CAAD 494/2018-T: VAT Deduction Rights for Real Estate Investment Fund Under Reverse Charge Mechanism

ARBITRAL TAX JURISPRUDENCE

Case No. 494/2018-T

Decision Date: 2019-09-06

VAT

Claim Value: €417,112.14

Subject Matter: VAT – Real Estate Investment Fund; Right to deduction; Reverse charge mechanism; Formal requirements

ARBITRAL DECISION

I – REPORT

1. On 4 October 2018, Open Real Estate Investment Fund A..., NIPC ..., with registered office ...-...-..., ...-..., submitted a request for constitution of an arbitral tribunal, pursuant to the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011 of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, as amended by article 228 of Law No. 66-B/2012 of 31 December (hereinafter, briefly designated RJAT), seeking the declaration of illegality of the following tax acts constituting additional assessments of Value Added Tax ("VAT") and VAT interest, compensatory interest and default interest, in the part corresponding to the total amount of €417,112.14:

   i. Assessment No. 2017..., relating to period Q3/2013, corresponding to Statement of Account No. 2017..., in the amount of €252,756.21;

   ii. Assessment No. 2017..., relating to period Q2/2013, corresponding to Statement of Account No. 2017..., in the amount of €115,230.75;

   iii. Assessment No. 2017..., relating to period Q3/2013, corresponding to Statement of Account No. 2017..., in the amount of €4,649.61;

   iv. Assessment No. 2017..., relating to period Q3/2013 (VAT Interest), corresponding to Statement of Account No. 2017..., in the amount of €46,368.64;

   v. Assessment No. 2017..., relating to period Q2/2013 (VAT Interest), corresponding to Statement of Account No. 2017..., in the amount of €19,964.91;

   vi. Assessment No. 2017..., relating to period Q3/2013 (VAT Interest), corresponding to Statement of Account No. 2017..., in the amount of €759.22; and

   vii. Assessment No. 2017..., relating to period Q4/2013 (Compensatory and Default Interest), corresponding to Statement of Account No. 2017..., in the amount of €2,955.19.

2. To support its request, the Claimant alleges, in summary, that:

   a. Regarding the discrepancies between the Periodic Declarations and the e-invoicing system, despite irregularities found in some situations in the VAT assessment procedure adopted by the Fund, it is demonstrated that it never failed to comply with its obligation to deliver the tax payment within the scope of operations carried out in 2013, and that, at most, the Fund paid more VAT than it would actually have had to deliver to the State;

   b. Regarding the VAT assessment in civil construction service acquisition operations, the approach taken by the Tax Authority is manifestly contrary to the criteria of reasonableness and proportionality that must underlie the case-by-case analysis required herein, with consequent violation of the principles of legal certainty and protection of legitimate expectations, as well as the principles of proportionality, justice and good faith, since the fact that the cadastral situation of the Fund, verified until 2017 – i.e., a taxpayer exempt from VAT – should not have, at any moment, resulted from an act for which responsibility could be imputed to the Fund, but solely to the Tax Authority, and given that VAT was always assessed and paid, fully and in a timely manner, by its service providers – a fact that the Tax Authority does not dispute;

   c. Regarding the situation referred to in the previous item, the Claimant argues the illegality of double collection;

   d. Regarding the deduction of VAT in the acquisition of civil construction services, it would appear contrary to the common VAT system the limitation sought by the Tax Authority, in the sense of denying the right to deduct the tax incurred by the Fund in the acquisition of resources for the realization of its taxable operations, even if the VAT assessment on those operations has, by excusable error, followed the standard tax assessment regime, contrary to the reverse charge regime;

   e. Regarding the VAT regularized in favor of the taxpayer through the alleged non-compliance with formal requirements of article 78 of the VAT Code, the Claimant submits that compliance with the said requirement was verified during the course of the tax inspection, which is acknowledged by the Tax Authority in the Tax Inspection Report;

   f. Regarding VAT in electricity acquisition operations, the Claimant states that the total established by the Tax Authority considers in duplicate the amount of €4,409.66, relating to an invoice from B..., SL (...), and that the Fund regularized VAT in favor of the State, in field 41 of the VAT periodic declaration for the 1st quarter of 2013, the amount of €31,129.30, whereby the Fund paid, in reality, excess VAT in the amount of €8,221.85;

   g. Regarding situations in which the Tax Authority understood that the Fund improperly deducted VAT in the context of invoices in which it did not appear as the acquiring entity of the operations underlying them, the Claimant submits that the material requirements are met for the Fund to have the right to deduct the VAT contained in the electricity acquisition invoices under analysis;

   h. Regarding VAT regularizations in favor of the State with reference to deductions relating to real estate not used for business purposes, pursuant to article 26 of the VAT Code, the Claimant considers that, at no moment, did there rest upon the Fund an obligation to regularize, in favor of the State, the VAT deducted regarding vacant stores in the Shopping Center in ....

3. On 08-10-2018, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.

4. The Claimant did not appoint an arbitrator, whereby, pursuant to the provisions of subparagraph a) of paragraph 2 of article 6 and subparagraph a) of paragraph 1 of article 11 of the RJAT, the President of the Deontological Council of CAAD designated the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of the assignment within the applicable period.

5. On 27-11-2018, the parties were notified of these designations and manifested no desire to challenge any of them.

6. In accordance with the provision of subparagraph c) of paragraph 1 of article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 17-12-2018.

7. On 01-02-2019, the Respondent, duly notified for that purpose, presented its response defending itself by counter-argument.

8. Pursuant to the provisions of subparagraphs c) and e) of article 16 and paragraph 2 of article 29, both of the RJAT, the holding of the meeting referred to in article 18 of the RJAT was dispensed with.

9. Having been granted a period for the presentation of written submissions, these were presented by the parties, expressing themselves on the evidence produced and reiterating and developing their respective legal positions.

10. It was indicated that the final decision would be notified by the end of the period provided for in article 21(1) of the RJAT.

11. The Arbitral Tribunal is materially competent and is properly constituted pursuant to articles 2, paragraph 1, subparagraph a), 5 and 6, paragraph 2, subparagraph a), of the RJAT.

The parties have legal capacity and standing, are legitimate and are legally represented pursuant to articles 4 and 10 of the RJAT and article 1 of Order No. 112-A/2011 of 22 March.

The proceedings are free from nullities.

Thus, there is no obstacle to the consideration of the matter.

Having reviewed everything, it is necessary to deliver

II. DECISION

A. STATEMENT OF FACTS

A.1. Facts established as proven

1. The Fund, managed and administered by the Claimant, is an open real estate investment fund with indefinite duration, which began its activity on 3 November 1991 and, within the scope of its activity, buys, sells and leases real estate properties that it holds for that purpose, being registered under CAE Nos. 68100 and 68200.

2. On 27 October 2005, the Fund submitted a "Statement of Commencement of Activity" within the scope of which it declared its intention to register as a mixed taxpayer for VAT purposes.

3. In the said declaration, the following options were completed in the respective Table 11:

   i. Subparagraph A, Field 1 – "Transfers of goods and/or provision of services conferring the right to deduction" – and Field 2 – "Transfers of goods and/or provision of exempt services not conferring the right to deduction";

   ii. Subparagraph B, Fields 3 and 6, relating to the option of the actual allocation method for purposes of deducting VAT incurred in taxable operations carried out by the Fund.

4. Within the scope of its normal activity, the Fund carries out, simultaneously, operations conferring the right to VAT deduction and operations not conferring that right, such as the operation of shopping centers, parking facilities and management of real estate with and without waiver of VAT exemption.

5. The said commencement of activity registration was duly validated by the Registration and Register Management Directorate.

6. The Tax Authority classified the Fund under the exemption regime provided for in article 9 of the VAT Code, through the completion of Field 5 of Table 10 of the declaration – "Transfers of goods and/or provision of exempt services not conferring the right to deduction (art. 9)".

7. This situation was officially corrected in 2017 through an Official Amendment Notice, with effects retroactively applied to 1 January 2013.

8. From the said date, the Fund became classified in the Tax Authority records as a mixed taxpayer, covered by the normal quarterly VAT regime.

9. On 29 August 2016, the Tax Authority issued Service Order No. 2016..., initiating an external and partial inspection action with a view to investigating the procedures adopted by the Fund in VAT matters during the year 2013.

10. External inspection acts were initiated with the signature of the Service Order by the taxpayer on 22/03/2017, with their conclusion occurring on 14/11/2017.

11. Given the complexity and volume of operations, as well as their tax classification, a request was made for the appropriate authorization to extend the inspection procedure period by a period of 3 months, which was communicated to the taxpayer through an official letter with reference ..., dated 2017/08/28.

12. Following the said inspection action, after exercising the corresponding right to a hearing regarding the corrections then proposed, the Fund was to be notified of the Tax Inspection Report (RIT), within the scope of which the Tax Authority consolidated the understanding previously endorsed within the scope of the Draft Report.

13. The RIT states, among other things, the following:

"II.3.1. External Inspection for the Year 2015 – OI2016...

Given the relevance of the facts ascertained, and for a better understanding of the procedures adopted by the Tax Authority in the course of this inspection action for the year 2013, it is relevant to report some of the facts ascertained during the course of the external inspection action for the year 2015, the procedure of which is already concluded.

For the year 2015, in the course of the procedures established by the Tax Authority, from the analysis of the discrepancies detected in the system, in VAT under e-invoice type F02 – 'VAT assessed on invoices exceeding VAT assessed in the Periodic Declaration of the period', resulted in additional quarterly VAT assessments for the year 2015, in the name of the Fund.

The discrepancy in question was ascertained by comparing the sum of invoices communicated through the SAFT1 file by the taxpayer and the completion of Fields 1 and 3 – 'Taxable Base' and Fields 2 and 4 – 'Tax due to the State' of the Periodic Declaration for the year 2015.

From this analysis resulted equally the proposal for conducting an inspection action for the year 2015, with the opening of a service order with No. OI2016....

II.3.1.1. Description of Facts Ascertained – Year 2015

The inspection action aimed, in particular, to analyze the discrepancy detected by the e-invoicing system, which alerted to the fact that VAT assessed on invoices, declared to the Tax Authority through the mandatory communication file, exceeded the VAT assessed and recorded in the Periodic Declaration (DP) for the year 2015.

It was considered that the situation is due to partial duplication of invoicing, a consequence of internal operations, for which the Fund uses as internal supporting documents invoices that it issues and communicates to the Tax Authority, without there being any underlying real operation.

In the case at hand, it was important to determine whether the invoices issued with the classification of 'Internal' operations by the taxpayer constitute or not operations subject to VAT, in the sense of the VAT Code, as well as whether there was tax shortfall by the Fund.

It was found that the irregularity is underlying the management and organization of the Fund, and the invoicing procedure of the income from one of the real estate properties held and managed by this Fund, the Shopping Center in ... (briefly designated as C.C. ...).

The C.C. ... is owned by the Fund, but the management of the property is in charge of a company hired for that purpose, C..., Unipessoal, Lda (hereinafter designated C...), with NIF .... The services provided by C... include, in particular, contact with tenants and issuance of invoices to tenants (rent invoices, parking fees and imposition of common charges for the occupation of commercial space).

The invoicing program used by C... is held by the Fund, with its own numbering, with the program being handled by C....

The Fund A... operates with two certified invoicing programs:

– No. 141/AT – certified program issued in the name of the Fund by C..., relating to the C.C. ..., with initial invoice references 'T01' and 'T03'; and

– No. .../AT – A central computer system, managed by the company managing the Fund, which fully supports the accounting and valuation of Real Estate Funds 'with initial invoice reference 'SAFT RC2013'.

Due to limitations of the consolidating accounting program, which cannot absorb the invoices issued by C... relating to the C.C. ..., the taxpayer decided to issue global monthly invoices for the integration of line items of tenant rents, parking fees collected and the imposition of charges for water, electricity and other charges with remuneration to tenants.

The invoices which, according to the taxpayer, constitute mere 'internal operations', were issued in the name and on behalf of the taxpayer to D... – Management of Real Estate Investment Funds, SA, with NIF ..., which was dissolved as part of a merger process. This information was corroborated by consulting the Tax Authority database, in which it is recorded that the taxpayer D... – Management of Real Estate Investment Funds, SA ceased its activity by Merger/Demerger, effective 2004/12/23.

The Tax Authority understands that, with the company D... ceased and not exercising the deduction of the tax assessed on the invoices, the effect in terms of tax assessed by it would be neutral, having resorted to the expedient of issuing invoices to justify 'internal operations'.

For the Tax Authority, the use of invoices as a tax accounting support document, with the respective VAT assessment as internal operations, constitutes an improper use of fiscally relevant documents. The invoice is mandatory for issuance for each transfer of goods or provision of services, and its issuance is underpinned by the obligation to assess and pay the tax.

However, it is considered that the operations described do not meet one of the premises of objective scope (subparagraph a) of paragraph 1 of article 1 of the VAT Code), that is, they do not constitute a provision of services for consideration.

Within the scope of the inspection procedure, it was established that the additional tax assessments result from duplication of the tax assessed in operations designated as 'internal' and which do not constitute service provision operations in the sense of the VAT Code, as they do not meet the requirements of objective scope.

This interpretation was communicated to the Administrative Justice Division of the Finance Directorate of Lisbon, within the scope of the Gracious Reclamation process, analyzed in that organizational unit. (...)

III.1.1. Classification of Operations and of the Taxpayer in VAT Matters

Since 20/11/2002, the taxpayer had been registered in the exemption regime, provided for in article 9 of the VAT Code, with the Fund for some real estate properties, of which it is the owner, having exercised the waiver of exemption, opting for the assessment of tax in the operations carried out there, pursuant to article 12 of the VAT Code, and whose conditions are set forth in the Regime published by Decree-Law No. 21/2007 of 29 January (hereinafter referred to as the Waiver Regime).

It follows from the first part of paragraph 29 of article 9 of the VAT Code that the leasing of bare real estate, in the case of urban properties or urban part in mixed properties, or only the land, in the case of rural properties, is exempt from VAT, whether for residential, commercial, industrial or agricultural purposes. However, this exemption does not apply, taking into account the second part of the said paragraph 29 of article 9, which expressly provides that the exemption does not cover the leasing of parking areas and real estate property resulting in the onerous transfer of the operation of a commercial or industrial establishment:

'Article 9 – Exemptions on domestic operations (...)

29 – The leasing of real estate property. This exemption does not cover: (...)

b) The leasing of areas for collective collection or parking of vehicles;

c) The leasing of machines and other equipment of fixed installation, as well as any other leasing of real estate property resulting in the onerous transfer of the operation of a commercial or industrial establishment; (...)

e) The leasing of spaces for exhibitions or advertising.'

This understanding leads to the conclusion that the lease contract for space, which includes Shopping Centers, accompanied by services essential for the pursuit of an economic activity, entered into between the taxpayer and other tenants, as well as the operation of collective parking of vehicles constitutes a provision of services subject to VAT and not exempt from it, pursuant to article 4 and article 9, paragraph 29, subparagraphs b), c) and e), both of the VAT Code.

The condition of taxation of operations related to the activity of Shopping Centers and parking facilities does not depend on any formalism, or on the exercise of any option or waiver of VAT exemption; on the contrary, it flows from the very nature of the operation of that provision of services and the general premises contained in the VAT Code that determine the scope of the tax, whereby we are faced with operations subject to tax.

The Fund is a taxpayer which in active operations either assesses VAT (for example the Shopping Center in ...) or, pursuant to the exemption in article 9 of the VAT Code, does not assess tax. It is the active operations of the taxpayer that determine its classification in VAT matters of any taxpayer.

It results from the fact of carrying out operations subject to tax that the Fund does not meet the conditions for classification as an exempt taxpayer pursuant to article 9 of the VAT Code, consequently in this context, the Tax Authority, within the scope of OI2016... for the year 2015, proceeded with official correction, through the preparation of an Official Amendment Notice (BAO) with the purpose of changing the classification of the Fund in VAT matters, from the Exemption Regime with Real Estate Operations to the Normal Regime, effective 01/01/2013.

III.1.2. Accounting of the Fund

According to article 44 of the VAT Code, accounting must reflect the determination of the tax and relations with the State, as follows:

'Article 44 – Requirements of Accounting

1 – Accounting must be organized in such a way as to enable the clear and unequivocal knowledge of the elements necessary for the calculation of the tax, as well as to permit its control, containing all data necessary for the completion of the periodic declaration of the tax.'

With regard to VAT, the taxpayer's accounting does not comply with the necessary requirements as unequivocal evidence supporting the completion of the DP. As a revealing shortfall in what follows is the fact that there is only one VAT account for tax assessed, for tax deducted and for tax regularized.

The taxpayer explained that the system does not permit the breakdown of its chart into sub-accounts for the determination of the tax, and given the gaps between the date of tax assessment and the date of invoices, by choice of the taxpayer and which do not follow the rules of tax management, the management of these acquisitions is done using files (off-accounting records).

It appears to us that computer systems have to adapt to the requirements of fiscally relevant declarations; however, the responsibility for the provision of information rests with the Fund, regardless of the functionalities of the programs. The completion of the fields referred to in the periodic declarations does not constitute optional information.

III.1.3. Tax Assessed in Accordance with Issuance of Invoices

With the objective of validating whether the amount of tax assessed corresponds to the tax declared, one began by comparing the invoices issued by the taxpayer with the amounts recorded in the VAT DP quarterly.

Thus, the sum of invoices communicated through the SAFT2 file by the taxpayer was compared with the completion of Fields 1, 3 and 9 – 'Taxable Base' and Fields 2 and 4 – 'Tax Assessed' of the DP for the year 2013.

From this verification result discrepancies, more specifically that the tax assessed exceeds the tax declared in the DP, which results in an assumption of tax shortfall.

Considering the experience acquired in the 2015 inspection action, and taking into account that the invoicing of C.C. ... generates duplication of invoicing communicated, resulting from tenants' rents issued in duplicate. However, discrepancies remain, so it was necessary to deepen the process of determining the tax to be delivered by the Fund.

The method adopted by the Fund for determining the amounts to be recorded in a VAT DP is based on a set of files which have no relationship with accounting, in the recording in the VAT determination account, that is, the amount of invoices issued in a month does not correspond to a recording in the same amount in the VAT account. The VAT to be delivered is only recorded at the time of payment and not at the time of determination, with the issuance of invoices.

The determination of the amount of VAT owed is based on a file in which invoices issued are summed and subtracted, operations which distort VAT rules, in particular, regarding the rules of the moment of tax exigibility and the moment in which it should be delivered to the State.

To facilitate the understanding of these addition and subtraction entries of documents, the supporting file referred to is annexed, relating to the determination of tax to be delivered in the 1st Quarter of 2013 (ANNEX II), designated by the Fund: '6.1-VAT.Justification_1st quarter13'.

We highlight some illustrative situations of manual entries in the tax determination files for the period:

– Receipts issued in 2012 (RC 2012/... and RC2012/...) are recorded in the 2013 file, which results in the delivery of tax due in 2012, only in 2013.

– Receipts issued in 2012 (RC 2012/... and RC2012/...) are recorded in the 2013 file with opposite sign (which results in a regularization in favor of the taxpayer), of tax previously delivered. That is, the Fund issued the invoice in 2012 and delivers the respective tax in 2013, when it records the entry in the file with opposite sign, it recovers the tax. This operation results in the issuance of the invoice without the tax being effectively delivered.

– Receipts RC2013/..., RC2013/..., RC2013/... and RC2013/..., issued in the name of tenant E..., SA, for the amount of VAT of €4,623.44 (in each receipt) totaling €18,493.76 (total VAT), were withdrawn from the column of tax to be delivered (value_VAT) and placed in a column (without effects on the determination).

– Receipt 2013/162 appears in the file with two entries with opposite sign, one for €4,140.00 for the amount of VAT to be delivered and another with opposite sign of €24,840.00 in favor of the fund. However, Receipt RC 2013/162 issued on 2013/01/02 in e-invoicing has base value of €18,000.00 and assesses tax in the amount of €4,140.00, whereby it is not understood the recovery of tax by the Fund in the amount of €24,840.00.

According to information from the Fund, these operations contained in the said file (adding and subtracting) are related to possible invoice cancellations, with non-payment or with the system date and recognition of debt.

Given the movements made by the Fund in the determination of VAT, outside of accounting, it was necessary to resort to determining the tax based on documents that effectively determine its scope, that is, based on Invoices and Credit Notes issued in 2013 and communicated to the Tax Authority.

III.1.4. Corrections to Tax Shortfall – €388,738.53

III.1.4.1. Periodic Declarations versus e-invoicing

It appears to us that the Fund views the delivery of tax from a cash perspective without respect for the rules of the tax, so it is important to review article 8 of the VAT Code, as regards the exigibility of the tax, in case of obligation to issue an invoice:

'1 – Notwithstanding the provisions of the preceding article and without prejudice to the provisions of article 2 of the cash basis VAT regime, whenever the transfer of goods or the provision of services gives rise to the obligation to issue an invoice pursuant to article 29, the tax becomes exigible: (Wording of Law No. 83-C/2013 of 31 December)

a) If the period provided for the issuance of the invoice is respected, at the moment of its issuance; (Wording of D.L. No. 197/2012 of 24 August, entering into force on 1 January 2013)

b) If the period provided for the issuance is not respected, at the moment in which it terminates.'

It is clear that the tax is due at the moment of the issuance of invoices by the Fund and of mandatory declaration in the DP of the period to which it relates.

III.1.4.2. Determination of VAT – Tax Shortfall – €31,209.60

Taking into account the discrepancies, the lack of accounting evidence of the operations and manipulation of off-accounting files for the determination of VAT DP, the Tax Authority opted to determine the actual amounts to appear in the DP, based on invoices issued and communicated to the Tax Authority by the Fund, with the following premises and reservations:

1. The date of issuance of the document is the moment of debt/regularization of the tax, pursuant to the VAT Code, hence, all invoices were added and all credit notes, contained in the e-invoicing system existing at the Tax Authority, were subtracted;

2. From the amounts determined in point 1, from the invoices communicated in e-invoicing, the invoices issued in the name of the tenants of C.C. ... were purged, as it is recognized that this is duplicate invoicing, that is, the documents with initial reference 'T01' and 'T03' were subtracted;

3. The amounts declared by the taxpayer in the determination of tax in the DP of 201303T include tax relating to invoices issued in 2012, but which the Fund only proceeded to deliver in the DP of 2013, which shall be considered in the determination of tax.

The amounts referred to are the following:

[table content]

The result of the comparison between the DP and the invoices communicated, with the previously mentioned premises and reservations, is evidenced in this summary:

[table content]

Based on the above, it is concluded that there is tax shortfall in the year 2013 amounting to €31,209.60.

III.1.4.3. Determination of Parking – Tax Shortfall – €0.00

To the amounts communicated in e-invoicing were added the income from parking (Based on communications from C... to the Fund), which do not constitute regular payments, as there was issuance of invoice directly to tenants for these and are effectively operations that fall within VAT scope, whereby there is ground for tax assessment.

The amounts are determined based on communications from C... to the Fund, as per ANNEX III and correspond to the following determination:

[table content]

After analysis of the exercise of the right to a hearing by the taxpayer, based on the elements presented, we agree with the Fund that there is no tax shortfall with the parking of the Shopping Center in ....

III.1.4.4. Determination of Exempt Operations Without Right to Deduction

In the exempt operations without the right to deduction in Field 9 of VAT DP, it was detected that the taxpayer did not record all operations relating to sales of real estate carried out during 2013, thus, the completion of this field will equally follow according to the actual sales of real estate by the Fund in 2013.

Whereby, given the date of the deed and the amounts not declared, the determination of this type of operation was equally made. These do not represent operations subject to tax; however, they constitute communication operations equally mandatory.

It appears to us that there is a lack of standardization and rigor in the declaration of these operations, as some are recorded in the DP and others are not. On the other hand, in the determination of exempt operations with the sale of real estate, the quarter was considered in which the deed was executed. Whereby the amounts determined for this type of operation are as follows:

[table content]

III.1.5. Classification of Operations and of the Taxpayer in VAT Matters – Civil Construction Services.

Analyzing the services invoiced to the Fund by the various civil construction service providers, we verified that they proceeded with the assessment of VAT in the invoices issued in the year 2013, given that the Fund appeared as an exempt taxpayer in the Tax Authority database. However, as previously explained, in the concrete case, we are faced with a taxpayer in the normal VAT regime.

For these taxpayers, subparagraph j) of paragraph 1 of article 2 of the VAT Code imposes the rule of reversal of the taxpayer, when the following conditions are cumulatively met:

– If there is acquisition of civil construction services;

– The acquirer is a VAT taxpayer in Portugal and here carries out operations conferring, wholly or partially, the right to VAT deduction.

The first condition is provided for in Circular Notice No. 30101 of DSIVA of 24/05/2007, which clarifies the application of this rule, in particular what constitutes civil construction services – "Civil construction services are considered to be all those having as their object the performance of work, encompassing the entire set of acts necessary for its realization".

On the other hand, work should be understood as any labor of construction, reconstruction, enlargement, alteration, repair, maintenance, rehabilitation, cleaning, restoration and demolition of real estate, as well as any other work involving a construction process, whether of a public or private nature.

The second condition for the application of the rule concerns the classification of the acquirer of civil construction services. As previously explained, the Fund is a taxpayer which carries out operations conferring the right to deduction and operations not conferring that right.

It is thus concluded that the two conditions for the application of the reversal of taxpayer rule are met, whereby it would have been the responsibility of the acquirer of construction services (the Fund) to assess the said tax on the invoices issued by civil construction service providers.

III.1.5.1. VAT Not Assessed in the Acquisition of Civil Construction Services – €287,629.25.

It follows from the above that the various service providers should not have carried out the assessment of VAT, as the true obligor of the tax is the Fund, as the acquirer of construction services; however, as previously mentioned, they were induced to not apply the reversal of taxpayer rule, given that the Fund did not proceed with the request to modify its details with a view to correct classification in VAT matters.

The fact that suppliers have assessed tax and that assessment is not due does not prevent that the assessment and payment of tax is not borne by the Fund, considering that such entities may obtain the reimbursement of said tax from the Tax Authority.

The invoices issued during 2013, analyzed by the Tax Authority, corresponding to the acquisition of civil construction services for the real estate properties belonging to the Fund, result in the correction of tax shortfall.

For civil construction services for which tax remained unassessed at the rate of 6%, the value by quarters is distributed as follows (see ANNEX IV):

[table content]

As for civil construction services for which tax remained unassessed at the rate of 23%, the value by quarters was as follows (see ANNEX V):

[table content]

In the aggregate of the two rates, the tax shortfall with the provision of civil construction services amounts to €287,629.25.

After receipt of the draft report, the taxpayer voluntarily regularized part of the tax in the amount of €19,389.61, through the delivery of the replacement declaration of the 4th quarter of 2013, as described in point IX of this report.

III.1.5.2. VAT Improperly Deducted in the Acquisition of Civil Construction Services – €2,646.59

The Fund deducted the VAT assessed by civil construction service providers in the various invoices issued by service providers, relating to operations regarding properties for which it assessed tax, having declared the deduction of the amount of tax in the periodic declarations in the four quarters of 2013.

Given that the conditions for the application of the reversal of taxpayer rule are met, in which the obligation to assess lies with the Fund in accordance with the reversal of taxpayer rule referred to in subparagraph j) of paragraph 1 of article 2 of the VAT Code, the same applies to the exercise of the right to deduction in which the premises for exercising that right are well defined, both as to the quality of the taxpayer and the activity carried out (article 20 of the VAT Code) and as to the moment of exercise of the right to deduction (articles 7, 8, 22, paragraph 1 and 98, paragraph 2, all of the VAT Code).

Circular Notice No. 30101 of DSIVA of 24/05/2007, in point 5 "deduction of tax incurred", defines for cases in which there is reversal, that the supplier may exercise the right to deduct VAT incurred for the performance of such operations pursuant to articles 19 and following, in particular subparagraph c) of paragraph 1 of article 19-5 of the VAT Code.

It limits the exercise of the right to full deduction of the acquirer, observed the provisions of articles 19 and 21, to the tax that it self-assesses.

Given that suppliers improperly assessed VAT on invoices relating to civil construction services issued for services provided to the Fund, the reversal rule did not apply, whereby the requirements for the application of the right to deduction were not met, whereby pursuant to paragraph 8 of article 19 of the VAT Code, this VAT is not deductible.

Thus, the correction to VAT deducted, relating to civil construction services improperly exercised in field 24 of the DP is determined in ANNEX VI and summarized in the following table according to the respective periods of 2013:

[table content]

III.1.6. Non-Compliance with Paragraph 7 of Article 78 of the VAT Code – €8,280.00

Given the Credit Notes issued by the Fund and reflected in the determination of tax in point 1.4.2, it was requested for a sample of these documents, proof of compliance with the requirements referred to in paragraph 5 of article 78 of the VAT Code, namely the notation that the acquirer became aware of the rectification.

The Fund issued in the name of company F..., Lda. two Credit Notes, CN 2013/... of 17/01/2013, for €18,000.00 (base value) and €4,140.00 VAT and CN 2013/... of 17/01/2013, for €18,000.00 (base value) and €4,140.00 VAT.

The Tax Authority understood it should proceed with declarative control; for that purpose, pursuant to the duty of collaboration, enshrined in paragraphs 1 to 4 of article 59 of the General Tax Law and articles 28 and 48 of the Complementary Regime of the Tax Inspection and Customs Procedure, information was requested from the taxpayer F..., Lda regarding the accounting records in its relationship with the Fund as a tenant.

It was found that the accounting and VAT DP do not show the regularizations relating to the referred Credit Notes.

Simultaneously, the Fund sent the Tax Authority copies of the documents, with the notation of the said company and a signature "...".

When confronted with this situation, the tenant responded to the Tax Authority as follows:

"a) the credit notes in question were not stamped and signed by any of the company's managers but rather by someone who was asked to sign this and who agreed to do so."

According to e-mails sent by the Fund, it is possible to understand that only during this inspection, and not at the date of the facts, did the Fund request signatures on the Credit Note from employees of F..., Lda, only to satisfy the Tax Authority's request for evidence.

The Fund appears to understand the notation of the acquirer as mere formalism; it does not appear to understand that it is essential that it be "communicated" to the acquirer of goods or services for purposes of tax rectification, so that subsequently the Fund can regularize the tax in its favor, as provided by the VAT Code.

This means that, being the taxpayer in a position to proceed with deduction/regularization and foreseeing to do so in a certain tax period, it must, prior to such regularization, communicate its intention to regularize – cancellation of tax – so that the acquirer of goods or services can also proceed with the delivery of tax previously deducted.

In order to proceed with regularization as stated, the Fund must have in its possession proof that the credits are known to the tenant. The Fund not only did not have this proof in its possession, but decided to request compliance with these formalities retroactively, only on 2017/10/06.

In the concrete case, at the date of the facts, it is found that the requirements mentioned in the preceding points are not met, whereby not meeting the totality of the premises referred to, the Fund cannot proceed with the regularization of the tax.

The credit notes were issued on 2013/01/17, and VAT (at normal rate) was deducted through subtraction from the VAT assessed and declared in Fields 3 and 4 of the Periodic Declaration of 201303T; however, the correction of tax in favor of the State by the Tax Authority will be evidenced in field 41 of the periodic declaration of 201303T, in the amount of €8,280.00.

III.1.7. Acquisition of Electricity

The acquisition of electricity constitutes a transfer of goods in the sense of paragraph 2 of article 3 of the VAT Code, located in national territory pursuant to paragraphs 4 and 5 of article 6 of the VAT Code.

The Fund is the tax obligor for the acquisition of electricity, in accordance with subparagraph h) paragraph 1 of article 2, insofar as the acquirers of goods indicated in paragraph 4 of article 6 of the VAT Code are tax obligors, provided that their respective suppliers do not have, in national territory, a registered office, permanent establishment or, in their absence, the domicile from which the transfers are made. Thus, it is the responsibility of the Fund to assess the tax due, as the acquirer.

Given the periodic nature of the DP of the taxpayer is quarterly, the delivery of tax due occurs by the end of the period for delivery of the DP, as determined by article 41 of the VAT Code, by the 15th of the 2nd month following the quarter of the calendar year.

However, the Fund only declares these acquisitions in one, or even two quarters following the quarter in which it should be declared, arguing that with its procedure there is no prejudice to the State, insofar as it assesses and deducts the tax determined on those operations.

The Fund cannot confuse obligations. It follows from article 31 of the General Tax Law (LGT) that the taxpayer has as a principal obligation the payment of the tax debt, and has as an accessory obligation the presentation of declarations and the presentation of fiscally relevant documents.

Declarative obligations exist per se, are independent and are not subordinate to the delivery of tax. They have their own rules, in particular the periods provided for in the VAT Code, which are mandatory and not optional, as the conduct adopted by the Fund demonstrates.

III.1.7.1. Acquisition of Electricity – Tax Assessed – €11,571.29

The procedure adopted by the taxpayer is irregular and does not permit the tax debt to be determined at the moment of its exigibility. Whereby the Tax Authority followed the procedure adopted in the determination of amounts that should appear in the DP for tax assessed, that is, it determined the DP with the amounts of tax that should appear as acquisitions of goods and services for which it assessed tax, to appear in fields 3 "Taxable Base – 23% rate" and Field 4 "Tax due to State – 23% rate" of the DP, as well as field 97 "Operations located in Portugal in which, as acquirer, it assessed the VAT due", according to the date of issuance of invoices.

To this situation is added the fact that invoices were detected for which the taxpayer exercised the right to deduct the tax without having proceeded with the respective assessment of the tax. The acquisitions in question are those contained in the following table:

[table content]

The invoices taken into account in determining the amount to be entered in fields 3, 4 and 97 of the VAT DP, pursuant to ANNEX VII, are summarized in the following table:

[table content]

The Fund declared the acquisitions of electricity from these suppliers as intra-community acquisitions, pursuant to the Intra-Community VAT Transactions Regime (RITI), with the entry in the VAT DP in fields 12 and 13, for the base value and the tax assessed.

For the reasons previously stated, the classification of these operations does not constitute an intra-community acquisition of goods, but rather an acquisition of goods located in national territory pursuant to the VAT Code. Although the irregular classification of these operations by the taxpayer, it is indeed the responsibility of the Fund, as acquirer, to assess the tax.

The amount determined by the Tax Authority exceeds the amount declared by the Fund, whereby there is tax shortfall in the amount of €11,571.29, and which results in the correction of the DP fields as per the table attached:

[table content]

III.1.7.2. Acquisition of Electricity – VAT Deducted in Duplicate – €25,572.39

Based on the supporting file for VAT deducted, a duplication in tax deduction was found. That is, the support file to the amount to be entered in field 24 of the VAT DP enumerates all invoices supporting the acquisition of goods and services in the 1st quarter of 2013, it includes invoices relating to electricity acquisitions, in particular from electricity supplier company G....

From field 13 – "AIB assessed by the declarant" it appears that the taxpayer entered as assessed tax for these acquisitions in the 1st quarter of 2013, €25,572.39.

It is apparent that in the file of VAT deducted in the period, at the monthly total, the value of monthly electricity acquisitions is subsequently added manually, in the amount of €25,572.39. The supporting documents totaling €25,572.39 are already included in the file, which duplicates the amount entered in field 24 of the VAT DP with these acquisitions.

As evidence the aforementioned file (ANNEX VIII) is annexed, in which the duplications are highlighted.

This is a duplication of the deducted amount, for which clarifications were requested, without any justification being produced, whereby there is a need to correct this duplicated amount.

III.1.7.3. Acquisition of Electricity – Tax Deducted Improperly – €6,083.36

It follows from paragraph 2 of article 19 of the VAT Code that only tax mentioned on supplier invoices confers the right to deduction, when they are in the name of and in the possession of the taxpayer.

In some invoices analyzed, they appear as acquirer H... with NIF..., and not the FUND with NIF..., whereby these documents are not considered as issued in the name of the taxpayer; thus, the requirement for deduction is not met.

Thus, the amounts of tax by the Fund in which it does not appear as the acquirer are not deductible. The amounts to be regularized in field 24 of the VAT periodic declaration (DP) of the periods under analysis are as follows:

[table content]

Thus, as presented, the correction amounts to €6,083.36 for the improper deduction of VAT.

III.1.7.4. Acquisition of Electricity – Regularizations by the Taxpayer – VAT €15,746.05

Given the above in points III.1.7.1, III.1.7.2 and III.1.7.3, given that the Tax Authority determined the tax to be assessed with the acquisition of electricity based on the moment of tax exigibility and has respected the deduction of the same at the moment in which the Fund exercised the right, in accordance with the rules of the tax, there is no ground for the tax regularization movements recorded by the Fund in the 2nd quarter of €3,322.87 and in the 3rd quarter of €12,423.18, totaling €15,746.05, entered in field 40 of the VAT DP.

III.1.8. Regularization of VAT – Article 26 of the VAT Code – Regularizations of Deductions Relating to Real Estate Not Used for Business Purposes – VAT Subject to Interest

With regard to the real estate property constituting a Shopping Center located in ..., the Fund proceeded with regularizations pursuant to article 26 "Regularizations of Deductions Relating to Real Estate Not Used for Business Purposes" of the VAT Code, which imposes the annual regularization of 1/20 of the deduction made, regarding real estate for which the initial deduction of tax was made to cover construction, acquisition or other investment expenditures related to them, when there was no use for business purposes.

However the regularization for the year 2013 only appeared in the DP of the following period, that is, 201403T; however, paragraph 1 of article 26 of the VAT Code imposes that the annual regularization must appear in the DP of the last period of the year to which it relates, that is, 201312T.

Pursuant to article 35 of the LGT, there is ground for the determination of compensatory interest, considering that by a fact imputable to the Fund, the regularization of tax in favor of the State was delayed on the amount declared by the Fund (€51,528.75), which should have appeared in field 41 of the DP of 201312T and which was only delivered in 201403T. Compensatory interest is due for one period, as provided for in paragraph 3 of article 35 of the LGT."

1. The Fund was notified of the tax acts of additional assessment of VAT and corresponding compensatory interest in the total amount of €442,684.53, which materialized the corrections determined in the course of the inspection.

2. The Fund proceeded to pay fully and in a timely manner those tax acts of assessment.

3. On 6 March 2018, the Fund submitted a gracious reclamation against those assessment acts, in the part referred to above, accepting the correction in the amount of €25,572.39, relating to an amount considered in duplicate in the calculation of the amount to be considered in field 24 of the VAT periodic declaration of the 1st quarter of 2013.

4. Four months after submission of the said gracious reclamation to the Finance Office of Oeiras ..., the same was not subject to express decision.

5. The amount of invoices communicated through the SAFT file in the 2nd, 3rd and 4th quarters of 2013 was lower than the amount of tax reported in the Periodic Declarations relating to the same periods, in the following amounts:

[table content]

1. In the 1st quarter of 2013, a difference between the same amounts was found in the amount of €64,286.47.

2. In the Periodic Declaration relating to the period corresponding to the 1st quarter of 2013, the Claimant included the amount of €51,986.46 relating to active operations whose documents were issued during the 4th quarter of 2012, as per the table below:

[table content]

1. The Claimant proceeded to timely payment of the tax assessments subject to the present arbitral action.

A.2. Facts Established as Not Proven

1. That the invoices contained in the table below, included in the January 2013 SAFT file, were accounted for and communicated in the 1st quarter of 2013, but the respective tax was assessed in the 4th quarter of 2012:

[table content]

A.3. Reasoning for the Proven and Not Proven Statement of Facts

Regarding the statement of facts, the Tribunal does not have to pronounce on everything alleged by the parties; rather, it is its duty to select the facts that matter for the decision and discriminate between proven and not proven facts (cfr. article 123, paragraph 2 of the Code of Tax Procedural Law and article 607, paragraph 3 of the Code of Civil Procedure, applicable pursuant to article 29, paragraph 1, subparagraphs a) and e), of the RJAT).

Thus, the facts pertinent to the judgment of the matter are chosen and delimited in function of their legal relevance, which is established in attention to the various plausible solutions of the legal issue(s) (cfr. former article 511, paragraph 1 of the Code of Civil Procedure, corresponding to current article 596, applicable pursuant to article 29, paragraph 1, subparagraph e), of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of article 110(7) of the Code of Tax Procedural Law, the documentary evidence and the procedural file attached to the case, the facts listed above were considered proven as being relevant for the decision, taking into account that, as was written in the Court of Appeal – Southern Region (TCA-Sul) Decision of 26-06-2014, handed down in case 07148/13, "the probative value of the tax inspection report (...) may have probative force if the assertions contained therein are not challenged".

The fact established as not proven, alleged by the Claimant and challenged by the Respondent, results from insufficient proof thereof.

For proof of the fact in question, the Claimant, in article 43 of its initial petition, refers to document 7 that it attached, which is nothing more than a monochromatic repetition of pages 2 to 4 of document 6 attached at the same time.

Such document is merely a listing, unaccompanied by any supporting documents, proving that the amount of tax in question was actually assessed and paid in advance.

On one hand, as the RIT reports and the Claimant does not contest, but rather confirms, it did not maintain, at the date of the facts, a transparent and reliable system for recording and controlling operations subject to tax.

On the other hand, never was, at any stage, any explanation advanced for the alleged circumstance that the Claimant assess and pay tax in advance, which, being an abnormal situation and contrary to the interest of the Claimant itself, cannot be established without a convincing and sound justification.

Given that the fact in question is a matter alleged by the Claimant, and the burden of proof rested with it, cannot the doubts which, in the context presented, remain, be resolved in any other way than in the sense of non-proof.

Facts neither proven nor not proven were not established, consisting of allegations made by the parties and presented as facts, consisting of strictly conclusive affirmations, insusceptible to proof and whose veracity is to be assessed in relation to the concrete statement of facts consolidated above, as well as any facts incompatible with the facts established as proven.

B. ON THE LAW

Based on what emerges from the statement of facts above, the corrections operated by the Tax Authority against which the Claimant raises objections are founded on different factual circumstances and legal norms, whereby each of them will be assessed separately.

i. Discrepancies between Periodic Declarations and e-Invoicing System

Regarding discrepancies between Periodic Declarations and the e-invoicing system, the Claimant argues, in summary, that notwithstanding irregularities found in some situations in the VAT assessment procedure adopted by the Fund, it is demonstrated that the Fund never failed to comply with its obligation to deliver the tax payment within the scope of operations carried out in 2013, and that, at most, the Fund assessed more VAT than it would have actually had to deliver to the State.

For its part, in the context of arbitration, the Tax Authority argues that "as is assumed in the Draft Report, the invoices were issued in 2013 (...) with no facts permitting conclusion to another exigibility than that provided for in subparagraph a) of article 8 of the VAT Code, whereby the tax being exigible upon invoice issuance, unequivocal is that it should have been reflected in the DP of the first quarter of 2013, whereby not having been, it is in shortfall", being for the Respondent "irrelevant that the Claimant now undertakes a demonstration that in the year 2012 and in the year 2013, the invoiced VAT (and contained in SAFT) never finds correspondence (as it should) with the periodic declarations of tax."

After examination of the proven and not proven facts, it cannot be ruled that this part of the arbitral claim is well-founded.

Indeed, from the outset, the Claimant's argument on this matter presents itself, with due respect, based on a lapse, which concerns the subtraction of the amount of €51,986.46 from the amount declared in the SAFT files, as per the table below presented by the Claimant:

[table content]

Reviewing document 6 attached by the Claimant itself with the initial petition (cfr. page 9), it is found that the amount in question, corresponding to the invoices itemized in point 20 of the facts established as proven, is not included in the listing of the January 2013 SAFT file, despite the respective VAT having been included, as confessed, in the Periodic Declaration of that period.

Thus, as it is configured, the amount in question of €51,986.46 should not be subtracted from the amount contained in the January 2013 SAFT file, since it was not included in it.

On the other hand, as results from the statement of facts established as not proven, it is not found that the Claimant assessed and paid the tax relating to the invoices referred to in the facts established as not proven in the tax periodic declaration relating to the last quarter of 2012.

Thus, and having in account the above, this part of the arbitral claim must necessarily fail.

ii. VAT Assessment on Acquisition of Civil Construction Services

Next, the Claimant challenges the VAT assessment on acquisitions of civil construction services operated by the Tax Authority.

In the Claimant's perspective, the said assessment is contrary to the criteria of reasonableness and proportionality that must underlie the case-by-case analysis required herein, with consequent violation of the principles of legal certainty and protection of legitimate expectations, as well as the principles of proportionality, justice and good faith.

The Claimant notes that the fact that the cadastral situation of the Fund, verified until 2017 – i.e., a taxpayer exempt from VAT – should not have, at any moment, resulted from an act for which responsibility could be imputed to the Fund, but solely to the Tax Authority, and given that VAT was always assessed and paid, fully and in a timely manner, by its service providers.

For its part, the Respondent points out that the Claimant during the period in question conducted itself as a mixed taxpayer in the assessment and deduction of the tax, whereby no breach of protection of legitimate expectations would be found when the tax officials classified it in the same exact manner as it actually acted.

Further, the Respondent alleges that, in the case, it does not result proven that the tax was delivered, but rather only that it was assessed.

Regarding this matter, Article 2 of the applicable VAT Code (2013 wording) provides that:

"1 – The following are tax obligors: (...)

a) Natural or legal persons who, independently and as a matter of habit, carry out activities of production, commerce or provision of services, including extractive, agricultural and liberal professions activities, and also those who, likewise independently, carry out a single taxable operation, provided that such operation is connected with the exercise of the referred activities, wherever this occurs, or when, regardless of such connection, such operation meets the premises of real scope of income tax of natural persons (IRS) or income tax of legal persons (IRC); (...)

j) Natural or legal persons referred to in subparagraph a) who have registered office, permanent establishment or domicile in national territory and who carry out operations conferring the right to total or partial deduction of the tax, when they are acquirers of civil construction services, including remodeling, repair, maintenance, conservation and demolition of real estate property, under contract or sub-contract arrangement."

From the legal regime exposed, it results that those subject to tax are natural or legal persons who, independently and as a matter of habit, carry out activities of production, commerce or provision of services, including extractive, agricultural and liberal profession activities, who have registered office, permanent establishment or domicile in national territory and who carry out operations conferring the right to total or partial deduction of the tax when they are acquirers of civil construction services, including remodeling, repair, maintenance, conservation and demolition of real estate property under contract or sub-contract arrangement.

For the reversal of the taxpayer to operate, it is thus necessary that the following premises are cumulatively met:

a) there be an acquisition of civil construction services;

b) the acquirer be a VAT taxpayer in Portugal; and

c) that operations conferring total or partial right to VAT deduction be carried out in national territory.

From the RIT, regarding the matter which now concerns us, the following is essentially stated:

"Analyzing the services invoiced to the Fund by the various civil construction service providers, we verified that they proceeded with the assessment of VAT in the invoices issued in the year 2013, given that the Fund appeared as an exempt taxpayer in the Tax Authority database. However, as previously explained, in the concrete case, we are faced with a taxpayer in the normal VAT regime.

For these taxpayers, subparagraph j) of paragraph 1 of article 2 of the VAT Code imposes the rule of reversal of the taxpayer, when the following conditions are cumulatively met:

– If there is acquisition of civil construction services;

– The acquirer is a VAT taxpayer in Portugal and here carries out operations conferring, wholly or partially, the right to VAT deduction.

The first condition is provided for in Circular Notice No. 30101 of DSIVA of 24/05/2007, which clarifies the application of this rule, in particular what constitutes civil construction services – 'Civil construction services are considered to be all those having as their object the performance of work, encompassing the entire set of acts necessary for its realization'.

On the other hand, work should be understood as any labor of construction, reconstruction, enlargement, alteration, repair, maintenance, rehabilitation, cleaning, restoration and demolition of real estate, as well as any other work involving a construction process, whether of a public or private nature.

The second condition for the application of the rule concerns the classification of the acquirer of civil construction services. As previously explained, the Fund is a taxpayer which carries out operations conferring the right to deduction and operations not conferring that right.

It is thus concluded that the two conditions for the application of the reversal of taxpayer rule are met, whereby it would have been the responsibility of the acquirer of construction services (the Fund) to assess the said tax on the invoices issued by civil construction service providers."

The Claimant recognizes that the premises of the obligation to assess VAT by the acquirer ("reverse charge") are met, but considers that in obedience to the principles it invokes, such obligation should be deferred.

With respect due to other opinions, it is believed that the Claimant's argument on this matter is not susceptible to acceptance.

Indeed, from the outset, it must be noted that, contrary to what the Claimant assumes, the failure to comply with the obligation in question does not result from the error committed by the Tax Authority in incorrectly registering the Fund as an exempt taxpayer and not, as properly declared by that authority and actually verified, as a mixed taxpayer.

Such an anomaly, if it can be considered as causally adequate for the assessment of VAT on the invoices by civil construction service providers, can no longer be so qualified either with respect to the payment of the invoices thus presented to the Fund, nor much less with respect to the Fund's failure to comply with its obligation to assess VAT as the acquirer of the services in question.

That is, as the Claimant itself recognizes and is established as proven, the Fund always acted as a mixed taxpayer, carrying out operations conferring the right to VAT deduction and operations not conferring that right, and necessarily always had consciousness of such fact.

Hence, it cannot be recognized that the Fund did not assess the VAT in question, due as the acquirer of civil construction services, because it was incorrectly registered as a taxpayer, given that such incorrect registration did not preclude the Fund from assessing the VAT, nor did it impose that the Fund pay the invoices that were presented to it with VAT assessed.

In any event, as the CJEU has already pronounced, the principle of protection of legitimate expectations and its respective consequences should only operate in cases in which the practice of the Administration has "been such as to create in the mind of a prudent and informed economic operator a reasonable expectation of non-application of the tax to such operations", which is not, for the reasons explained above, the case.

Thus, and in this context, it will not be possible to conclude a violation of the principles invoked by the Claimant by the official assessment of the tax in question, since such assessment is in the first place imputable to the Fund, in that it had at its disposal all the necessary data to comply with the obligation to assess VAT as the acquirer (that is, that it was acquiring civil construction services, that it was a VAT taxpayer in Portugal, and that it carried out in national territory operations conferring it, wholly or partially, the right to VAT deduction, a right it exercised normally).

Furthermore, contrary to what the Claimant contends, if it is not contested – rather it is confirmed – by the Tax Authority that VAT was assessed by the service providers in question, there is no available proof that the VAT assessed was delivered to the State, being certain that both in the RIT and in the context of arbitration, such circumstance was at no moment acknowledged by the Tax Authority.

Now, it is precisely to better guarantee the delivery of the tax to the Treasury that the regime in question (reverse charge) was implemented, being further, as the CJEU has repeatedly stated, the absence of risk of loss of tax revenues is the touchstone for the pretermission of formal VAT rules.

Thus, and among others, in the CJEU Decision handed down in Case C‑564/15, it can be read that:

"50 In this regard, the Court of Justice has already stated that, as there is no Union regulation on matters of requests for reimbursement of taxes, it is for the legal order of each Member State to provide the conditions in which such requests may be exercised, and these conditions must respect the principles of equivalence and effectiveness, that is, must not be less favorable than the conditions relating to similar claims based on provisions of domestic law, nor organized in such a way as to make it practically impossible to exercise the rights conferred by the Union legal order (see, in this sense, judgment of 15 March 2007, Reemtsma Cigarettenfabriken, C‑35/05, EU:C:2007:167, para. 37).

51 Since it is for Member States, in principle, to determine the conditions in which VAT incorrectly invoiced can be regularized, the Court of Justice recognized that a system in which, on the one hand, the seller of the goods who paid VAT by error to the tax authorities can claim its reimbursement and, on the other, the acquirer of the goods may bring a civil action for recovery of the undue amount against such seller respects the principles of neutrality and effectiveness. Indeed, that system enables the said acquirer who bore the charge of the tax incorrectly invoiced to obtain reimbursement of the amounts unduly paid (see, in this sense, judgment of 15 March 2007, Reemtsma Cigarettenfabriken, C‑35/05, EU:C:2007:167, paras. 38, 39 and cited case law)."

An identical doctrine was reaffirmed by the CJEU in the Decision handed down in case C‑712/17, where it can be read that:

"39 In this regard, it should be recalled that, as there is no Union regulation on matters of requests for reimbursement of taxes, the legal remedies intended to guarantee the protection of the rights arising for citizens from Union law depend on the legal order of each Member State, by virtue of the principle of procedural autonomy of Member States, and the conditions in which such requests may be exercised must respect the principles of equivalence and effectiveness, that is, must not be less favorable than the conditions relating to similar claims based on provisions of domestic law, nor organized in such a way as to make it practically impossible or excessively difficult to exercise the rights conferred by Union law (see, in this sense, Judgment of 26 April 2017, Farkas, C‑564/15, EU:C:2017:302, paras. 50, 52 and cited case law).

40 In this context, the Court of Justice admitted that a system in which, on the one hand, the provider of services who paid VAT by error to the tax authorities can claim its reimbursement and, on the other, the recipient of such services may bring a civil action for recovery of the undue amount against such provider respects the principles of neutrality and effectiveness. Indeed, that system enables the said recipient, who bore the charge of the tax incorrectly invoiced, to obtain reimbursement of the amounts unduly paid (Judgments of 15 March 2007, Reemtsma Cigarettenfabriken, C‑35