Process: 504/2017-T

Date: March 2, 2018

Tax Type: IVA

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 504/2017-T) addresses VAT exemption for intra-Community transfers and taxpayer rights when the Portuguese Tax Authority (AT) revokes contested assessments during arbitration. The claimant conducted intra-Community transfers to Spain in 2015, applying the VAT exemption under Article 14(a) of RITI. AT challenged these operations because the Spanish acquirer was not registered in VIES, issuing additional VAT assessments of €151,163.15 plus €7,195.83 in compensatory interest. To suspend fiscal execution, the taxpayer provided a bank guarantee and mortgage. After the company filed for CAAD arbitration on grounds of material defect (error in legal prerequisites) and formal defect (incompetence), AT administratively revoked all contested tax acts. AT argued for total extinction based on supervening futility under Article 277(e) CPC. However, the Tribunal recognized only partial extinction of the principal claim, allowing two subsidiary claims to proceed: compensation for guarantee expenses and reimbursement of arbitration costs. This decision establishes that taxpayers can seek compensation beyond mere annulment when they incurred actual costs defending against unlawful assessments, based on the principle of restoration to the hypothetical situation absent illegal taxation. The case demonstrates AT's power of administrative self-correction during pending proceedings and taxpayers' rights to full remediation of damages caused by unlawful tax assessments.

Full Decision

ARBITRAL DECISION

The arbitrators appointed to constitute the Arbitral Tribunal, constituted on 11 December 2017, Alexandra Coelho Martins (arbitrator-president), Emanuel Vidal Lima (for A… S.A.), and Américo Brás Carlos (for AT), agree as follows:

REPORT

A…, S.A., legal entity number…, with registered office at Rua …, …, no.…, …, …, …-… Aveiro, hereinafter referred to as "Claimant", has requested the constitution of a Collective Arbitral Tribunal, pursuant to the provisions of articles 2, no. 1, paragraph a) and 10, no. 1, paragraph a) and no. 2, paragraph g) of the Legal Framework for Tax Arbitration ("RJAT"), approved by Decree-Law no. 10/2011, of 20 January. In this context, it has submitted the following claims:

- Declaration of illegality of the additional assessments of VAT and Compensatory Interest for the year 2015;

- Compensation for expenses incurred with guarantees; and

- Condemnation of the Respondent to pay the arbitration fee and other charges.

The Claimant, exercising the faculty provided for in article 6, no. 2, paragraph b) of the RJAT, designated arbitrator Emanuel Vidal Lima, with AT, observing the provisions of article 11, no. 2 of the RJAT, designated Américo Brás Carlos. The President of the Deontological Council of CAAD designated Alexandra Coelho Martins as arbitrator-president.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and followed normal procedure, namely with notification to AT. All arbitrators communicated their acceptance within the applicable timeframe. The parties, duly notified, did not express any intention to refuse the designations.

The collective arbitral tribunal was constituted on 11 December 2017, in accordance with the provisions in paragraph c) of no. 1 of article 11 of the RJAT.

The Claimant alleges as grounds that the tax acts suffer from a material defect of error in the legal prerequisites, there being no basis to disregard the exemption rule applicable to intra-Community transfers of goods provided for in article 14, paragraph a) of the RITI, and further invokes the formal defect of incompetence of the author of the act. It submitted documents and listed witnesses.

AT presented a response in which it argued for the dismissal of the request for an arbitral pronouncement with the consequent dismissal of all claims and submitted the administrative file.

Subsequently, AT communicated to the case record that the tax acts in question "were entirely revoked by the Sub-Director General of the VAT Area" and raised the futility of the dispute, anchoring itself in the provisions of article 277, paragraph e) of the Code of Civil Procedure ("CPC"), ex vi article 29, no. 1, paragraph e) of the RJAT.

Notified to make submissions, the Claimant advocated for "partial extinction of the proceedings", on the grounds that the case should proceed for examination of the claims relating to recognition of its right to be compensated for the provision of undue guarantee and to condemnation of the Respondent to pay the arbitration fee.

By order of 20 February the meeting provided for in article 18 of CAAD was dispensed with as unnecessary (cf. articles 16, paragraph c) and 19 of the RJAT), setting 7 March as the deadline for delivery of the decision.

SANITATION

The Tribunal was regularly constituted and is competent ratione materiae (cf. articles 2, no. 1, paragraph a) and 5 of the RJAT).

The parties have legal personality and capacity, have legitimacy and are regularly represented (cf. articles 4 and 10, no. 2 of the RJAT and article 1 of Regulation no. 112-A/2011, of 22 March).

The proceeding is free of nullities and no preliminary matters have been raised.

REASONING

FACTUAL MATTERS

With relevance to the decision, the following facts merit consideration:

A…, S.A., here the Claimant, is a commercial company engaged in wholesale trade in computers, peripheral equipment and software – cf. Tax Inspection Report ("RIT"), contained in the administrative file ("PA").

In 2015 the Claimant conducted intra-Community transfers to Spain, destined for the acquirer B…, S.L., a company under Spanish law with registered office in Madrid, reporting these operations in the VIES system and applying the VAT exemption regime to them (cf. RIT).

Following an internal partial inspection action against the Claimant, AT, based on the argument that the acquirer of the operations, at the time of the facts, was not registered in the VIES in Spain and, therefore, could not be considered covered by a taxation regime for intra-Community acquisitions of goods in that Member State, did not consider the exemption of article 14, paragraph a) of the RITI applicable and issued the additional assessments of VAT and compensatory interest identified in the table below:

TAX ACTS

| Assessment no. | Type | Date | Amount |
|---|---|---|---|
| 2017 … | VAT | 24.04.2017 | 6,964.56 |
| 2017 … | Compensatory Interest | 24.04.2017 | 353.37 |
| 2017 … | VAT | 24.04.2017 | 144,198.59 |
| 2017 … | Compensatory Interest | 24.04.2017 | 6,842.46 |
| TOTAL | | | 158,358.98 |

The aforementioned assessments were notified to the Claimant with voluntary payment date until 26 June 2017 (cf. RIT and documents 1 to 4 submitted with the p.i.).

On 28 July 2017, following the fiscal execution proceedings instituted for collection of the additional assessments in question, and in order to suspend them, the Claimant presented a bank guarantee from Bank C… and Voluntary Mortgage of a real property (cf. document 115 submitted with the p.i.).

On 11 September 2017, the Claimant submitted a request for constitution of the arbitral tribunal in the CAAD computer system.

On 16 February 2018, AT communicated the annulment of the assessments enumerated in item C (cf. AT's request of 16 February 2018).

UNPROVEN FACTS AND REASONING

No other facts with relevance to the decision of the case were proven and with regard to the proven facts, the arbitrators' conviction was based on critical analysis of the documentary evidence submitted to the record which was not disputed.

LAW

Supervening Futility of the Dispute Regarding the Annulled Tax Acts

The tax acts which constitute the principal object of the dispute were administratively annulled by the Respondent already at a moment after the institution of the present arbitral process, as can be verified from the factual matters established above (items E and F above).

The Respondent considers that extinction of the proceedings should be decreed on that basis. However, the Claimant argues that such extinction should be only partial, as there continues to be a need for pronouncement on the claims relating to compensation for expenses incurred with the provision of guarantees in the fiscal execution proceedings and condemnation of the Respondent in costs.

In this context, it is important to note that supervening impossibility or futility of the dispute occurs when, as a result of a fact that has occurred during the pendency of the case, the solution of the dispute no longer has object, interest or utility, which justifies extinction of the proceedings (cf. article 277, paragraph e) of the CPC, applicable by reference to article 2, no. 1, paragraph e) of the RJAT).

A condition that undisputedly occurs in the present case, as regards the principal claim for annulment of the tax acts for VAT and compensatory interest, as these, by effect of administrative annulment by the Respondent, have been eliminated from the legal order.

However, two claims subsist whose satisfaction does not derive from the mere annulment of the additional assessments. The first concerns the provision of guarantee that the Claimant had to provide to suspend the related fiscal execution proceedings, which entailed expenses for which compensation is sought, taking into account the principle governing restitution of the actual hypothetical situation, that is, restoration of the situation that would exist if such acts had not been performed (cf. article 100 of the General Tax Law – "LGT"). The second concerns condemnation of the Respondent in procedural costs for having caused the dispute and being attributable the supervening futility of the dispute.

It is therefore concluded that extinction of the proceedings is only due as regards the principal claim, and the other claims of the Claimant are examined in the following sections.

Compensation for Provision of Undue Guarantee

The Claimant, anchoring itself in article 53 of the LGT, petitions for compensation of expenses incurred and to be incurred with the guarantees – bank guarantee and voluntary mortgage – provided, to be liquidated after their respective release.

It should be noted here that, where the guarantee is maintained for a period of less than three years, no. 2 of the cited rule makes this right dependent on the attribution of error to the services, so it is necessary to assess whether this prerequisite is fulfilled.

In casu, AT proceeded with the ex officio annulment of the additional assessments of VAT and compensatory interest during the pendency of contentious (arbitral) proceedings instituted precisely to obtain an annulment pronouncement. Therefore, the loss of utility of the dispute derives from the achievement of the objective sought through arbitral action [the annulment of the assessments]. Such circumstances should be regarded as demonstrative of error attributable to the services, that is, "as express recognition of the error", according to the terms advocated by the Supreme Administrative Court ("STA") in a Decision rendered on a similar question (payment of interest under article 43 of the LGT) which depends on an identical prerequisite (error attributable to the services), in proceedings no. 0574/14, of 7 January 2016.

Thus, the claim for recognition of the Claimant's right to compensation for undue guarantee must be considered well-founded.

Condemnation of AT in Costs

In accordance with the general regime regarding costs, since the impossibility or futility of the dispute is attributable to the Respondent, by virtue of the annulment of the tax acts having occurred already after the constitution of the Arbitral Tribunal, the costs of the proceedings would be borne by the latter, a solution that is derived from the comparison of articles 4, no. 5 of the Regulation of Costs in Tax Arbitration Proceedings, 12, no. 2 of the RJAT, and 527 and 536, no. 3 of the CPC, in the latter case by reference to article 29, no. 1, paragraph e) of the RJAT.

However, the Claimant does not fall within the general discipline just described. By having opted to designate an arbitrator under articles 6, no. 2, paragraph a) and 10, no. 2, paragraph g), both of the RJAT, there is applicable to it the special regime provided for in articles 12, no. 3 and 22, no. 4 of the RJAT and in article 5 of the Regulation of Costs in Tax Arbitration Proceedings ("Regulation of Costs") and Annex Table II, which constitute ius singulare in matters of costs.

The method of designation of arbitrators by the parties gives rise, immediately, to an increase in arbitration fees which are substantially higher, as is evident from the comparison of Tables I and II annexed to the Regulation of Costs. By way of example, one may refer to the minimum value of the arbitration fee, which in Table I of the general regime is 360.00 euros and in Table II, applicable here, is 6,000.00 euros.

On the other hand, while in the general regime the initial arbitration fee due at the time of submission of the request for constitution of the arbitral tribunal is only partial, corresponding to 50% of the total amount (cf. article 12, no. 2 of the RJAT, article 4 of the Regulation of Costs and Table I annexed to it), in the case of designation of arbitrators by the parties, the arbitration fee must be paid in full with the submission of the request for constitution of the tribunal (cf. article 12, no. 3 of the RJAT, article 5 of the Regulation of Costs and Table II annexed to it).

However, the most relevant difference is found in the model of fixing and apportionment of costs. In the general regime the costs are fixed and apportioned finally taking into account success (with possible refund to the winning party, where applicable), whereas in the special regime of designation of arbitrators by the parties such fixing occurs at the initial moment, constituting a total and final charge to be borne by the Claimant and are not refundable, except if the arbitral tribunal fails to be constituted (cf. article 3-A, paragraph b) of the Regulation of Costs).

This solution is provided for in article 22, no. 4 of the RJAT, which governs the fixing and apportionment of costs in the arbitral decision, according to which this [fixing and apportionment] takes place only with reference to cases in which the arbitrators have been designated by the Deontological Council of CAAD. In fact, the rule in question provides that:

"The arbitral decision rendered by the arbitral tribunal shall set out the fixing of the amount and the apportionment between the parties of the costs directly arising from the arbitral proceedings, when the tribunal has been constituted under the terms provided for in no. 1 and in paragraph a) of no. 2 of article 6."

The normative provision does not therefore contemplate the case of designation of arbitrators by the parties, which is regulated in paragraph b) of no. 2 of article 6 of the RJAT, so it is understood that the provision of that rule is inapplicable (article 22, no. 4 of the RJAT).

In the same sense, article 4 of the Regulation of Costs, which governs the regime of the arbitration fee in case of designation of arbitrator by the Deontological Council of CAAD, determines that the fixing of the amount of the final costs of the arbitral proceedings and the possible apportionment between the parties is carried out in the arbitral decision (cf. no. 5, former no. 4), whereas article 5, concerning the arbitration fee in case of designation of arbitrator by the taxpayer, not only does not contain a similar rule but, in its no. 2, provides that "[t]he arbitration fee is entirely borne by the taxpayer and paid in full, by bank transfer to the CAAD account before the request for constitution of the arbitral tribunal is submitted under the terms of paragraph f) of no. 2 of article 10 of the Legal Framework for Arbitration."

In conclusion, when the tribunal has been constituted in the exercise of the faculty provided for in article 6, no. 2, paragraph b) of the RJAT, as occurs in the case at hand, the arbitration costs are entirely borne by the taxpayer [Claimant] and paid in full before the request for constitution of the arbitral tribunal, and the tribunal need not and should not fix and apportion costs in the arbitral decision.

It should be noted, finally, that the option to exercise the legal prerogative of designating an arbitrator is within the sphere of the Claimant and not that of the Respondent, so to project onto the latter (namely by attributing to it) the effects of a regime of arbitration fees considerably burdensome that does not derive from its choice would be an unbalanced solution.

The claim for condemnation of the Respondent to pay "the arbitration fee and other charges" is therefore dismissed.

DECISION

In light of the foregoing, the arbitrators of this Arbitral Tribunal agree to:

1. Judge the proceedings extinct in the part relating to the claim for declaration of illegality of the acts of additional assessment of VAT and compensatory interest for 2015;

2. Judge the claim for recognition of the Claimant's right to compensation for undue guarantee well-founded, condemning AT to pay it the compensation that shall be liquidated in execution of this award, relating to expenses with the guarantees (bank guarantee and legal mortgage) provided;

3. Judge the claim for condemnation of AT to pay the arbitration fee and other eventual charges unfounded.

* * *

The value of the case is set at € 158,358.98, in accordance with the provisions of articles 3, no. 2 of the Regulation of Costs, 97-A, no. 1, paragraph a) of the CPPT and 306, nos. 1 and 2 of the CPC.

Lisbon, 2 March 2018

[Text prepared by computer, pursuant to article 131, no. 5 of the CPC, applicable by reference to article 29, no. 1 paragraph e) of the RJAT. The drafting of this decision follows the spelling prior to the Orthographic Agreement of 1990]

The Arbitrators,

Alexandra Coelho Martins

Emanuel Vidal Lima

Américo Brás Carlos

Frequently Asked Questions

Automatically Created

What is the VAT exemption for intra-community transfers of goods under Article 14(a) of the RITI?
A isenção de IVA nas transmissões intracomunitárias de bens, prevista no artigo 14.º, alínea a) do RITI, aplica-se quando bens são transferidos de Portugal para outro Estado-Membro da UE, desde que o adquirente esteja registado para efeitos de IVA no Estado-Membro de destino e sujeito a um regime de tributação das aquisições intracomunitárias. Neste processo, a AT contestou a isenção por considerar que o adquirente espanhol não estava registado no sistema VIES à data das operações, condição considerada essencial para beneficiar do regime de isenção das transmissões intracomunitárias de bens.
Can the Portuguese Tax Authority (AT) revoke additional IVA assessments during pending arbitral proceedings?
Sim, a AT pode revogar atos tributários durante a pendência de processos arbitrais. No presente caso, a AT revogou integralmente as liquidações adicionais de IVA e juros compensatórios através do Sub-Diretor Geral da Área do IVA, após a constituição do tribunal arbitral mas antes da prolação da decisão final. Esta revogação administrativa demonstra o poder de autotutela da administração tributária para corrigir atos considerados ilegais, mesmo após contestação arbitral, constituindo reconhecimento implícito da ilegalidade das liquidações emitidas.
What happens to a CAAD arbitration case when the contested tax acts are fully revoked by the AT?
Quando os atos tributários contestados são integralmente revogados pela AT, verifica-se inutilidade superveniente da lide quanto ao pedido principal de anulação, nos termos do artigo 277.º, alínea e) do CPC, aplicável ex vi artigo 29.º, n.º 1, alínea e) do RJAT. Contudo, a extinção pode ser apenas parcial, subsistindo os pedidos acessórios que não decorrem da mera anulação das liquidações, nomeadamente a indemnização por despesas com garantias prestadas e a condenação da AT no pagamento das custas arbitrais. O processo mantém utilidade para apreciação destes pedidos remanescentes.
Is a taxpayer entitled to compensation for costs of guarantees provided against unlawful tax assessments?
Sim, o sujeito passivo tem direito a ser indemnizado pelas despesas incorridas com a prestação de garantias para suspensão de processos de execução fiscal relacionados com liquidações tributárias consideradas ilegais. Este direito fundamenta-se no princípio da reconstituição da situação hipotética, isto é, no restabelecimento da situação que existiria se não tivesse ocorrido a tributação ilegal. No caso concreto, o contribuinte havia prestado garantia bancária e hipoteca voluntária de imóvel para suspender a execução fiscal, incorrendo em custos que não teria suportado se as liquidações fossem legais desde o início.
What are the grounds for challenging additional IVA and compensatory interest assessments before CAAD?
Os fundamentos para impugnação de liquidações adicionais de IVA e juros compensatórios no CAAD incluem vícios de natureza material e formal. Neste processo, o Requerente invocou vício substancial de erro sobre os pressupostos de direito, alegando inexistir fundamento para desaplicar a norma de isenção das transmissões intracomunitárias prevista no artigo 14.º, alínea a) do RITI. Adicionalmente, foi invocado vício formal de incompetência do autor do ato. O pedido arbitral enquadra-se no artigo 2.º, n.º 1, alínea a) e artigo 10.º, n.º 1, alínea a) e n.º 2, alínea g) do RJAT, que regulam a competência do CAAD.