Process: 519/2017-T

Date: April 27, 2018

Tax Type: IVA

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 519/2017-T) addresses whether beverages supplied as part of catering services to aircraft engaged primarily in international traffic qualify for VAT exemption under Portuguese law. The claimant, A... S.A., a catering company specializing in aviation services (96% of turnover), challenged VAT assessments totaling €51,016.80 for periods 2012-2015. The company supplied ready-to-eat meals with beverages (water, juices, coffee, and occasionally alcoholic drinks) to airlines operating international routes. The claimant initially applied the exemption under Article 14(1)(h) of the Portuguese VAT Code (CIVA), which exempts supplies to aircraft engaged in international traffic. However, the Tax Authority argued that Article 14(2) CIVA explicitly excludes beverages from this exemption, allowing only deduction rights upon acquisition. The claimant presented two alternative arguments: first, that operations processed through Customs with proper documentation should qualify as exports exempt under Article 14(1)(a) CIVA, citing Circular Memorandum 18973/1989; second, that Article 14(2) CIVA violates the EU VAT Directive (Article 148(e)), which contains no provision allowing Member States to exclude beverages from the exemption for supplies to international aviation. The Tax Authority raised procedural defenses, claiming the CAAD lacked jurisdiction because the case involved partial approval of refund requests rather than assessment acts, and alternatively argued the request was untimely. This case highlights the tension between national VAT provisions and EU directives regarding aviation catering services, with significant implications for companies operating in the international aviation supply sector.

Full Decision

ARBITRAL DECISION

I – Report

  1. On 25-09-2017, the Claimant, A…, S.A., a legal entity with registered office at … Rua …, Lisbon, with tax identification number …, requested the CAAD to constitute an arbitral tribunal, pursuant to article 10º of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter only designated as "LRAT"), in which the Tax and Customs Authority is the Respondent, with a view to annulling the additional assessments of Value Added Tax with numbers 2016…, 2016…, 2016…, 2016… 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016… and 2016…, relating to the years 2012 to 2015/09, in the total amount of € 51,016.80, as well as the act of dismissal of the administrative claim presented by the Claimant against the aforementioned assessments.

The Claimant also petitions for the reimbursement of sums paid relating to these taxes as well as indemnity interest due under article 43º of the General Tax Law.

  1. The application for constitution of the arbitral tribunal was accepted by the President of the CAAD and notified to the Tax and Customs Authority.

Pursuant to the provisions of number 1, article 6º, of the LRAT, by decision of the President of the Deontological Council, duly communicated to the parties within the legally applicable periods, the undersigned was appointed as arbitrator, and communicated to the Deontological Council and the Administrative Arbitration Centre acceptance of the appointment within the regularly applicable period.

The Arbitral Tribunal was constituted on 6.12.2017.

  1. The grounds presented by the Claimant, in support of its claim, were, in summary, as follows:

  • The Claimant is an entity whose object is the provision of catering services, predominantly in the aviation sector, as well as the execution of logistics operations, related to the provisioning of aircraft within the scope of passenger service.

  • The operations of meal supply represent approximately 96% of the Claimant's turnover and consist of the provision of ready-to-eat meals accompanied by beverages, namely water, juices, milk and coffee, and, occasionally, at the request of some airline, alcoholic beverages.

  • The meals are intended exclusively for consumption by passengers and crew of airline companies that are engaged primarily in international traffic.

  • As for these meal supply operations, the Claimant had been considering them as covered by the exemption provided in article (h) of number 1 of article 14º of the VAT Code ("VAT Code").

  • In compliance with service orders nos. OI2015…, OI2015…, OI2015…, OI2015…, OI2015… and OI2015…, an internal inspection procedure of the Claimant was carried out, which aimed to analyse its tax situation in VAT matters for the periods 2012 to 2015/09, arising from the request for VAT refund made in the periodic declaration relating to the month of August 2015, in the amount of € 419,798.24.

  • However, the Tax Authority understood that the transmission of beverages, within the scope of meal supply operated by the Claimant, does not benefit from the exemption contained in article (h) of number 1 of article 14º of the VAT Code, and that the provision of number 2 of the same article should be observed, according to which beverages placed on board aircraft are not exempt from VAT, although the right to deduction in their acquisition is granted.

  • In the final report, the Tax Authority makes reference to Circular Memorandum no. 18973, of 1989.02.21, of the VAT Services Directorate, according to which, if the exemption referred to in article (h) of number 1 of article 14º of the VAT Code is not applicable to the transmission of beverages, by virtue of the provision of number 2 of the same article, if there is intervention by Customs, the operation qualifies as an export and, if properly documented, the exemption in article (a) of number 1 of article 14º of the VAT Code applies fully.

  • As stated in the administrative claim, the supply of on-board provisions that the Claimant carries out, including the placing of beverages on board of airline companies, is always processed through Customs and proved by appropriate customs documents.

  • The Lisbon Airport Customs Authority processes a global request that covers the operations to be carried out by the Claimant during a given period, as a rule monthly, and which attests the effective departure of the goods and their placing on board.

  • Given that the operations carried out by the Claimant are always processed through Customs and are properly evidenced by the respective customs documents, the Claimant understood (and understands) that they should be considered exempt from VAT, pursuant to Circular Memorandum no. 18973, of 1989.02.21, of the VAT Services Directorate, as defended by the Tax Authority itself.

  • Alternatively, the Claimant argued (and argues) in the administrative claim that the provision of number 2 of article 14º of the VAT Code is not in accordance with what is provided in the VAT Directive, relating to the common system of value added tax, nor does it follow from the text of this Directive any possibility for Member States of the European Union to derogate from the exemption provided in article 148º, article (e) of the VAT Directive (that is, article (h) of number 1, of article 14º of the VAT Code).

  • It is also the Claimant's understanding that there is a lack of substantiation by the Tax Authority regarding the dismissal of the administrative claim presented, and that the arguments put forward by the Tax Authority lack legal foundation, and cannot accept the VAT assessments identified above.

  1. The Tax and Customs Authority, called upon to respond, contested the Claimant's claim, defending itself by way of exception and by impugnation, in summary, with the following grounds:

BY EXCEPTION

On the Lack of Material Competence of the CAAD

  • Within the scope of this proceeding, acts of partial approval of reimbursements relating to periods 2012 to 2015/09 requested by the Claimant are being reviewed, and not acts of additional assessment of tax, and even if there were some fault on the part of the Respondent as to the manner in which it notifies such acts of dismissal, or as to the manner in which it may mislead the taxpayer, this cannot result in an assumption of competence on the part of the Tribunal, at best in any eventual liability in matters of costs.

  • Acts that dismiss reimbursement requests are not capable of being reviewed in arbitral jurisdiction, quite simply because, neither in the LRAT, nor in the Binding Regulation did the legislator insert therein the declaration of illegality of acts of dismissal arising from reimbursement requests.

  • This is an exception of absolute incompetence of the arbitral forum to know of the matter to which partial approvals of requested reimbursements relate, which prevents the Tribunal from knowing the merits of the action, and the Respondent should be absolved of the instance.

If this is not so understood,

On the Untimeliness of the Arbitral Request

  • The Claimant, in compliance with the provision of article (b) of number 2 of article 10º of Decree-Law 10/2011, of 20 January (hereinafter LRAT), identifies in article 5º of the initial petition as the tax act subject of the arbitral pronouncement request, the dismissal of administrative claim no. …2016… .

  • However, in the claim that it deduces at the end of the action it does not devote a word to it, only requesting the annulment of the purported assessment acts and the reimbursement of sums unduly collected.

  • Given that purported acts of additional assessment are dated 12-01-2016 and that the request for constitution of the arbitral tribunal was only presented on 25-09-2017, the request formulated is untimely and the tribunal cannot know of it, because it was presented well beyond the ninety days provided in the LRAT.

  • In sum, resulting, clear and unequivocally from the learned initial petition, the direct impugnation of the acts of additional assessment of VAT, should the claim formulated (leading to the declaration of illegality of the act and, consequently to its annulment) be declared unfounded, as untimely, and, consequently, the Entity Sued should be absolved of the instance – cf. article (e), of number 1, of article 278º of the Civil Procedure Code in force, applicable ex vi article 29º, number 1, article (e) of Decree-Law no. 10/2011, of 20 January.

BY IMPUGNATION

  • It follows from the provisions of article 14º, no. 1, article (g) and no. 2 of the VAT Code that the transmissions of goods intended for the supply of aircraft engaged in international traffic are exempt from VAT, and that, regarding the transmissions of beverages, there is the right to deduct the tax charged/paid.

  • As the transmissions in question are carried out within the scope of export operations, as established in number 8 of article 29º of the VAT Code, the taxpayer is required to provide proof of the nature of such transmissions of goods, by presenting customs documents certifying this or, in the case where there is no legal obligation for intervention of customs services, a declaration issued by the purchaser of the goods indicating its destination.

  • From the reading of numbers 1 and 2 of Circular Memorandum no. 18973, of 21-02-1989, of the VAT Services Directorate, and in line with the current numbers 2 and 3 of article 14º of the VAT Code, it is concluded that the transmissions of supply goods placed on board aircraft, whenever there is no intervention by Customs, are effected through the exercise of the right to deduction or refund of tax.

  • Under article 74º, number 1 of the General Tax Law, it is at the expense of the Claimant that the burden of proving that such goods were subject to control by Customs falls.

  • And let the Claimant not assert that internal legislation is limiting the right to exemption of international traffic operations, since in reality there is no outright exclusion of said benefit, as by concatenating the content of article 14º, number 2 of the VAT Code with that of Circular Memorandum no. 18973, of 21-02-1989, it is inferred that beverages for the supply of vessels and ships shall be taxed at the internal level «unless it is an export properly documented with the export dispatch note of the supplier, because in that case the exemption referred to in article (a) of number 1 of article 14º applies fully».

  • That is, provided that the taxpayer proves the intervention of Customs with valid documents for that purpose, they shall enjoy, as stated in article 148º, article (e) of Directive 2006/112/CE and article 14º, number 1, article (h) and number 2 and Circular Memorandum no. 18973, of 21-02-1989, of VAT exemption.

  • But even if the Portuguese State had derogated from the Directive, it must be said that it would always be within its sphere of freedom to proceed with such departure from the rule, given that, in accordance with the existing social, political and economic context of the country, Member States may revoke that same right, with no grounds being foreseen for them not to be able to restrict the benefit, all with the purpose of more quickly combating fraud and abuse in VAT matters.

  1. The Claimant responded in writing to the exceptions raised by the Respondent, in summary, as follows:

On the Competence of the Arbitral Tribunal

  • Contrary to the understanding of the Respondent, this arbitral tribunal is materially competent to assess the legality of the acts in question.

  • Article (a) of number 1 of article 2º of the LRAT provides that "The competence of arbitral tribunals comprises the assessment of the following claims: a) The declaration of illegality of acts of tax assessment, self-assessment, withholding at source and payment on account".

  • With regard to the aforementioned provision, Jorge Lopes de Sousa writes that "(...) the competence of these arbitral tribunals is restricted to activity connected with acts of tax assessment" (cf. GUIDE TO VOLUNTARY ARBITRATION, Almedina, 2017, p. 87).

  • Now, from the reading of the application for constitution of an arbitral tribunal presented in the course of the case, it is clear that the Claimant seeks the assessment of the legality of acts of assessment – namely, the additional assessments of Value Added Tax identified in article 21º of the application for constitution of an arbitral tribunal – configuring those as the object of the proceedings in relation to which the material competence of the instance is to be assessed.

  • The acts whose legality is contested in this capacity constitute, in light of the foregoing, acts of assessment, since they proceed to the determination of tax payable by the application of the VAT rate to the taxable base formed by the consideration obtained from the supply of beverages.

  • This same understanding was, moreover, supported by the Respondent, which, of its own volition, designated the acts sub judice as acts of assessment, so that it would be inadmissible and contradictory for the Tax Authority to consider the acts as acts of assessment at the moment of their issuance and notification, but to qualify them as mere acts of partial approval of the reimbursement request at the moment of assessing the material competence of the Arbitral Tribunal.

  • Wherefore, it is only legally possible to conclude that acts of VAT assessment were effectively practiced in the case at hand, which, as such, are capable of assessment in this forum. This understanding has, moreover, received acceptance in arbitral tribunals, having been judged for example in the arbitral decision handed down in case no. 731/2015-T, of 23 May 2016.

  • It should be added that, in any event, the material competence of this Arbitral Tribunal would not be prejudiced should, which by mere hypothesis and duty of caution is admitted, without conceding, the acts in question were legally qualified as mere acts of partial approval of the reimbursement request.

  • In fact, defining the acts in issue as mere acts of partial approval of the reimbursement request, it should always be considered that these are entirely equivalent to an act of assessment for the purposes of administrative or judicial challenge.

  • It was precisely the manifest similarity between these types of acts that led the legislator to provide in number 13 of article 22º of the VAT Code that from the decision of partial or total dismissal of the reimbursement request "(…) appeal lies through hierarchical review, administrative claim or judicial challenge, in accordance with the terms provided in article 93º".

  • In such terms, given that the present petition for arbitral pronouncement comprises the assessment of tax acts practiced by the Tax Authority, namely, the additional VAT assessments identified in article 21º of the application for constitution of the arbitral tribunal, there is no doubt that the arbitral tribunal is materially competent to assess the Claimant's claim, pursuant to article 2º, number 1, article (a), of the LRAT and article 2º of the Binding Regulation, and the exception invoked by the Respondent should be dismissed.

On the Untimeliness of the Petition for Arbitral Pronouncement

  • The understanding set out by the Respondent cannot proceed since it is, from the outset, tainted by a logical defect of confusion of two key concepts in the scope of procedural requirements of tax arbitration: the concepts of object and deadline of the action.

  • In effect, with regard to the first of these concepts (object of the arbitral action), the aforementioned article 2º, number 1, article (a) of the LRAT states that "The competence of arbitral tribunals comprises the assessment of the following claims: a) the declaration of illegality of acts of tax assessment, self-assessment, withholding at source and payment on account," there being no rule that grants arbitral tribunals competence to assess the legality of defects proper to acts of a second or third level decision (i.e. administrative claims/official revisions or hierarchical appeals).

  • On the other hand, with regard to the deadline for presenting the application for constitution of the arbitral tribunal, article 10º, number 1, article (a) of the LRAT provides that "The application for constitution of the arbitral tribunal is presented: a) within a period of 90 days, counted from the facts provided in nos. 1 and 2 of article 102º of the Tax Procedure and Process Code, as to acts capable of independent challenge and, likewise, from the notification of the decision or the end of the legal deadline for decision of the hierarchical appeal".

  • Wherefore, given that the Tribunal does not even have competence to assess the legality of acts of a second level, the Claimant is only bound to invoke illegalities directly relating to the object of the proceedings, formed exclusively by the assessment acts (cf. article 2º of the LRAT), but may present the application for constitution of the arbitral tribunal within the deadline counted from the notification of the decision of the administrative claim (cf. article 10º, number 1, article (b) of the LRAT), to which it made express and repeated mention in the body of the aforementioned petition.

  • Further, it should be noted that, contrary to what has been invoked by the Respondent, the conclusion set out is not prejudiced by the fact that the petition is directed to the annulment of the assessments and not directly to the decision of the administrative claim, since the annulment of the acts of assessment due to the defect of illegality will always taint with illegality and impose the annulment of the consequent acts that pronounce on those, proving a hypothetical petition for annulment of the decision redundant in the face of the petition set out in the application for constitution of the arbitral tribunal.

  • In these terms, nothing remains but to conclude that, although the Claimant is not under a legal obligation to directly challenge the decision of the administrative claim since the object of the action is the assessment acts, the Claimant addressed the arguments present in the decision (common to the final tax inspection report), and the exception of untimeliness invoked by the Respondent should be judged unfounded.

  • In this same sense, Jorge Lopes de Sousa states that "In the case of the arbitral proceeding, the deadline for requesting the declaration of illegality of the primary act confirmed is counted from the notification of the decision of a second or third level, as results from article 10º, no.1, article (a), of the LRAT (which provides a different regime from what is adopted in no. 4 of article 59º of the Tax Procedure Code for the challenge of administrative acts)" (cf. GUIDE TO VOLUNTARY ARBITRATION, Almedina, 2017, pp. 104 and 105, emphasis ours).

Given that there was no situation provided for in article 18º, number 1, of the LRAT, which would make necessary the arbitral meeting provided therein, the holding thereof was dispensed with, on the grounds of the prohibition of the practice of useless acts.

The parties, notified for that purpose, presented written submissions in which, in substance, they maintained the positions already manifested in the initial petition and reply.

PRELIMINARY QUESTIONS

A) Lack of Material Competence of the Tribunal

The Respondent argues that within the scope of this proceeding acts of partial approval of reimbursements relating to periods 2012 to 2015/09 requested by the Claimant are being reviewed, and not acts of additional assessment of tax, and that acts that dismiss reimbursement requests are not capable of being reviewed in arbitral jurisdiction, because neither in the LRAT, nor in the Binding Regulation did the legislator insert therein the declaration of illegality of acts of dismissal arising from reimbursement requests.

For its part, the Claimant argues that the acts whose legality is contested in this capacity constitute acts of assessment, in light of the foregoing, since they proceed to the determination of tax payable by the application of the VAT rate to the taxable base formed by the consideration obtained from the supply of beverages, and that this same understanding was supported by the Respondent, which, of its own volition, designated the acts sub judice as acts of assessment.

Let us examine.

In the case at hand, we are faced with tax facts which the Claimant considered to benefit from exemption, a position not supported by the Respondent, which, consequently, proceeded to the additional assessments now being claimed.

It is not, in this case, a mere dismissal of tax refund, but rather this dismissal connected to assessments of tax. In other words: the dismissal of the reimbursement request was motivated by the additional assessments of tax.

We are, therefore, faced with true acts of tax assessment, moreover, thus qualified by the Respondent in the procedure, particularly in the notifications of the tax acts to the Claimant where it is expressly stated that these are assessment acts, their respective number, and that against the tax acts in question an administrative claim or judicial challenge may be presented.

For the rest, as decided in arbitral proceeding number 238/2013-T, of 4.04.2014:

"(…), in the case at hand, as can be seen from the document reproduced in article (f) of the established facts, it was the Tax and Customs Authority itself that carried out an accounting operation of VAT to be refunded that it denominated «STATEMENT OF VAT ASSESSMENT», to which it assigned an «ASSESSMENT NUMBER» and an «ASSESSMENT DATE», and indicated, in the final part, that the Claimant «is hereby (...) notified of the assessment of VAT relating to the period to which the operations relate, as a result of which there is occasion for refund in the amount calculated, as per the above demonstrative note» and «Of the assessment effected, you may present, in the competent Tax Service, administrative claim or judicial challenge in accordance with articles 70º and 102º of the Tax Procedure Code».

That is: in light of the available documentary evidence, one should conclude that, in the concrete case, well or poorly, an act of assessment was practiced. Such act, embodied in the document notified to the Claimant integrating the statement of VAT assessment no. ..., dated 20-02-2013, shall, in addition to the other assessments, be the object of the present proceedings, reducible to the provision of article (a) of article 2º of the LRAT.

The legality of such an act – well or poorly practiced – is capable of being assessed and falls directly within the scope of the competencies of the arbitral tribunals operating in the CAAD, so that the invoked exception of absolute incompetence should not proceed.

Even if this were not understood, it has long been adopted the understanding that administrated parties should not be prejudiced in the exercise of procedural rights when they are misled by acts of competent public entities, a rule that has explicit expressions in the courts, in article 157º, number 6, and article 191º, number 3, of the 2013 Civil Procedure Code (former articles 161º, number 1, 198º, number 3) and for acts of administration, in article 7º of the Code of Administrative Procedure and article 60º, number 4, of the Tax Procedure Code.

That is, it has been understood, in sum, that when an administrated party is induced to use a particular procedural means by a particular conduct of the Administration, the latter cannot pretend to obstruct the knowledge of the merits of the claim, taking shelter in the inadequacy of the procedural means whose use it itself, objectively, induced.

In the case, it is even found that there is doctrine, (JOSÉ XAVIER DE BASTO and GONÇALO AVELÃS NUNES), defending that, «a contested refund by the tax administration is entirely equivalent to an assessment of tax and the means of reacting against that act of administration, which denies or revokes a refund, are identical to those that the law puts at the disposal of taxpayers to annul, in whole or in part the assessment of tax»), a thesis that is in line with the application, determined by article 22º, nos. 11 and 13 of the VAT Code, to acts of dismissal of reimbursement requests of the means of administrative and contentious challenge of acts of assessment of VAT, provided for in article 93º of the same Code.

In this context, being the Tax Administration itself that in the notification identified the act notified as being an act of VAT assessment, inducing the Claimant to the use of a procedural means appropriate for its challenge, and it not being certain that such qualification is wrong (as it cannot fail to be understood when it is found that the appropriateness of such qualification is affirmed by two reputable university professors of tax law) always, also by this route, the exception raised by the Tax and Customs Authority should be judged unfounded.

Thus, without the need for further consideration, the competence of the arbitral tribunal is manifest, pursuant to article 2º, number 1, article (a) of the LRAT, and the exception raised by the Respondent should not proceed.

B) Untimeliness of the Arbitral Request

The Respondent alleges that the Claimant identifies in article 5º of the initial petition as the tax act subject of the petition for arbitral pronouncement, the dismissal of administrative claim but that in the claim that it deduces at the end of the action it does not ask for its annulment, so that, given that purported acts of additional assessment are dated 12-01-2016 and that the request for constitution of the arbitral tribunal was only presented on 25-09-2017, the request formulated is untimely.

However, it is not correct.

In fact, as Carla Castelo Trindade writes:

"As for the competence or material scope, the object of arbitration is, as concluded, the assessment of the illegality of acts of tax assessment, self-assessment, withholding at source and payment on account (…).

As for the deadline, the taxpayer may resort to arbitration immediately upon notification of the acts of tax assessment, self-assessment, withholding at source and payment on account or, having resorted to the administrative route, after notification of the decision of dismissal or the formation of tacit dismissal"

Indeed, the competence of the arbitral tribunal is regulated in article 2º of the LRAT, and from this rule it follows that assessment constitutes the object of the proceedings.

As for the deadline for requesting the constitution of the tribunal, the legal regime is enshrined in article 10º, and from article (a) of its number 1, it results that, in cases where an administrative claim has been previously presented against the assessment, in the sequence of its dismissal the taxpayer has a period of ninety days.

Thus, having the Claimant been notified of the dismissal of the administrative claim by notification sent on 26-06-2017, the invoked exception of untimeliness of the petition for arbitral pronouncement does not proceed.

  1. The tribunal is materially competent and regularly constituted in accordance with the LRAT.

The parties have legal personality and capacity, are legitimate and are legally represented.

The proceedings do not suffer from defects that invalidate it.

  1. It is necessary to resolve the following questions:

  2. Illegality of tax acts due to violation of law.

  3. Lack of substantiation of the decision that dismissed the administrative claim presented by the Claimant.

  4. Right to reimbursement of tax and indemnity interest.

II – Relevant Factual Matters

  1. The following facts are considered proven:

  • The Claimant is an entity whose object is the provision of catering services, predominantly in the aviation sector, as well as the execution of logistics operations, related to the provisioning of aircraft within the scope of passenger service.

  • The operations of meal supply represent approximately 96% of the Claimant's turnover and consist of the provision of ready-to-eat meals accompanied by beverages, namely water, juices, milk and coffee, and, occasionally, at the request of some airline, alcoholic beverages.

  • The meals are intended exclusively for consumption by passengers and crew of airline companies that are engaged primarily in international traffic.

  • As for these meal supply operations, the Claimant had been considering them as covered by the exemption provided in article (h) of number 1 of article 14º of the VAT Code ("VAT Code").

  • In compliance with service orders nos. OI2015…, OI2015…, OI2015…, OI2015…, OI2015… and OI2015…, an internal inspection procedure of the Claimant was carried out, which aimed to analyse its tax situation in VAT matters for the periods 2012 to 2015/09, arising from the request for VAT refund made in the periodic declaration relating to the month of August 2015, in the amount of € 419,798.24.

  • According to the provisions of the report drawn up upon the conclusion of the inspection procedure, the Tax Authority concluded that "(…) the situation of tax credit was originated by the deduction of VAT incurred in the acquisition of stocks necessary for the preparation of meals and other goods and services essential to the activity developed, motivated by the fact that the majority of active operations were exempt (approximately 96% of the total turnover), in accordance with that recommended in articles (j) and (h) of no. 1 of article 14º of the VAT Code (…)".

  • The Respondent understood that the transmission of beverages, within the scope of meal supply operated by the Claimant, does not benefit from the exemption contained in article (h) of number 1 of article 14º of the VAT Code, and that the provision of number 2 of the same article should be observed, according to which beverages placed on board aircraft are not exempt from VAT, although the right to deduction in their acquisition is granted.

  • In the final report, the Tax Authority makes reference to Circular Memorandum no. 18973, of 1989.02.21, of the VAT Services Directorate, according to which, if the exemption referred to in article (h) of number 1 of article 14º of the VAT Code is not applicable to the transmission of beverages, by virtue of the provision of number 2 of the same article, if there is intervention by Customs, the operation qualifies as an export and, if properly documented, the exemption in article (a) of number 1 of article 14º of the VAT Code applies fully.

  • In this context, the Tax Authority concluded that the Claimant should have assessed VAT on the transmission of beverages and, consequently, notified the Claimant of the respective additional assessments with numbers 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016… and 2016…, relating to the years 2012 to 2015/09, in the total amount of € 51,016.80, which resulted, in part, in cuts to the reimbursements requested by the Claimant and also in a value to be paid by this in the amount of 14,018.45 €, which the Claimant paid, in accordance with the terms contained in document no. 2 attached to the initial petition and which is given as reproduced.

  • Not agreeing with the contents of the report, and consequently with the assessments notified, the Claimant presented an administrative claim, arguing that:

  • The supply of on-board provisions that it carries out, including the placing of beverages on board of airline companies, is always processed through Customs and proved by appropriate customs documents, therefore, the operation is exempt from VAT by application of article (a) of number 1 of article 14º of the VAT Code, as provided for in Circular Memorandum no. 18973 of 1989.02.21 of the VAT Services Directorate;

  • It does not follow from the text of Directive 2006/112/EC of the Council, of 28 November 2006 ("VAT Directive") any possibility for Member States of the European Union to derogate from the exemption provided for in article 148º, article (e) of the VAT Directive (transposed to article (h) of number 1, of article 14º of the VAT Code), therefore, neither the national legislator, nor the Tax Authority, may, validly or lawfully, limit or derogate from the provisions provided in the VAT Directive regarding the tax exemptions that Member States should apply.

  • Nevertheless, the administrative claim was dismissed on 23-06-2017, based on the grounds already presented by the Tax Authority in the tax inspection procedure, which was notified to the Claimant on 26-06-2017.

  • The supply of on-board provisions that the Claimant carried out and on which the assessments subject to these proceedings are based, including the placing of beverages on board of airline companies, were processed through the Customs Authority of Lisbon Airport, in accordance with the documents contained in the file, the contents of which are given as fully reproduced.

With interest to the decision of the case, there are no unproven facts.

  1. The Tribunal's conviction regarding the decision of the factual matters was based on the documents contained in the administrative file and on the documents submitted by the Claimant, which were not subject to challenge by any of the parties, as well as on the positions of the parties contained in the submissions presented.

III – Applicable Law

  1. Having the claimant invoked the illegality of assessment acts due to violation of substantive law and the defect of lack of substantiation of the decision that dismissed the administrative claim presented against those acts, it is necessary to determine the order of knowledge of the same, and should be observed, as is settled, the one provided for in article 124º of the Tax Procedure Code, applicable by virtue of article 29º, number 1, article (a) of the LRAT (Cfr. Jorge Lopes de Sousa, Commentary to the Legal Regime for Arbitration in Tax Matters, in GUIDE TO TAX ARBITRATION, Coord. Nuno Villa-Lobos and Mónica Brito Vieira, 2017, Almedina, p. 205).

The defect of violation of law is that which will lead to the "most stable or effective protection of the injured interests" in so far as its eventual success will prevent the renewal of the act, which does not happen with a hypothetical annulment resulting from the defect of lack of substantiation of the decision that dismissed the administrative claim, in the eventuality of considering that this question may be considered the object of the proceedings.

In accordance, the Tribunal will appreciate first the question of the illegality pointed out to the assessments.

  1. The Claimant points out two distinct legal grounds to sustain the illegality of the assessments. First, the violation of article 14º, number 1, article (a) of the VAT Code in conjunction with Circular Memorandum no. 18973 of 1989.02.21 of the VAT Services Directorate. Second, for being based on an incorrect interpretation and application of article 14º, number 2, of the same code, for being contrary to article 148º, article (e) of the VAT Directive.

It should be observed that these are distinct legal grounds and not distinct defects, inasmuch as the success of any one of them will be apt to cause the annulment of the tax acts due to violation of law, so that article 124º of the Tax Procedure Code is not applicable here.

Taking into account that the rule specifically applicable to the case at hand, in the first place, would be article (h), of number 1, of article 14º, the subject of restriction by number 2 of the same article, and raising the question of its compatibility with article 148º of the Directive, it appears methodologically appropriate to begin the analysis of the claimant's position by the appreciation of this normative framework, being certain that any acceptance of the Claimant's position in this matter will imply the success of the claim, independently of the evidence produced regarding the alleged exports, in light of article 14º, number 1, article (a) of the VAT Code.

Let us examine this then.

  1. However, previously, it is of interest to decide on the necessity of a preliminary reference to the CJEU.

As can be read in the arbitral decision issued in proceeding 341/2015-T:

"Pursuant to the provision of article 267º of the Treaty on the Functioning of the European Union (TFEU), in the part that most directly interests the present case:

«The Court of Justice of the European Union shall have jurisdiction to give preliminary rulings concerning:

  • The interpretation of the Treaties;

  • The validity and interpretation of acts adopted by the institutions, bodies or offices of the Union

Whenever a question of this nature is raised before any judicial body of one of the Member States, that body may, if it considers that a decision on that question is necessary to enable it to give judgment, request the said Community Court to rule on it.»

As also results from point 12 of the CJEU Recommendations to national judicial bodies concerning the presentation of preliminary proceeding cases (2012/C 338/01), the preliminary reference to the said Court should not be made when:

  • There is already case law in the matter (and when the eventually new framework raises no real doubts as to the possibility of applying that case law to the concrete case); or

  • When the correct manner of interpreting the legal rule in question is unequivocal.

In accordance with the mentioned Recommendation, provision is equally made in point 13 that "a national judicial body may, in particular when it considers itself sufficiently clarified by the case law of the Court, itself decide on the correct interpretation of EU law and its application to the factual situation of which it is aware", and in point 18, that the "national judicial body may present to the Court a request for a preliminary ruling, from the moment it considers that a decision on the interpretation or validity is necessary to deliver its decision".

The first requirement for preliminary reference is thus the nature of the subject of decision in a preliminary ruling: rule or act of EU Law, this is fulfilled in this case.

On the other hand, it is settled that, in case of doubt about the interpretation of legal rules of EU Law, the Arbitral Tribunal may resort to the mechanism of preliminary reference.

National courts are considered as common courts of the legal order of the European Union, given the considerable number of norms and community acts, constituted by directly applicable provisions or with direct effect, and it falls to the national courts of the Member States to apply them in the disputes submitted to them for assessment. It falls, then, to the national courts the duty to apply EU Law, even against provisions of domestic law to the contrary.

As we have seen, to resort to the process of referring one or more questions for a preliminary ruling, for the interpretation of one or more legal rules of EU Law, original or derived, it is necessary that doubts subsist regarding the interpretation of the text in question. On the contrary, if the text is perfectly clear, it is no longer a matter of interpreting, but of applying it, which is the competence of the Tribunal / judge entrusted with the competence to judge the concrete case applying the law, national and/or community, if such be the case ("theory of the clear act").

Now, there are no doubts about the interpretation of any one of the rules in question, so it is incumbent on this Tribunal to decide in accordance with the applicable law, national and community, giving full application to both, as well as to the principles that inform them, bearing in mind the relevant case law of the CJEU in the treatment of the matters in question."

These considerations are fully applicable to the case sub judice.

In effect, in the case at hand, there is no doubt about the interpretation of the rule contained in article 148º, article (e), of the Directive. The same establishes an exemption and the parties manifest no disagreement on this point.

The question of whether domestic legislation is limiting the right to exemption of international traffic operations is already a matter of domestic law, for the competence of national courts.

The argument presented by the Respondent to the effect that even if the Portuguese State had derogated from the Directive, it would always be within its sphere of freedom to proceed with such departure from the rule, according to the existing social, political and economic context of the country, is another matter, and, in this respect, as will be seen below, the Court of Justice has already pronounced itself repeatedly, and there are also no interpretation doubts.

Thus it is incumbent on this Tribunal to decide in accordance, in accordance with applicable law.

  1. Article 14º of the VAT Code provides:

"1 - The following are exempt from tax:

a) The transmissions of goods dispatched or transported outside the Community by the seller or by a third party on its account;

(…)

g) The transmissions, transformations, repairs and maintenance operations, freight and rental of aircraft used by airline companies engaged principally in international traffic, as well as the transmissions, repairs, maintenance operations and rental of objects incorporated in such aircraft or that are used for their operation;

h) The transmissions of supply goods placed on board the aircraft referred to in the preceding article;

2 - The exemptions referred to in articles (d), (e) and (h) of the preceding number, as far as the transmissions of beverages are concerned, are effected through the exercise of the right to deduction or refund of tax, without considering, for that purpose, what is provided in article (d) of number 1 of article 21º"

On the other hand, article 148º of the VAT Directive (Directive 2006/112/EC, of the Council, of 28 November 2006) provides:

"Member States shall exempt the following transactions:

(…)

e) The supplies of goods intended for the supply of aircraft used by airline companies engaged essentially in remunerated international traffic;"

On the other hand, the following is the wording of Article 150º of the Directive:

"1. The Commission shall submit to the Council, if necessary, as quickly as possible, proposals designed to clarify the scope of the exemptions provided for in article 148 and the practical rules for their application.

  1. Until the provisions referred to in no. 1 come into force, Member States may limit the scope of the exemptions provided for in articles (a) and (b) of article 148."

Analyzing the aforementioned rule contained in article 148º, article (e) of the Directive, it is found that the same establishes, without any room for doubt, an exemption in the supplies of goods intended for the supply of aircraft used by airline companies engaged essentially in remunerated international traffic.

On the other hand, it is also beyond doubt that number 2, of article 14º of the VAT Code does not establish the exemption relating to this tax fact of VAT, as regards beverages.

The law provides that as far as the transmission of beverages is concerned, the exemption in question is effected through the exercise of the right to deduction or refund of tax.

It is, however, a legal fiction, which, as is common in this legislative technique, does not correspond to reality, inasmuch as from the legal solution it follows that the value added corresponding to the tax fact in question does not remain exempt from tax. In other words: the difference between the cost of the beverages incurred by the taxpayer and the price set for the supply provided for in article 148º, article (e) of the Directive, with the solution established in the VAT Code, does not remain exempt from tax but, instead, is subject to it.

Article 131º of the VAT Directive further provides:

"The exemptions provided for in Chapters 2 to 9 shall apply without prejudice to other Community provisions and under the conditions laid down by the Member States in order to ensure the correct and simple application of those exemptions and to prevent any possible fraud, evasion or abuse."

As Rui Laires writes:

"In the field of tax exemptions, it is settled case law of the CJEU that the reference, currently contained in article 131 of the VAT Directive, according to which the application of exemptions is effected under the conditions laid down by the Member States, does not amount to a discretion of these to define the very content of exemptions. Thus, the possibility given to Member States in that article is limited to the establishment of provisions that facilitate the application of exemptions and that ensure their correct functioning, in particular, by avoiding fraud and tax evasion, not embracing the broadening or reduction of the categories of exemptions"

In fact, this understanding is contained, in particular, in the following judgments issued by the CJEU: of 19 January 1982 (8/81, Becker); of 13 July 1989 (173/88, Henriksen); of 28 March 1996 (C-468/93, Municipality of Emmen); of 7 May 1998 (C-124/96, Commission/Spain); of 11 January 2001 (C-76/99, Commission/France); of 20 June 2002 (C-287/00, Commission/Germany); of 10 November 2011 (joined cases C‑259/10 and C‑260/10, Rank); of 26.04.2012 (joined cases C‑621/10 and C‑129/11, Balkan and Sea Properties/Provadinvest).

As can be read in the judgment of 20.6.2002 — case C-287/00:

"the Court of Justice has already decided that the conditions of the exemptions laid down by the Member States cannot relate to the definition of the content of the exemptions provided for (v. judgment of 28 March 1996, Municipality of Emmen, C-468/93, Colect., p.I-1721, no. 19)."

In light of what has been set out above, as is plainly seen, the allegation of the Respondent that it would always be within the sphere of freedom of the Portuguese State to proceed with the departure from the rule contained in the Directive does not proceed, and the legislator cannot suppress the exemption in question, through a legal fiction by which the tax fact that the rule of the Directive exempts from tax would become subject to taxation.

The Respondent further alleges that "And let the Claimant not assert that internal legislation is limiting the right to exemption of international traffic operations, since in reality there is no outright exclusion of said benefit, as by concatenating the content of article 14º, number 2 of the VAT Code with that of Circular Memorandum no. 18973, of 21-02-1989, it is inferred that beverages for the supply of vessels and ships shall be taxed at the internal level «unless it is an export properly documented with the export dispatch note of the supplier, because in that case the exemption referred to in article (a) of number 1 of article 14º applies fully»."

It should be noted, however, that the exemptions of article 146º of the Directive (Chapter 6, Exemptions on export) and of article 148º (chapter 7, Exemptions applicable to international transport) in question have distinct foundations and requirements, since one has export as its foundation and the other the supply within the scope of international transport, and, as is evident, the requirements for the exemption on supply in this respect may be met and no export may occur.

The same is true, as far as the case before us directly concerns, regarding the provisions of article 14º, number 1, article (a), of the VAT Code, on the one hand, and the provision of article (h), of the same number on the other.

As Miguel Gorjão Henriques writes, citing the aforementioned judgment Becker, "In the formulation of the Court of Justice, «according to settled case law, in all cases where the provisions of a directive appear to be, from the point of view of their content, unconditional and sufficiently precise, individuals may invoke them against the State, whether when it fails to transpose the directive within the deadline into national law, or when it makes an incorrect transposition»".

Being clear that the Portuguese State, with the current wording of article 14º, number 2 of the VAT Code, made an incorrect transposition of the Directive (at the time the 6th Directive), by not exempting from tax the tax fact whose exemption the Directive provides for, this suppression of the exemption, in light of the CJEU's case law, cannot fail to be disapplied, because as can be read in the judgment handed down in cases C-621/10 and C-129/11 of 26.04.2012:

"54 It is for the national court, within the margin of appreciation afforded to it by national law, to interpret and apply the provisions of internal law in conformity with the requirements of EU law and, if such interpretation is not possible, to refrain from applying any provision of internal law contrary to those requirements"

Thus, the assessments in question lack a legal basis and cannot fail to be annulled, and thus the appreciation of the other grounds invoked by the Claimant is prejudiced as well as the knowledge of the defect of lack of substantiation pointed out to the decision that dismissed the administrative claim.

  1. The Claimant further requested the condemnation of the Respondent to reimburse the sums unduly collected, as well as the payment of indemnity interest that may be due, in accordance with article 43º of the General Tax Law.

In the case at hand, it is manifest that, as a consequence of the illegality of the assessment acts, the Claimant's claim for restitution is successful by virtue of articles 24º, number 1, article (b), of the LRAT and 100º of the General Tax Law, as this is essential to restore the situation that would have existed if the illegality in question had not been practiced.

As far as indemnity interest is concerned, this claim should still be assessed in light of article 43º of the General Tax Law.

Number 1 of that article provides that "Indemnity interest is due when it is determined, in an administrative claim or judicial challenge, that there was an error attributable to the services that resulted in the payment of the tax debt in an amount greater than that legally due".

We affirm the understanding of Diogo Leite de Campos, Benjamin Silva Rodrigues and Jorge Lopes de Sousa, who argue that "The error attributable to the services that performed the assessment is demonstrated when an administrative claim or judicial challenge of the same assessment is made and the error is not attributable to the taxpayer" (General Tax Law, encounters of the written word, 4th Edition, 2012, p. 342).

In the case sub judice, the error that gave rise to the assessment not being attributable to the Claimant, the request for condemnation of the Respondent regarding indemnity interest cannot fail to proceed, on the basis of error attributable to the services, all the more so since, as Fausto de Quadros lapidarily writes: "(…) we have the obligation for the Public Administration to refuse the application of national norms or acts contrary to Community Law, and to apply this same law against domestic law of contrary meaning, in accordance with doctrine adopted, in an exemplary manner in the Factortame case, already referred to in this book several times. The Public Administration will have, even more than the legislator, the need to take this doctrine into account in performing its mission of applying the Law."

Thus, it is judged that the petition for arbitral pronouncement should proceed, and the illegality and consequent annulment of the tax assessment acts challenged is declared, and the Respondent must comply with article 24º of the LRAT, in particular by reimbursing the Claimant for the tax paid, plus indemnity interest calculated from the date of payment to the date of the processing of the credit note, in which they are included (article 61º, number 5, of the Tax Procedure Code).

Value of the action: € 51,016.80 (fifty-one thousand and sixteen euros and eighty cents), in accordance with the provision of article 306º, number 2, of the Civil Procedure Code and 97º-A, number 1, article (a), of the Tax Procedure Code and 3º, number 2, of the Regulation of Costs in Arbitration Proceedings.

Costs by the Respondent, in the amount of 2,142 € (two thousand one hundred and forty-two euros), in accordance with number 4 of article 22º of the LRAT.

Notify accordingly.

Lisbon, CAAD, 27 April 2018

The Arbitrator

Marcolino Pisão Pedreiro

Frequently Asked Questions

Automatically Created

Are beverages supplied aboard aircraft engaged in international traffic exempt from VAT under Portuguese law?
Under Portuguese VAT law, beverages supplied aboard aircraft are generally not exempt from VAT, despite the general exemption for supplies to aircraft engaged in international traffic. Article 14(2) of the Portuguese VAT Code (CIVA) specifically excludes beverages from the exemption provided in Article 14(1)(h), although it grants the right to deduct VAT on their acquisition. However, this exclusion is contested as potentially incompatible with EU VAT Directive Article 148(e), which does not permit Member States to exclude beverages from the exemption for supplies to international aviation. Additionally, if beverage supplies are processed through Customs with proper documentation, they may qualify as exports exempt under Article 14(1)(a) CIVA, according to Tax Authority Circular Memorandum 18973/1989.
What does Article 14(1)(h) of the Portuguese VAT Code (CIVA) provide regarding supplies to international airlines?
Article 14(1)(h) of the Portuguese VAT Code (CIVA) provides an exemption for the supply of goods intended for fueling and provisioning of aircraft used by airlines engaged primarily in international paid passenger and goods transport. This exemption is designed to align with international aviation principles and EU law requirements. However, the provision must be read in conjunction with Article 14(2) CIVA, which creates a specific carve-out excluding beverages from this exemption while maintaining deduction rights. This creates a unique regime where catering companies supplying complete meal services to international airlines must distinguish between food (exempt) and beverages (taxable), raising questions about the compatibility of this domestic provision with the broader EU VAT Directive framework that does not contain such distinctions.
How does the EU VAT Directive apply to catering services provided to international aviation companies in Portugal?
The EU VAT Directive, specifically Article 148(e), establishes a mandatory exemption for supplies of goods for the fueling and provisioning of aircraft used by airlines operating for reward chiefly on international routes. This provision does not distinguish between different types of provisions or exclude beverages from the exemption scope. Portuguese domestic law through Article 14(2) CIVA attempts to exclude beverages from this exemption, creating potential incompatibility with EU law. Under EU law principles, Member States cannot impose more restrictive conditions than those provided in the Directive for mandatory exemptions. Catering companies providing services to international aviation in Portugal can therefore argue that the beverage exclusion violates the Directive's requirements, and that the full exemption should apply to complete meal services including beverages when supplied to aircraft primarily engaged in international traffic, as confirmed by proper customs documentation.
Can a catering company claim VAT exemption for meals and beverages delivered to aircraft serving mainly international routes?
A catering company can claim VAT exemption for meals and beverages delivered to aircraft serving mainly international routes, though the legal basis depends on how the transaction is structured and documented. Under Article 14(1)(h) of the Portuguese VAT Code, meals supplied to international airlines should qualify for exemption, but Article 14(2) creates uncertainty by excluding beverages. However, catering companies have two strong alternative arguments: first, if operations are processed through Customs with proper documentation proving goods departure and placement aboard aircraft, they may qualify as exports exempt under Article 14(1)(a) CIVA, as supported by Tax Authority Circular 18973/1989; second, companies can argue that Article 14(2)'s beverage exclusion is incompatible with EU VAT Directive Article 148(e), which contains no such limitation. The strongest position combines proper customs documentation with arguments based on EU law primacy, particularly when the catering service constitutes an integrated meal provision rather than separate beverage sales.
What is the CAAD arbitral tribunal procedure for challenging additional VAT assessments and denied tax complaints in Portugal?
The CAAD (Administrative Arbitration Centre) arbitral tribunal procedure for challenging VAT assessments begins with filing a request for tribunal constitution within the legal deadline (generally 90 days from notification of the contested act or rejection of an administrative claim). The request must identify the contested tax acts, include supporting documentation, and state legal grounds. Key procedural issues in VAT assessment challenges include: determining whether the tribunal has material jurisdiction (assessments versus refund denials require different treatment); ensuring timeliness of the request relative to when acts were notified; and properly identifying which acts are contested (assessment acts, administrative claim rejections, or both). Taxpayers can seek annulment of assessments, reimbursement of taxes paid, and statutory interest under Article 43 of the General Tax Law. The Tax Authority may raise procedural defenses including lack of jurisdiction, untimeliness, or improper identification of contested acts. The tribunal follows the Legal Regime for Tax Arbitration (RJAT), with abbreviated timelines compared to traditional tax courts, making it an efficient forum for resolving VAT disputes involving technical EU law questions.