiced B…, Lda., the sale of a product that it designated as dried olive pomace, and services relating to the extraction of olive oil from that dried pomace.
Considering that dried pomace is a product included in item 3.8 of List I attached to the VAT Code, it assessed VAT at the reduced rate of 6%. As for the provision of extraction services, it assessed VAT at the normal rate.
The AT, following an external inspection, concluded that the Claimant did not sell to B…, Lda., dried olive pomace, but olive pomace oil, which does not benefit from that reduced rate, and therefore assessed the difference between the VAT invoiced and what it considered due, at the normal rate.
The parties do not dispute that transactions in olive pomace oil are taxed in VAT at the normal rate of 23%, as results from the provision in paragraph c) of paragraph 1 of Article 18 of the VAT Code, and that olive pomace enjoys taxation at the rate of 6%, as per paragraph a) of paragraph 1 of the same Article 18 and item 3.8 of List I attached to the VAT Code.
This point also raises no doubts for the arbitral tribunal.
Thus, if the merchandise sold by the Claimant is classifiable as olive pomace, the rate is 6%, and the corrections introduced by the AT and which gave rise to the contested assessments are not justified, such assessments being deficient due to error concerning the factual premises, and should, therefore, be annulled – all as the Claimant requests.
Conversely, if the same product is olive pomace oil, the rate is 23%, and the AT was correct in concluding that tax was outstanding, assessing it. In this case, the acts of additional assessment are legal, and deserve to be upheld, contrary to the Claimant's understanding.
The compensatory interest assessed follows the fate that befalls the VAT: they are due if tax was assessed late due to a fact attributable to the Claimant, in accordance with the provision of Article 35, paragraph 1 of the General Tax Law; they are not if this does not occur, that is, if the amount of tax it mentioned in the invoices corresponds to that legally due.
The solution to the dispute depends, therefore, on the factual matters that were established in the proceedings.
Now, on this point, the collective tribunal formed a conviction that does not follow that of the AT.
As stated in the chapter dedicated to factuality, it was proven that, as of 2011, the Claimant ceased producing olive pomace oil, limiting itself to the activity of drying the pomace it acquires, selling it to B…, Lda., the latter being the one pursuing the industrial process, extracting the oil from that pomace, and commercializing it.
And this is so, it was also proven, because the Claimant found it convenient to cease producing and commercializing oil in order to benefit from PRODER support.
It is an established fact that the Claimant controls B…, Lda., which would allow raising issues relating to transactions between both, dominant and dominated.
But such issues were not considered by the AT, which did not assess the relationships between the two companies, nor did it draw any consequences from them. Indeed, what can be extracted from this relationship is that, had the invoices been issued at the proper time with VAT at the normal rate, as the AT claims, that same VAT would have been deductible in the sphere of B…, Lda., which economically integrates the sphere of the Claimant, as was seen. That is, if things had occurred as the Tax Authority sought to impose through the additional assessments, via the group relationship existing the "A… group" would not have borne the economic burden of the normal rate, since the purchaser would have deducted it, and there would thus be no foreseeable loss to the State's coffers.
What led the AT to undertake the additional assessments was the conclusion it reached that the product sold was not dried olive pomace, but olive pomace oil. This conclusion was based on circumstances relating to the configuration of the transaction between the Claimant and the dominated company, namely, the fact that, although the industrial facilities where the oil is produced are owned by the company, it is the cooperative that bears the costs of production, acquiring raw materials, providing and paying the personnel, paying energy costs, maintaining the equipment, paying analyses of the final product, etc.
But all this is explained by the contract that the Claimant and B…, Lda., concluded and which was also proven.
It is a complex contract, not entirely clear, moreover, concluded between two parties in a situation of control/subordination; but this is part of the freedom to configure industrial and commercial procedures that the Claimant enjoys, and does not allow concluding that it is the producer of olive pomace oil and that it sells it to B…, Lda.
On the contrary, what was established was that such production and commercialization fall to the latter company, from the dried pomace and hexane supplied by the Claimant, and within the scope of the said contract, with the respondent having failed to demonstrate the artificiality of the contract in such a way that it would not produce the intended effects for VAT purposes.
Tax Law has, moreover, specific rules to deal with complex contractual situations suspected of being abusive from a tax perspective, which allow for the disregard of acts or transactions effectively undertaken, in particular the procedure for applying the general anti-abuse clause provided for in Article 38, paragraph 2 of the General Tax Law, with the Respondent having not embarked on this methodological course, nor moreover even alluded to it.
In conclusion, the good transmitted to which the contested invoices relate is dried olive pomace, and not olive pomace oil, benefiting, as such, from the reduced VAT rate, and the tax contained in those invoices is therefore correct.
And, in this manner, the AT, in understanding that it was olive pomace oil, committed an error concerning the factual premises and, consequently, the legal premises, and the contested assessments cannot be upheld, as illegal.
The assessments regarding compensatory interest also do not deserve to survive, in the absence of late assessment due to a fact attributable to the Claimant.
IV – DECISION
On the grounds of fact and law set out above, the Claimant's request is granted, annulling, as illegal, the contested assessments, both as regards VAT and as regards compensatory interest, and the Respondent is condemned to pay the costs of the proceedings.
V. VALUE OF THE PROCEEDINGS
The value of the proceedings is fixed at € 2,695,568.39, pursuant to the provisions of Articles 97-A of the CPPT (applicable ex vi Article 29, paragraph 1, paragraph a) of the RJAT) and 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).
VI. COSTS
Pursuant to Article 22, paragraph 4, of the R.J.A.T., the costs are computed at € 34,578.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings.
Let it be notified.
Lisbon, 27 March 2017.
The Arbitrators
José Baeta de Queiroz (president)
João Taborda da Gama
Emanuel Augusto Vidal Lima
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