CAAD 543/2018-T: VAT Reverse Charge for Non-Resident Taxpayers Registered in Portugal – Article 2(1)(g) CIVA

ARBITRAL DECISION

The arbitrators Dr. Alexandra Coelho Martins (arbitrator-president), Dr. Catarina Belim and Dr. Leonardo Marques dos Santos (arbitrator-members), appointed by the Deontological Board of the Centre for Administrative Arbitration ("CAAD") to form the present Arbitral Tribunal, constituted on 16 January 2019, hereby agree as follows:

I. REPORT

1. A... GMBH, hereinafter referred to as the "Claimant", collective person number and tax identification number in Portugal ..., with registered office in ..., ... ..., Germany, having allowed the statutory period for tacit rejection of the Gracious Complaint filed against the tax act demonstrating the assessment of Value Added Tax ("VAT"), with number 2017..., relating to the taxation period of August 2016, which corrected tax in the amount of €1,681,197.79, following an inspection of a VAT refund request, filed on 2 November 2018, a request for establishment of a Collective Arbitral Tribunal, pursuant to the provisions of articles 2, no. 1, paragraph a) and 10, no. 1, paragraph a) of the Legal Framework for Tax Arbitration ("RJAT"), approved by Decree-Law no. 10/2011, of 20 January, in conjunction with article 102, no. 1, paragraph d) of the Code of Tax Procedure and Process ("CPPT"), with the Tax and Customs Authority ("AT") as Defendant.

2. The Claimant seeks: (a) a declaration of illegality, and consequent annulment, of the tax act demonstrating the assessment of VAT on the grounds of error in the facts and law, (b) the restitution of the amount of VAT of €1,681,197.79, registered in the periodic declarations for the months of May, June, July and August 2016 and, finally, (c) condemnation of the AT to payment of compensatory interest on that amount, at the statutory rate, until full reimbursement of the amount owed.

3. To this end, it invokes that the contested corrections are based on an illegal interpretation by the AT as to article 2, no. 1, paragraph g) of the VAT Code, based on point 1 of Circular Letter no. 30073/2005, of 24 March, of the VAT Services Directorate, to the effect that a taxable person without a seat, stable establishment, domicile or tax representative in Portugal, but with registration for VAT purposes in our country, must charge VAT on sales located in national territory to acquirers who are taxable persons established here and not apply the reverse charge mechanism provided for in that rule.

4. In accordance with articles 5, no. 3, paragraph a) and 6, no. 2, paragraph a) of the RJAT, the Deontological Board of the Arbitration Centre appointed as arbitrators of the Collective Arbitral Tribunal the signatories, who communicated acceptance of the appointment within the applicable period.

5. The Arbitral Tribunal was constituted at the CAAD on 16 January 2019, as communicated by the President of the Deontological Board of the CAAD.

6. Notified for this purpose on 14 February 2019, the Defendant filed a reply in which it raised the exception of material incompetence of the Arbitral Tribunal to hear the request put forward by the Claimant.

7. In the Defendant's view, the request has as its object the act of (partial) rejection of the VAT refund requested by the Claimant in the periodic declaration of August 2016, which is outside the competence of the Arbitral Tribunal, under article 2, no. 1 of the RJAT and article 2 of Ordinance no. 112-A/2011, of 22 March, as it does not constitute a tax assessment act.

8. The Defendant also defended itself by way of counterclaim.

9. In this respect, it refers to the factual circumstances set out in the final report of the tax inspection and emphasizes that the Claimant charged VAT under article 1, no. 1, paragraph a) of the VAT Code in sales made to the group company "B..., SARL", but that for other clients, also established in national territory, the Claimant carried out sales with application of the reverse charge rule provided for in article 2, no. 1, paragraph g) of the VAT Code (i.e., it did not charge this tax).

10. It concludes by requesting the dismissal of the request for arbitral decision ("PPA"), as not proven, and the consequent absolution of the Defendant from all claims, with the legal consequences.

11. The Claimant exercised the right to contradict the matter of exception raised by the AT on 4 March 2019.

12. In this context, it indicated that the object of the PPA is only and solely the additional VAT assessment act with number 2017..., relating to the period of August 2016, and not the refund request.

13. It further clarified that the immediate object of the request presented is the tacit rejection of the gracious complaint lodged against that assessment act, being the mediate object of the request the controversial VAT assessment act.

14. The meeting of article 18 of the RJAT was waived, without objection from the Parties.

15. The Parties were notified to present optional final arguments, with the Claimant presenting arguments on 19 March 2019, maintaining, in essence, the arguments contained in the PPA.

16. The Defendant did not attach the administrative file and chose not to argue.

1. In light of the foregoing, it is important to delimit the main issues to be decided.

2. First, it is necessary to consider and decide the preliminary matter raised by the Defendant regarding the material incompetence and consequent lack of jurisdiction of the Arbitral Tribunal to hear the request put forward by the Claimant.

3. Should the exception of material incompetence raised not proceed, it is necessary to consider the question of merit, which is strictly one of law and focuses on the application of article 2, no. 1, paragraph g) of the VAT Code to domestic sales, i.e., to the transmissions of goods effected in Portuguese territory and located there, carried out by taxable persons without a seat, stable establishment, domicile or tax representative in Portuguese territory, but registered (only) for VAT purposes in Portugal.

II. MATERIAL INCOMPETENCE OF THE TRIBUNAL

1. Following the above, the AT comes to defend the material incompetence of this Tribunal invoking for this purpose the arguments summarized as follows:

a. The Claimant, in formulating the PPA, namely in articles 18 to 32 of that document, identifies as the object of the present case the act of rejection of the refund that it had requested by submission of the periodic declaration of August 2016, in the global amount of €1,855,589.79.

b. The AT argues that the present arbitral instance is materially incompetent to hear such a request (resorting to various arbitral awards to demonstrate its position, e.g., Arbitral Awards of 29 January 2018, issued in case no. 137/2017-T; of 3 October 2015, issued in case no. 48/2015-T; of 4 April 2014, issued in case no. 238/2013-T; as well as the Award of the Central Administrative Court South ("TCA-S") of 28 April 2016, issued in case no. 09286/16, and of the Supreme Administrative Court ("STA"), of 12 July 2007, issued in case no. 0303/07);

c. The right to VAT refund does not assume the character of a true potestative right that imposes itself inevitably on whoever must provide it;

d. There is a fundamental fact, which concerns the assessment of the legitimacy of the refund in relation to the taxable persons of the tax and this legitimacy is assessed, namely, according to the legitimacy of the exercise of the right to deduction, for VAT purposes;

e. In the case of the present proceedings, the assessment of the legitimacy of the refund was carried out through the inspection procedure, carried out under service order no. OI2016..., having determined its partial illegitimacy, in the amount of €1,681,197.79;

f. In accordance with the express will of the legislature in article 2, no. 1 of the RJAT, the arbitral jurisdiction is not competent to hear the Claimant's claim, as to the request it formulates, since the act of rejection of a refund request does not constitute a tax assessment act;

g. From national case law (namely from the STA Award of 11 June 2008, recorded in case no. 0115/08 and the Award by the Plenary of the Tax Contentious Section, in case no. 0239/16, of 21 February 2018) it may be inferred that decisions on refund requests do not have the nature of assessment acts, being alien to them, and only benefiting from the same means of reaction by virtue of a special rule, embodied in the VAT Code (article 22, no. 13) which provides that from orders rejecting refund requests judicial challenge is available. Thus, the analysis and decision of refund requests does not entail the consideration of the legality of an assessment act, however the legislature, in its freedom of legislative design, chose to provide as a procedural mechanism judicial challenge;

h. Although the general rule dictates that in cases such as those of rejections of refund requests it naturally falls to administrative action, the rule of article 22, no. 13 of the VAT Code postulates a different rule, leaving no room for doubt that in the situation in question the taxpayer can and must only use the figure of judicial challenge;

i. Not subsuming the consideration of a VAT refund to the consideration of the legality of an assessment act, the issue brought to the present claim does not fall within the competence of this Tribunal, under the terms and for the purposes of article 2, no. 1 of the RJAT and article 2 of Ordinance no. 112-A/2011, of 22 March (Binding Ordinance);

j. In arbitration, there is no remedy of law and fact, as a rule, to be lodged with the competent Central Administrative Court, given that the Parties involved have, at this specific point, expressly waived assistance from the superior courts. However, such waiver occurred as to matters within the competence of the CAAD, which does not include the consideration of tax-administrative acts that do not entail the consideration of the legality of the assessment of taxes, as happens with rejections of refunds. Thus, subjecting rejections of refund requests to the competence of the CAAD, is nothing other than sentencing such matters to the impossibility of being reviewed in second instance, through the ordinary remedy provided for in article 280 of the CPPT.

k. A normative interpretation contrary to that herein explained blatantly violates the principle of free access to courts, in the aspect of double degree of decision, stemming from articles 20 and 268 of the Constitution of the Portuguese Republic ("CRP").

1. In response to the matter of exception, the Claimant invoked, in summary, that:

a. The arguments raised by the AT cannot clearly proceed in the present case;

b. The object of the present PPA is, only and solely, the additional VAT assessment act with number 2017..., relating to the period of August 2016, having this request been expressed with clarity both in the preamble of the document, in Chapter II, and even in the final request;

c. The object of the request is only the (il)legality of that assessment act, in compliance with and respect for, moreover, what is provided in article 2, no. 1 of the RJAT;

d. This does not invalidate, in our humble opinion – and one of the Arbitral Awards referred to in the AT's Reply, in this case, in case no. 137/2017-T, does not allow one to sustain the contrary – that the Arbitral Tribunal may, as a consequence of granting the request for annulment of that assessment act, also condemn the AT to restitution of the amount of the refund it had requested. Condemnation that, obviously, will only be concretized through spontaneous or judicial execution of the arbitral decision that comes to be issued – in case of granting of the request;

e. At no time was included within the scope of the object of the present request the consideration of that VAT refund request, as the AT notes well, this assessment was made in the inspection proceedings and constitutes an administrative act not subject to review before the arbitral tribunals;

f. Underlying the issuance of the VAT assessment act in question, there was an inspection procedure, in which the competent AT services formulated conclusions and invoked grounds that determined the rejection of the refund request, but also, and equally, the issuance of that assessment act;

g. The Arbitral Tribunal cannot fail to pronounce on the validity and/or legality of the corrections found in the Tax Inspection Report prepared in the course of that inspection action, as they constitute the very foundation of the tax act which is the object of the present request;

h. It is not a question of reconsidering the VAT refund request formulated, but rather of pronouncing on the corrections made by the AT and which generated, on the one hand, the rejection of that request and, on the other hand, and insofar as it matters for the present case, the issuance of an additional VAT assessment act, subject to review under the terms of that RJAT rule. That is, the grounds invoked by the AT in the inspection proceedings – although they also extend to the refund request itself – must be considered in this forum by the Tribunal, as only by knowing those grounds will it be possible to deliver a decision on the merits as to the VAT assessment act under review.

1. In this context, this Tribunal finds that the Claimant is correct. In fact, without prejudice to the effect that a favorable decision may have with respect to the VAT refund, what is at issue in the present case is the discussion of the legality of the assessment. Thus, the present collective finds that the CAAD has competence to decide the present case pursuant to article 2, no. 1 of the RJAT.

2. It should be noted that there is a preliminary legal question which, notwithstanding that it naturally has effects on the VAT refund, is assumed as logically prior and which concerns the necessity, or otherwise, of charging VAT on sales to acquirers resident in national territory.

3. Once this question is clarified, in theory, the refund may, nevertheless, be granted or rejected, namely on the basis of any other requirement of the refund regime.

4. It is further noted, in line with what was decided in case no. 238/2013-T, with which we agree, that article 124 of Law no. 3-B/2010, of 28 April, authorized the Government to legislate "in order to establish arbitration as an alternative form of jurisdictional resolution of conflicts in tax matters".

5. Without prejudice to the fact that the RJAT concretized the aforementioned legislative authorization with a narrower scope than initially envisaged, not including in particular an alternative competence to that of an action for recognition of a right or legitimate interest in tax matters, from its inception, the tax arbitration process was intended to establish itself as an alternative procedural means to judicial challenge proceedings.

6. The scope of tax arbitration jurisdiction is thus delimited, in the first place, by the provision of article 2, no. 1 of the RJAT which sets out the criteria for material allocation of competence, encompassing the consideration of claims aimed at declaring the illegality of tax assessment acts.

7. Now, the AT proceeded to assess VAT (see Assessment no. 2017..., attached to the PPA as Doc. 1).

8. That is, in light of the available documentary elements, an assessment act was indeed practiced, referable to the provision of article 2, no. 1, paragraph a) of the RJAT, capable of being considered by the present Tribunal insofar as it directly falls within the scope of its competence, wherefore the invoked exception of incompetence must be considered unfounded.

9. On the other hand, it has been understood that when a citizen is induced to use a particular procedural means by particular conduct of the Administration, the latter cannot purport to prevent knowledge of the merits of the request, shielding itself in the inadequacy of the procedural means whose use it itself, objectively, induced (see Awards of the STA: of the Administrative Contentious Section, of 5 May 1987, case no. 23205, of 24 October 1996, case no. 39578, of 31 May 2005, case no. 46544; of the Tax Contentious Section, of 9 September 2009, case no. 461/09; and of the CAAD, of 24 October 2014, case no. 185/2014-T, of 6 April 2017, case no. 240/2016-T).

10. In this respect, it is important to note that from the notification of the assessment demonstration, there arises the possibility for the Claimant, if it so wishes, to lodge, as against the "assessment effected (...) within 120 days, a gracious complaint to be filed with the competent Financial Services, or, within three months, judicial challenge to be filed with the competent Tax Court or Financial Services, in accordance with articles 70 and 102 et seq. of the Code of Tax Procedure and Process (CPPT)".

11. Thus, assuming tax arbitration as an alternative to judicial challenge, particularly when what is at issue is the illegality of a VAT assessment, this Tribunal considers that there is no limitation to its competence to decide the present case.

12. In this context, being the Tax Administration itself which in the notification identified the notified act as being a VAT assessment, inducing the Claimant to use an appropriate procedural means for its challenge, it would always also, by this route, be proper to judge the exception raised by the AT unfounded.

13. Finally, as was also decided in case no. 660/2017-T, of 12 March 2019, of this Centre for Administrative Arbitration, in "the VAT sphere, the assessment is based on the declarative system (self-assessment), being a complex act only fully understandable if considered in a broad sense." or that is "only understandable taking into account the «credit mechanism and the connection of assessment-deduction» which, as Sérgio Vasques refers, serve to «ensure the neutrality typical of VAT, preventing the cumulative effect and ensuring that the tax is ultimately borne by the final consumer»".

14. The aforementioned Award further adds, with relevance to the present case, that it follows "from the structure of the VAT Code itself, that we are dealing with a broad notion of assessment, which encompasses deductions and regularizations of tax (articles 19 to 26 of the VAT Code), as well as administrative assessments arising from tax inspection acts and official determination of tax (Chapter VI of the VAT Code).

15. This is the case of the additional assessments regulated by article 87 of the VAT Code, relating to "the moment and manner of exercise of the right to deduction". In no. 1 of this article, it is stipulated that, without prejudice to the case of assessments based on presumptions and indirect methods, to be effected under the terms of the General Tax Law, the AT "rectifies the declarations of taxable persons, when it substantively considers that they contain a lower tax or a higher deduction than owed, additionally assessing the difference".

16. And in no. 5 of this same article, it is said that if "after 12 months relating to the period in which the excess began, there persists a credit in favor of the taxable person exceeding €250, the latter may request its refund". This thus appears, alongside deduction by subtraction and carryover, as a manner of exercise of the right to deduction and, consequently, may be seen as an element forming part of the very assessment of tax, clearly distinguishing itself from forms of return of tax, such as, for example, the restitution of VAT already paid to political parties or to the Church.

17. It is in that sense that the position of José Xavier de Basto and Gonçalo Avelãs Nunes should be understood, when they affirm that "a refund contested by the tax administration in all respects equates to an assessment of tax and the means of reacting against that act of the administration, which denies or revokes a refund, are identical to those which the law places at the disposal of taxpayers to annul, wholly or in part, the assessment of tax."

18. In fact we are dealing, in these cases, with a simple change in the form of assessment: a self-assessment becomes an additional administrative assessment. The fact that, at the accounting level, this presupposes an account reconciliation does not alter the legal nature of the act.

19. Thus, the documents emanated from the AT and notified to the Claimant giving account of the "demonstration of VAT assessment", of the "assessment number" and "assessment date" are, in the legal sphere, pertinent and correct".

20. In this manner, also by virtue of the latitude which presides over the understanding of what is assumed as an assessment for VAT purposes, it should be considered that recourse, in the present case, to arbitral jurisdiction, does not merit censure, judging the exception of material incompetence raised by the Defendant to be unfounded.

III. SANITATION

1. The Tribunal is competent.

2. The request for arbitral decision is timely, because presented within the period provided for in article 10, no. 1, paragraph a) of the RJAT, counted from the facts provided for in article 102, no. 1, paragraph d) of the CPPT.

3. The case does not suffer from vices that would wholly invalidate it.

4. The parties have legal personality and capacity and show themselves to be legitimate.

IV. FACTS

A. Established Facts

1. With relevance to the decision, the following facts which the Tribunal finds established must be considered:

a. The Claimant is a German commercial company that is registered in Portugal only for VAT purposes, since 20 September 2012, and is within the normal monthly regime (see tax registration filed by the Claimant as Doc. 3 of the PPA and page 5 of the Final Inspection Report filed as Doc. 5 of the PPA, hereinafter "Inspection Report").

b. The Claimant pursues the main activity of "Non-specialized wholesale trade" – CAE 46900 and the secondary activity of "Wholesale trade in feedstuffs" – CAE 46211 (see Doc. 3 of the PPA and page 5 of the Inspection Report).

c. The Claimant is not resident, nor has a seat, stable establishment or appointed representative in Portugal (see Doc. 3 of the PPA and page 5 of the Inspection Report).

d. The Claimant acquires, in Portugal, cereals from other EU Member States, through intra-community acquisitions, and also from third countries, through imports (see page 5 of the Inspection Report).

e. Subsequently, the Claimant sells the said cereals to clients established in Portugal (domestic sales) (see page 5 of the Inspection Report).

f. The Claimant did not charge VAT on domestic sales made to clients established in Portugal, by application of the provision of article 2, no. 1, paragraph g) of the VAT Code (see article 15 of the PPA and points 3.1 and 3.2 of the Inspection Report).

g. In the periods of May to August 2016, the Claimant made sales to company C..., SA "C..." – Tax ID ... – without VAT charge, with the notation of "Self-assessment", by application of the provision of article 2, no. 1, paragraph g) of the VAT Code (see point 3.1, paragraph b) of page 6 and point 3.2, paragraph g) of page 7 of the Inspection Report).

h. "C..." faced with those documents, proceeded to self-assessment and deduction of VAT (see point 3.2, paragraph g) of page 7 of the Inspection Report).

i. The Claimant issued invoices to company B... SARL – Tax ID ... with VAT charged at the standard rate (see point 3.2, paragraph g) of page 8 of the Inspection Report, not disputed by the Claimant).

j. Company B... SARL is a company established in Switzerland, without a seat or stable establishment in Portugal, with Swiss VAT number CHE ... and registration (only for VAT purposes) in Portugal, under number PT ... (see point 3.2, paragraph g), pages 7 and 8 of the Inspection Report).

k. By having accumulated VAT credit in the periods between 2015/06 and 2016/08, the Claimant requested, with reference to the period of August 2016, the refund of VAT credit (in its favor) in the amount of €1,855,589.79 (see page 5 of the Inspection Report).

l. Following the refund request, the Claimant was subject to a VAT inspection action whose object was the analysis of the refund request submitted, carried out by the Tax Inspection Services under Service Order no. OI2016... (see page 5 of the Inspection Report).

m. The Claimant was notified of the Draft Inspection Report, which became final, with VAT corrections being made by the Tax Inspection Services to the Claimant in the total amount of €1,681,197.79, for alleged failure to charge this tax in the periods of May, June, July and August 2016 (see section IV of page 9 of the Inspection Report), with the grounds set out as follows:

"[…]

3.1. Description of facts

From the analysis carried out on the declarations and documents exhibited by the taxable person, we highlight the following points:

a) The active operations, until September/2015 refer to sales in the national market and as such subject to VAT under article 1 of the VAT Code. During the months of October/2015 to May/2016 the company did not declare any movements either of active operations. From May to August 2016 active operations were declared on the domestic market, without VAT charge, with the notation of «Self-assessment»

b) From June to September 2015 the taxable person invoiced essentially to company «C... SA – Tax ID ...», cereals with VAT charged at the reduced rate. From May/2016 onwards sales to company «C...», made by «A...», were without VAT charge, with the notation of «Self-assessment». When questioned on the reason for the exemption, the taxable person replied that the provision of article 2, no. 1, paragraph g) of the VAT Code was applied.

c) With regard to passive operations, the amounts entered in field 21 refer mainly to cereal imports, being stored in the silos of «D... SA» in ... or in ... . Consequently, tax was charged at Customs upon entry into national territory, tax which confers the right to deduction.

3.2- Verifications (Tests and Information Cross-checks)

Various diligences were developed in order to validate the amount of VAT refund under analysis, for which purpose we requested support schedules for the completion of periodic declarations, as well as copies of the documents supporting the movements referred to in the active and passive operations declared by the taxable person, details of which are given below:

a) The cereal from third countries enters national territory by sea, being unloaded directly into silos, from where it progressively goes out to final customers (domestic companies), remaining in national territory.

d) From the comparative analysis by ship, between purchases (imports) and sales, we can verify that the tonnes purchased were totally sold in Portugal and the unit purchase values are (in their majority) equal to or lower than those sold.

e) We highlight the exceptions detected in two ships (... and the ...), in which the import was based on invoices in dollars issued with the Tax ID of B... in Switzerland (...) to A... Germany, without Tax ID. These cereals were cleared in Portugal by A... with Portuguese Tax ID ..., with the corresponding VAT having been charged by the competent Customs. In these two cases, we verified that the unit purchase values were higher than the sale values, as illustrated in the table below:

Ship: ...

Import

Date

acceptance Quantity Unit Value Taxable

base VAT Differential

29-07-2015 63,799.429 187.51 11,963,011.04 717,780.66 Deducted

Sale

Invoice date Quantity Unit Value Taxable

base VAT

Various 63,633.414 169.50 10,785,863.67 647,151.82 Charged

                                                                                          -70,628.84

Ship: ...

Import

Date

acceptance Quantity Unit Value Taxable

base VAT Differential

17-08-2016 31,744.230 425.624 13,511,114.51 810,666.87 Deducted

Sale

Invoice date Quantity Unit Value Taxable

base VAT

18-08-2016 31,744.230 406.325 12,898,459.32 773,907.56 Charged

                                                                                          -36,759.31

From the analysis carried out, we verified that the purchase/import invoices were issued in USD having used the exchange rate of the day to convert to euros. At the time of sale, as regards ship «...» sales were to company «C... SA», having been made at a unit value lower than the acquisition value. In relation to ship «...», the sale was made the day following the import, to B... – Tax ID..., having the invoice been issued in USD, and in which the exchange rate of the day of invoice issuance was lower than that of the day of import acceptance, having caused a differential in unit value, as a result of exchange rate differences.

This differential justifies in part the accrual of tax credit in some periods.

f) Information cross-checks were carried out with the companies/entities that directly or indirectly are involved in the company's activity in Portugal, as described below:

• The company owning the silos –D..., SA – Tax ID...: it was established that the management of the contents of the silos is the responsibility of the companies that contract the lease, in this case the companies B... SARL in Switzerland (Tax ID CH...) and A... in Germany (Tax ID DE...), to which invoices for ship discharge services from the silos to the silos were issued by «D...». This invoicing is exempt under article 14, paragraph p) of the VAT Code, since we are dealing with service provision connected with transmissions of goods presented at customs and placed in provisional deposits, articles 15, paragraphs b) i and c) of the VAT Code. «D...» is on the list of authorized temporary deposit warehouses.

Thus, we conclude that the lease in Portugal of silos for temporary storage of cereals was effected by companies B... in Switzerland and in Germany, using the respective Tax IDs of their countries of origin. Thus they are not expenses of Tax ID Portuguese ..., which justifies the absence of this type of expenses in the taxable person under analysis.

• Client –D..., SA – Tax ID...: the invoices received and accounted for refer to supplies of cereals, transported from the silos in ... to the facilities of «D...» in national territory, thus being internal operations. Until September/2015, the invoices had VAT taxation at the standard rate, under article 1 of the VAT Code. From October/2015 to April/2016 no operations were carried out, consequently there was no invoicing between the two companies (information confirmed using the E-invoice application). From May to December/2016 the transactions with A…, are supported by invoices without VAT charge and with the notation of «VAT self-assessment». «D...» faced with these documents proceeded to the charging and deduction of VAT.

This situation raises some questions, which will be addressed in point 3.3 of this information.

• Client –B...– Tax ID...: the invoices received and recorded have VAT at the standard rate, and appear in the periodic declarations of the company. We highlight that this Tax ID corresponds to the registration of VAT in Portugal of the Swiss company with the same name, not having in Portugal a stable establishment, having appointed a representative for VAT and CIT purposes.

We highlight the special relationships between the two companies, issuer and acquirer. According to information obtained from B...'s representative in Portugal, there are no financial records of commercial operations between these entities as they are companies of the same group.

From this cross-check, no formal anomalous situations resulted, the invoices having been recorded in both companies, and that these goods were commercialized in national territory.

• Imports: from the DSAFA – Anti-Fraud Customs Services Directorate, information was gathered in order to validate the imports recorded by the taxable person and whose VAT was deducted in the respective periodic declarations. After verification, it was found that the imports made by Tax ID ..., appear in the periodic declarations filed by the taxable person, forming part of the deductible tax in field 21 – inventories.

• Consistency tests: quantities acquired/imported and stored in silos were cross-checked with those sold. We found that in the items selected no significant differences were detected. We highlight that all imported goods were sold in the national market.

3.3- Grounds and corrections

From the above points we highlight the fact that sales were entirely carried out on the national market, however the taxable person subjected some invoices to VAT, while others were considered not subject by application of the provision of article 2 no. 1 paragraph g) of the VAT Code. It was demonstrated in the above points that the goods were imported, and subsequently sold in national territory to domestic companies. Thus all active operations carried out and declared by company A... Tax ID..., were in the national market and subject to tax under article 1 of the VAT Code.

The taxable person faced with this situation provided the following clarifications;

«…A... GmbH registration of VAT in Portugal applied the provision of article 2, no. 1, paragraph g) of the VAT Code to the active operations carried out in Portugal, that is, to the transmissions of goods located in this territory.

Indeed, the aforementioned rule states that taxable persons are «The natural or legal persons referred to in paragraph a), who are acquirers in transmissions of goods or service provisions carried out in national territory by taxable persons who do not have a seat, stable establishment or domicile here nor have a representative under article 30»

That is, article 2, no. 1, paragraph g) of the VAT Code enshrines a rule of reverse charge in operations carried out in Portugal by entities that do not have a seat, stable establishment or domicile in Portugal nor have appointed a tax representative. It should be noted that A... GmbH registration of VAT in Portugal does not have a seat, stable establishment or domicile in this territory nor has appointed a tax representative…»

On this matter, we must cite circular letter 30073/2005 of the VAT Services Directorate, which as regards paragraph g) of no. 1 of article 2 of the VAT Code says that. We now quote «The natural or legal persons referred to in paragraph a), who are acquirers in transmissions of goods or service provisions carried out in national territory by taxable persons who do not have a seat, stable establishment or domicile here nor have a representative under article 30»

However, notwithstanding the absence of a seat, stable establishment or domicile, non-resident taxable persons will be bound by the fulfilment of the obligations arising from the VAT Code, if they have here a registration for VAT purposes, regardless of the possibility given to them to proceed to the appointment of a representative, a taxable person for value added tax in national territory, armed with power of attorney with sufficient powers.

In these cases, they are namely bound to fulfil the obligations of the VAT Code, namely those of charging and payment of the tax owed for operations carried out in national territory, with the provision contained in paragraph g) of no. 1 of article 2 of the VAT Code being emptied of content.»

Thus, the taxable person A...– Tax ID..., carried out in the period under analysis only active operations subject to VAT in accordance with paragraph a) of no. 1 of article 1 of the VAT Code, with no application of paragraph g) of no. 1 of article 2 of the VAT Code, and consequent reverse charge effected by the taxable person.

IV-Summary of Proposals

From the foregoing we conclude that incorrections were committed by non-compliance with the rules established in paragraph a) of no. 1 of article 1 of the VAT Code, in conjunction with Circular Letter 30073/2005 of the VAT Services Directorate.

Thus, we proceed to decompose the situations in which VAT was not charged, according to the above description:

Month Taxable Base VAT (6%)

May 6,636,936.85

June 6,641,277.19

July 7,764,939.70

August 6,976,809.46

            28,019,963.20    1,681,197.79

Consequently, the amount of 1,681,197.79 € was accrued relating to failure to charge VAT.

In accordance with the foregoing, the correction of the amount of 1,681,197.79€, relating to the failure to charge tax under the terms of paragraph a) of no. 1 of article 1 of the VAT Code, is proposed, from which results the partial rejection of the VAT refund request mentioned above.

V- Right to Hearing

The company was notified to exercise the Right to Hearing by registered letter dated 2017/07/27 […].

As the taxable person did not exercise the prior hearing right provided for in the cited legislation, the corrections proposed in the previous chapter are maintained […]."

n. The VAT Assessment Demonstration with assessment number n.º 2017... was issued by the VAT Collection Area, relating to the period of August 2016, in which VAT in the amount of €1,681,197.79 is corrected in favor of the State, with the content: "Grounds - additional assessment made on the basis of correction made by the Tax Inspection Services" (see Doc. 1 attached with the PPA).

o. The Claimant filed, on 18 May 2018, a Gracious Complaint against the VAT assessment act in question (see Doc. 2 of the PPA).

p. On 2 November 2018, the Claimant, in disagreement with the above identified VAT assessment act, filed at the CAAD the request for establishment of the Collective Arbitral Tribunal which gave rise to the present case.

q. Up to the date of submission of the arbitral request, the Gracious Complaint had not been decided (see article 32 of the PPA, not disputed by the AT).

B. Unestablished Facts

a. The periods to which the invoices issued by the Claimant to B... SARL, with VAT charged at the standard rate, refer.

b. With relevance to the decision there is no other factuality alleged that has not been considered established.

C. Justification of the Factual Decision

1. The factuality established was based on critical analysis of the documents above discriminated and not disputed by the parties, as well as the position assumed by them in relation to the facts.

V. MERITS

A. Delimitation of the Issue to be Decided

1. The fundamental question to be considered concerns the subjective incidence of VAT on transmissions of goods located in Portugal, carried out by taxable persons with only VAT registration in Portugal, i.e., without a seat, stable establishment, domicile or tax representative in this country, to acquirers who are taxable persons of this tax.

2. According to the Claimant's position, in this case, the rule of reverse charge applies, by application of article 2, no. 1, paragraph g) of the VAT Code, which means that the charging and payment of the tax to the State falls to the acquirer, via the self-assessment mechanism, also called "reverse charge".

3. For the Defendant, the general rule of tax charging by the supplier of goods or service provider applies, contained in article 2, no. 1, paragraph a) of the VAT Code, and thus falls to the respective supplier or provider the charging and payment of the tax to the State.

B. On the Legality of the VAT Assessment

NATIONAL AND EUROPEAN NORMATIVE FRAMEWORK

1. The regulatory scheme whose application is discussed in the present arbitral action was introduced in Portugal, in the VAT Code, with the approval of Decree-Law no. 179/2002, of 3 August, following Legislative Authorization Law no. 16–A/2002, of 31 May, in the following manner:

"Article 15 of Law no. 16–A/2002, of 31 May

Transposition of Directive no. 2000/65/CE, of the Council, of 17 October

The Government is authorized to transpose into the national legal order Directive no. 2000/65/CE of the Council of 17 October, which amends Directive no. 77/388/CEE, as regards the determination of the VAT debtor.

Article 2 of Decree-Law no. 179/2002, of 3 August

Amendments to the VAT Code

Articles 2, 7, 26, 29 and 70 of the VAT Code, approved by Decree-Law no. 394–B/84, of 26 December, shall henceforth read as follows:

«Article 2

1 – Taxable persons of the tax are:

[…]

g) Natural or legal persons referred to in paragraph a), who are acquirers in transmissions of goods or service provisions carried out in national territory by taxable persons who do not have a seat, stable establishment or domicile here nor have a representative under article 29 [now article 30].

This regime introduced an exception to the general rule which results from the comparison of articles 2, no. 1, paragraph a) and 29, no. 1 of the VAT Code, according to which VAT must be charged by the transmitter of goods or service provider:

"Article 2 of the VAT Code

Subjective Incidence

1 – Taxable persons of the tax are:

a) Natural or legal persons who, in an independent manner and with regularity, carry on activities of production, commerce or service provision, including extractive, agricultural activities and those of free professions, and also those who, in the same independent manner, carry out a single taxable operation, provided that such operation is connected with the exercise of the said activities, wherever this occurs, or when, regardless of such connection, such operation fulfils the requirements of real incidence of personal income tax (IRS) or corporate income tax (IRC); [Wording given by article 2 of Decree-Law no. 186/2009, of 12 August, in force from 1 January 2010]"

Article 29 of the VAT Code

General Obligations

1 – In addition to the obligation of payment of the tax, taxable persons referred to in paragraph a) of no. 1 of article 2 must, without prejudice to what is provided in special provisions:

a) […]

b) Compulsorily issue an invoice for each transmission of goods or provision of services, as defined in articles 3 and 4, regardless of the quality of the acquirer of goods or recipient of services, even if these do not request it, as well as for payments made to them before the date of transmission of goods or provision of services;

c) Send monthly a declaration relating to the operations carried out in the exercise of its activity during the course of the second preceding month, with indication of the tax owed or existing credit and the elements which served as the basis for the respective calculation; […]".

1. The special regime which was enshrined in paragraph g) of this article 2, no. 1, broadens the scope of subjective incidence, as mentioned in the preamble of the cited Decree-Law no. 179/2002, of 3 August, "making the acquirer of goods or services himself a taxable person of the tax, when he, having a seat, stable establishment or domicile in national territory, makes acquisitions of goods or services in the exercise of an activity subject to tax, even if exempted therefrom, on acquisitions of goods or services in national territory from non-resident entities, which do not have here a stable establishment, nor have proceeded to the appointment of a tax representative".

2. It is known that VAT is a tax harmonized by European law, and the Portuguese VAT Code is the result of transposition of the so-called "Sixth Directive", in force at the time of Portugal's accession to, then, the European Economic Community. The Sixth Directive was repealed and replaced by the current "VAT Directive", in force since 1 January 2007, without, however, the latter having introduced significant changes, which is why it became known as the "Recast Directive" or Directive of Reformulation, limiting itself, in general, to the systematic reorganization of the rules.

3. It is important to note that European law, both in the Sixth Directive and in the VAT Directive, makes a relevant distinction, not transposed by the domestic legislator, which separates the concept of taxable person from that of VAT debtor and which, perhaps, may assist in understanding the issues raised.

4. In the first case, it is the person who has the properties that determine the subjective incidence of VAT, regardless of the entity on whom falls the duty of charging and payment of the tax, which may be different. The notion of taxable person is defined as "any person who carries on, in an independent manner and in any place, an economic activity, whatever the purpose or result of that activity" (see article 9, no. 1 of the VAT Directive, equivalent to article 4, no. 1 of the Sixth Directive, corresponding to article 2, no. 1, paragraph a) of the VAT Code).

5. The VAT debtor, meanwhile, is characterized as the person on whom falls the obligation of charging and payment of VAT. The general rule, of which article 2, no. 1, paragraph a) of the VAT Code echoes, is that of coincidence between the taxable person – who transmits goods and/or provides services – and the VAT debtor. Thus, VAT is owed by taxable persons who effect transmissions of goods or provision of services, as established by article 193 of the VAT Directive (before article 21, no. 1, paragraph a) I part of the Sixth Directive), "except where the tax is owed by another person, in accordance with articles 194 to 199 and 202".

6. When the said coincidence between the transmitter/service provider taxable person and the VAT debtor (the latter, the obliged taxpayer bound to its charging and payment) does not occur, we are in the domain of exceptions to the general rule applicable to domestic operations, materialized in the adoption of the reverse charge or "reverse charge" regime. In this case, the obligation of (self)assessment and payment of the tax that would normally fall to the transmitter/provider is assigned to the acquirer, in a phenomenon of tax substitution specific to VAT. This reversal presupposes or requires that the acquirer is also a VAT taxable person (in an Anglo-Saxon simplification, "Business to Business" – B2B), not operating when the acquirer does not have that quality ("Business to Consumer" – B2C).

7. A qualification to circumscribe what above is stated to domestic operations. Indeed, in the case of cross-border operations, since 1993 for intra-community goods operations, and 2010 for service provisions ("VAT Package"), the B2C regime rule is that of reverse charge, with self-assessment by the acquirer.

8. However, as noted above, in the domestic VAT regime, the reverse charge is conformed as an exception to the general rule and its application is optional on the part of Member States, as postulated by article 194 of the VAT Directive, in similar manner to what was already provided by its predecessor, article 21, no. 1, paragraph a), II part of the Sixth Directive:

"Article 194 of the VAT Directive

1. Where supplies of goods or provision of services are carried out by taxable persons not established in the Member State in which VAT is due, the Member States may establish that the VAT debtor is the recipient of the supply of goods or the provision of services.

2. The Member States determine the conditions for the application of the provision in no. 1".

3. Thus, Member States are granted the prerogative of choosing another "VAT debtor", when two cumulative conditions are verified. The first is that the operations are carried out by taxable persons not established in the Member State where the operation is located and, consequently, the VAT is owed (in accordance with the criteria for spatial incidence and tax competence of the Member States). The second is that the VAT debtor is the recipient (acquirer) of those operations.

4. As mentioned earlier, an identical regime already resulted from article 21, no. 1, paragraph a), II part of the Sixth Directive, in the wording in force at the time of the amendment to article 2, no. 1 of the VAT Code, when the paragraph g) in question was introduced. That Community rule provided, under the heading "VAT Debtor to the Public Treasury", that: "[w]here supplies of goods or provision of services are effected by a taxable person not established in the territory of the country, the Member States may provide, under the conditions they fix, that the VAT debtor is the recipient of the supplies of goods or taxable service provisions;" [article 28–G of the Sixth Directive, as amended by Directive no. 2000/65/CE of the Council of 17 October 2000, which amended the determination of the VAT debtor].

5. In this manner, with the introduction of paragraph g) to no. 1 of article 2 of the VAT Code, effected in 2002, the national legislator expressly exercised the freedom of choice – conferred by European law – to select a "VAT debtor" different from the taxable person transmitting goods (or providing services). This is to say that it was an express option of the national legislator and not an imperative regime predetermined from a European source.

6. This freedom of choice has limitations which the VAT Directive itself sets out and which it is important to examine, without prejudice to the regulation by domestic law of conditions not regulated by European law. Indeed, on the one hand, the mechanism of reverse charge will apply if (and only if) the supplier taxable person is not established in Portugal, the country where the goods transmission operations under analysis in the present arbitral proceedings are located; and, on the other hand, the "VAT debtor" must be the recipient (acquirer) of the goods.

7. It appears that the regime of reverse charge established in article 2, no. 1, paragraph g) of the VAT Code respects such parameters. Indeed, its application is determined when transmissions of goods (or provision of services) are effected (read, located) in national territory by "taxable persons who do not have a seat, stable establishment or domicile here, nor have a representative" and designates as VAT debtor the acquirers who are taxable persons of this tax.

8. It should be noted that, in accordance with the preamble of Decree-Law no. 179/2002, of 3 August, the Portuguese legislator intended that the rule of reverse charge only applied when the acquirer, a taxable person, had a seat, stable establishment or domicile in national territory. This restriction, however, was not reflected in the letter of the law, which does not distinguish between acquirers established and not established, appearing to enable the interpretation that it encompasses any acquirer taxable person of VAT – i.e., engaged in the exercise of an economic activity – regardless of their place of establishment. Such a solution, however, contains significant practical difficulties which lead us to a different interpretation which it is not necessary to develop here, as the VAT assessment impugned is only concerned with transmissions of goods to acquirers established in Portugal.

CONCRETE ANALYSIS: FIRST CONDITION - TAXABLE PERSONS WHO DO NOT HAVE A SEAT OR STABLE ESTABLISHMENT, NOR HAVE A REPRESENTATIVE

1. The Claimant is a company of German law that engages in commercial activity, with clear economic dimension, being therefore classifiable as a VAT taxable person. It results from the factual framework that the Claimant does not have a seat, stable establishment or appointed representative in Portugal. It did, however, obtain a tax identification number, solely for VAT purposes, that is, it is registered in national territory for VAT purposes.

2. In the context of provision of services, in which the location of taxable persons is also fundamental to determine the very spatial incidence and taxation of operations (in the case before us, of goods transmission, this criterion is only relevant for the determination of the VAT debtor), Implementing Regulation (EU) no. 282/2011 of the Council, of 15 March 2011 ("Regulation"), OJ no. L 269/44, of 23 March 2011, has clarified that the fact that a taxable person has a VAT identification number is not in itself sufficient to consider that it has a stable establishment (article 11, no. 3 of the Regulation).

3. In the VAT sense, an establishment implies a sufficient degree of permanence and an adequate structure, in terms of human and technical resources (article 11, nos. 1 and 2 of the Regulation). Now, no reason is apparent for why, in the context of goods transmission operations, as occurs in the present situation, these concepts should have another scope or should be interpreted differently.

4. It is established that the Claimant has a "mere VAT registration" in Portugal and is not established in this Member State. In these terms, it meets the requirements for application of the "reverse-charge" regime in active operations – goods transmissions – that it effects to other VAT taxable persons in national territory. In other words, the rule of reverse charge applies regardless of whether the goods transmitter (or service provider, if applicable) has a "VAT registration" in Portugal. It may be either a registered taxable person or an unregistered one, provided it is not established in national territory, nor has designated a representative here.

5. Indeed, article 2, no. 1, paragraph g) of the VAT Code determines as a negative condition of the reverse charge regime that the supplier has a seat, establishment or local representative, making no reference whatsoever to VAT registration. On the other hand, the source of European law, article 194 of the VAT Directive also appeals to the concept of establishment, which is, as we have seen above, distinct from that of VAT registration.

6. On the other hand, VAT registration is a figure that has existed since 1993, having emerged with the implementation of the intra-community goods regime, so in 2002 it did not constitute a novelty capable of founding an unintended incompleteness on the part of the legislator.

7. The Defendant advocates, in the Inspection Report reproduced above, that the Claimant cannot apply the reverse charge rule provided for in article 2, no. 1, paragraph g) of the VAT Code, with support in Circular Letter no. 30073/2005 of the VAT Services Directorate, since, although it does not have a seat, stable establishment or tax representative in Portugal, it has VAT registration in this country, and must thus charge tax under article 1, no. 1, paragraph a) of the cited Code "with no application of paragraph g) of no. 1 of article 2 of the VAT Code, and consequent reverse charge effected by the taxable person".

8. This Tribunal considers that such understanding not only has no correspondence with the letter of the law, but violates its spirit.

9. In the first place, the condition that paragraph g), of no. 1, of article 2 of the VAT Code is only applicable in cases where goods transmitters or service providers do not have VAT registration in Portugal, does not result minimally from the littera legis – a basic principle of legal interpretation, in accordance with articles 9, no. 1 of the Civil Code and 11 of the General Tax Law ("LGT"). The Portuguese legislator, in the context of the prerogative given to it by article 21, no. 1, paragraph a) of the then Sixth Directive (and now article 194 of the VAT Directive), could have imposed such a condition, which it did not.

10. In the second place, pursuant to article 11, no. 1 of the LGT, in conjunction with article 9 of the Civil Code, the interpretation of the law must reconstruct, from the texts, the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied.

11. In this context, it is important to take into account the purposes of such an exception regime, which deviates from the VAT collection paradigm, a tax based on an original model of pre-financing (charging and collection by the transmitter) and not self-assessment. BEN TERRA even considers it remarkable that this "exception" has been maintained, following the concerns expressed by the European Commission even in the 1990s – B.J.M. Terra et al., Commentary – A Guide to the Recast VAT Directive (IBFD 2017), p. 3049.

12. As highlighted in Recital 1 of Directive no. 2000/65/CE of the Council, whose transposition resulted in article 2, no. 1, paragraph g) of the VAT Code, apart from the objective of simplifying the obligations of smaller taxable persons, dispensing them in multiple cases from the obligation of registration for VAT in other Member States where they are not established, the reversal of the taxable person constitutes an important anti-fraud mechanism and aims at reliable and correct collection of VAT by the taxable persons acquiring goods and services in Portugal – essentially combating possible situations of fraud and tax evasion.

13. In sectors sensitive to VAT fraud, such as civil construction or waste, residues and recyclable scrap, the Portuguese legislator chose to apply the mechanism of reverse charge. In carousel fraud taxable persons established in various Member States interact, so it appears that the "reverse charge" of paragraph g) of no. 1 of article 2 of the Code, under consideration here, is a legislative option with marked anti-abuse purpose.

14. If it were understood as the AT does, it would suffice for the unestablished taxable person to register for VAT purposes in Portugal to circumvent the reverse charge regime, which would frustrate the legislative purpose and would favor fraud. It should be noted that the reversal does not translate into lower revenue for the State, operating only a subjective modification of the debtor, and in the case of the proceedings, the acquirers of the Claimant proceeded to self-assessment of VAT, so no decrease in tax revenue arises.

15. In the third place, if paragraph g) of no. 1 of article 2 of the VAT Code does not condition the reversal on whether the goods transmitter or service provider has (or not) VAT registration in Portugal, it is not for the AT to introduce this restriction, outside the constitutional requirement of statutory form required for the creation of taxes (see article 165, no. 1, paragraph i) of the CRP) and in clear violation of the principle of legality (see article 103, no. 2 of the CRP).

16. In the fourth place, the rule of reversal is a lex specialis in relation to the general rule of VAT charging by the goods transmitter and service provider, so, within its scope of application, it prevails over the general regime.

17. In the fifth place, it is worth clarifying that the simplification measures in question only apply to operations carried out with acquirers who are VAT taxable persons, i.e., B2B, the obligation of registration in our country and of charging the tax not being withdrawn when the same operator simultaneously carries out domestic sales to individuals or to non-VAT taxable persons, i.e., B2C sales.

18. Which is equivalent to saying that situations of tax charging coexist with situations where the rule of reverse charge applies, for unestablished taxable persons without a tax representative in Portugal, but with VAT registration in our country.

19. In this context, it should be emphasized that the understanding conveyed by the AT in Circular Letter no. 30073/2005, by imperatively determining VAT charging by "mere VAT registrations", appears to want to equate a "mere VAT registration in Portugal" with a stable establishment, for VAT purposes, in our country.

20. An equivalence which has, however, no factual or legal basis, as mentioned above. On the contrary, it is assumed by both parties that the Claimant does not have a stable establishment in our country.

21. In truth, for the qualification of a given reality as a stable establishment in the VAT sense, it is necessary to demonstrate, in Portugal, a "any establishment, other than the seat of the economic activity (…) characterized by a sufficient degree of permanence and an adequate structure, in terms of human and technical resources, which allow it to receive and use the services that are provided for the needs of that establishment itself".

SECOND CONDITION – THE ACQUIRER IS THE "VAT DEBTOR"

1. The second condition of applicability of the reversal regime is also satisfied in the concrete situation, given the fact that it was the Portuguese clients of the Claimant – the acquirers of the goods – who assumed the fulfilment of the declarative and tax payment obligations of VAT associated with the goods transmissions carried out by the Claimant, proceeding to the due self-assessment of the tax.

ON CIRCULAR LETTER NO. 30073/2005

1. In the sixth place, it should be noted that the Inspection Report bases the VAT assessment here contested on administrative guidance conveyed by Circular Letter no. 30073/2005.

2. As explained by CASALTA NABAIS (Tax Law, 6th ed., Almedina, p. 197) in what is today established case law: "the so-called administrative guidance, traditionally presented in the most diverse forms such as instructions, circulars, circular letters, circular documents, normative orders, regulations, opinions, etc." constitute "internal regulations which, having as their recipient only the tax administration, only it must obey them, being thus binding only for the organs situated hierarchically below the organ author of the same. Therefore they are not binding either for individuals or for the courts. And this whether they are organizational regulations, which define rules applicable to the internal functioning of the tax administration, creating working methods or modes of action, or whether they are interpretative regulations, which interpret legal (or regulatory) provisions. It is certain that they densify, make explicit or develop legal provisions, previously defining the content of the acts to be carried out by the tax administration when applying them. But this does not convert them into a standard of validity of the acts they support. In truth, the assessment of the legality of the acts of the tax administration must be carried out through direct confrontation with the corresponding legal rule and not with the internal regulation, which has interposed itself between the rule and the act".

3. It results from the direct comparison between the content of Circular Letter no. 30073/2005 and the rule contained in article 2, no. 1, paragraph g) of the VAT Code, that the first materializes an innovative regulation in tax incidence matters, devoid of legal support, in addition to emptying of content the application of the reverse charge rule when goods transmitters or service providers have a "mere VAT registration" in Portugal.

4. It is thus concluded, for the reasons set out, that this Circular Letter not only lacks binding external force for the Claimant and for this Tribunal, but is illegal due to violation of law.

5. The circumstance that the AT is bound by the generic guidance contained in Circular Letter no. 30073/2005, under no. 1 of article 68–A of the LGT, does not transform its content into a rule with external effectiveness, all the more so when it is in violation of the law.

6. In seventh and final place, a note to indicate that the interpretation adopted by the AT is pointed out in the doctrine as isolated from among the Member States which chose to transpose the prerogative granted by the current article 194 of the VAT Directive, as is the case with Spain and France, as noted by AFONSO ARNALDO (in op. cit. footnote 6).

IN SUMMARY,

1. It is concluded that the Claimant, in applying the rule of reverse charge in domestic sales (goods transmission) to clients established in national territory, without charging VAT to them, did nothing other than apply the law and respect the will of the legislator.

2. The fact that the Claimant charged VAT in domestic sales made to company B... SARL – Tax ID ... is not inconsistent with the above, as in this case, unlike the others, the acquirer is an entity not established in Portugal, in an interpretation conforming to the preamble of Decree-Law no. 179/2002, of 3 August.

3. Moreover, the circumstance that the Claimant has a "VAT registration" in Portugal does not exclude the application of the reverse charge regime provided for in article 2, no. 1, paragraph g) of the VAT Code, a rule which coexists with situations in which the rule of paragraph a), of no. 1, of the same article must be applied, whenever the requirements for application of the latter are met.

4. In this manner, the VAT assessment act impugned in these arbitral proceedings and, likewise, the silent rejection of the Gracious Complaint against it filed suffer from error in the factual and legal presuppositions, being illegal and subject to annulment, in accordance with article 163, no. 1 of the Administrative Procedure Code, applicable by remission from article 29, no. 1, paragraph d) of the RJAT.

C. Restitution of the VAT Amount of €1,681,197.79 and Compensatory Interest

1. The Claimant requests that the AT be condemned to restitution of the VAT amount of €1,681,197.79 and to payment of compensatory interest on that amount.

2. Pursuant to article 24, no. 1, paragraph b) of the RJAT, in line with article 100 of the LGT, an arbitral award in favor of the taxable person has the effect of restoring the situation that would have existed if the tax act which is the object of the arbitral decision had not been practiced.

3. Article 24, no. 5 of the RJAT, in providing that "payment of interest, regardless of its nature, is due, in accordance with the terms provided in the general tax law and in the Code of Tax Procedure and Process", permits the recognition of the right to compensatory interest in the arbitral process, under the terms of articles 43 and 100 of the LGT, applicable ex vi article 29 of the RJAT.

4. The right to compensatory interest depends on a set of constitutive requirements, it being essential that the Claimant has borne the "payment" of the tax in relation to which it claims the accrual of interest. In the concrete situation, the "payment" of the tax debt in an amount greater than legally owed occurred at the time of compensation of the VAT credit with the value of the unlawfully assessed tax, by the exact amount of the compensation (coinciding with that of the assessment).

5. Given that what is at issue is the incorrect interpretation and application by the Defendant of tax incidence rules, it has been demonstrated that the