VAT Expiry and Exemption Waiver: CAAD Ruling on Refund and Declaration Errors (551/2015-T)

ARBITRAL DECISION

The arbitrators Maria Fernanda dos Santos Maçãs (presiding arbitrator), José Nunes Barata and Emanuel Augusto Vidal Lima, appointed by the Ethics Council of the Center for Administrative Arbitration to form the Arbitral Tribunal, hereby agree as follows:

I. REPORT

1. On 20 August 2015, "A…, S.A." (hereinafter, Claimant), a legal entity with NIPC…, with registered office at Rua…, …-… Viseu, filed an application for constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking the annulment of the additional VAT assessments and compensatory interest, relating to the year 2010, Nos. … (relating to period 1003T, with Collection Document No.…, in the amount of € 319,895.18), … (relating to period 1006T, with Collection Document No.…, in the amount of € 27,909.45), … (relating to period 1009T, with Collection Document No.…, in the amount of € 32,740.47), … (relating to period 1012T, with Collection Document No.…, in the amount of € 45,597.77), No. … of CI (relating to period 1003T, with Collection Document No.…, in the amount of € 57,002.69), … of CI (relating to period 1006T, with Collection Document No.…, in the amount of € 4,694.90), … of CI, relating to period 1009T, with Collection Document No.…, in the amount of € 5,181.07) and … of CI (relating to period 1012T, with Collection Document No.…, in the amount of € 6,753.30), as well as the condemnation of the Respondent to reimburse the Claimant in the amount of € 499,774.83 and to pay compensatory interest from the date of payment until full reimbursement.

The Respondent in this process is AT – Autoridade Tributária e Aduaneira (hereinafter, Respondent or AT).

1.1. The application for constitution of the arbitral tribunal was accepted and immediately notified to AT on 14 September 2015.

1.2. The Claimant did not proceed to appoint an arbitrator, wherefore, pursuant to the provisions of subparagraph a) of paragraph 2 of Article 6 and subparagraph b) of paragraph 1 of Article 11 of the RJAT, the Chairman of the Ethics Council of CAAD appointed as arbitrators of the collective arbitral tribunal the signatories, who communicated acceptance of the mandate within the applicable deadline.

1.3. On 11 November 2015, the parties were duly notified of this appointment, and did not manifest any intention to refuse the appointment of the arbitrators, in accordance with the combined provisions of Article 11, paragraph 1, subparagraphs a) and b) of the RJAT and Articles 6 and 7 of the CAAD Code of Ethics.

1.4. Thus, and in accordance with the provisions of subparagraph c) of paragraph 1 of Article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 11 November 2015.

1. In the initial pleading filed by it, the Taxpayer alleges, in essence, the following:

2.1. The Claimant was subject to additional VAT assessments and compensatory interest relating to the year 2010, Nos. … (relating to period 1003T, with Collection Document No.…, in the amount of € 319,895.18), … (relating to period 1006T, with Collection Document No.…, in the amount of € 27,909.45), … (relating to period 1009T, with Collection Document No.…, in the amount of € 32,740.47), … (relating to period 1012T, with Collection Document No.…, in the amount of € 45,597.77), No. … of CI (relating to period 1003T, with Collection Document No.…, in the amount of € 57,002.69), … of CI (relating to period 1006T, with Collection Document No.…, in the amount of € 4,694.90), … of CI, relating to period 1009T, with Collection Document No.…, in the amount of € 5,181.07) and … of CI (relating to period 1012T, with Collection Document No.…, in the amount of € 6,753.30), which, overall, corresponds to an additional assessment in the amount of €499,774.83.

2.2. The challenging party proceeded to pay all of the aforementioned assessments and respective accruals on 23/07/2015, in the context of Enforcement Proceedings No. …2015….

2.3. The Claimant filed a gracious complaint on 22/12/2014, seeking the annulment of the aforementioned assessments, and was notified of the corresponding rejection decision by letter dated 20/02/2015, received on 25/02/2015, after which it filed a hierarchical appeal addressed to the Minister of Finance on 26/03/2015 (appeal not yet decided at the date of filing of the present action).

2.4. The institution of the present action is timely, insofar as, considering the deadline (60 days) for decision on hierarchical appeals, established in paragraph 5 of Article 66 of the C.P.P.T., the same was deemed rejected tacitly on 25/05/2015, and the Claimant, as provided in Article 102, paragraph 1, subparagraph d) of the C.P.P.T. (by virtue of the provisions of Article 10, paragraph 1, of D.L. No. 10/2011, of 20 January), has 90 days to initiate this arbitral proceeding.

2.5. The Claimant – A… – initiated its activity of provision of medical services of various specialties, with or without hospitalization [economic activity classified under the Economic Activities Code (CAE) … – healthcare establishment with hospitalization], and declared in its VAT registration statement that it exercised operations of "Transmission of goods and provision of services that confer the right to deduction" and, parallel and concomitantly, of "Transmission of goods and provision of services exempt, which do not confer the right to deduction", and declared therein also to deduce VAT supported by the pro rata method, at the percentage of 67%, pursuant to paragraphs 2 and 4 of Article 23 of the CIVA.

2.6. The Claimant waived the incomplete exemptions provided in paragraphs 2 and 29 of Article 9 of the CIVA, which it did pursuant to Article 12, paragraph 1, subparagraph b) and paragraph 4, of the CIVA, by means of a declaration of amendments provided for in Article 32 of the CIVA, through which it modified what was initially declared on 21/02/1961.

2.7. Approximately 3 months (from 6/07/2010 to 31/08/2010) after the submission of the aforementioned declaration of amendments, the Tax Inspection Services of the Financial Directorate of … conducted an inspection procedure by way of the VAT refund request of € 323,025.33, dated 10/03/2010.

2.8. After more than 3 years following the submission of the declaration (between 26/05/2014 and 3/10/2014), the same Tax Inspection Services of the Financial Directorate of … conducted an inspection procedure, which had as its sole objective the "VAT reframing".

2.9. Having exercised, by the Claimant, on 27/10/2014, the right of prior hearing in relation to the draft report, following notification for this purpose, it was notified of the final report (dated 3/11/2014), which contains the assessments challenged herein, determined by corrections in VAT for (alleged) improper deduction and failure to assess for the year 2010.

2.10. The aforementioned assessments are voidable, by virtue of the corrections carried out being subject to manifest illegality and flagrant violation of the guiding principles of Tax Law, namely the principle(s) of confidence, security and justice.

2.11. The Dispatch relating to the Final Tax Inspection Report that gave rise to the additional assessments was signed on 03/11/2014 by the "Deputy Director of Finance, By subdelegation, B… – Head of Division in Substitution Capacity". However, the same does not contain any reference to the Official Journal in which such delegation of powers is shown to be published; this omission prevents verification of the legitimacy thereof, wherefore, given that it is provided in paragraph 2 of Article 39 of the CPPT that: "The notification act shall be null in case of lack of indication of the author of the act and, in case the latter has acted in the use of delegation or subdelegation of competencies, the quality in which it decided, its sense and its date", such dispatch is subject to nullity.

2.12. Having the tax acts now challenged been notified to the Claimant in December 2014, the four-year period (provided in paragraph 1 of Article 45 of the General Tax Law) was not exceeded. However, in cases of error evidenced in the taxpayer's declaration, the aforementioned limitation period is three years.

2.13. Insofar as the AT, by mere reading and verification of more than 40 periodic declarations filed, would become aware of the alleged error, this represents error evidenced in the taxpayer's declaration, wherefore the three-year limitation period applies thereto. A period that expired on 01.01.2014, considering that the facts occurred in 2010. For this reason, there should not have been an inspection procedure, nor an assessment. The performance of such acts represents a violation of the provisions of paragraph 2 of Article 45 of the LGT, thus constituting manifest illegality, which can be framed within the provision of Article 99 of the C.P.P.T.

2.14. The understanding (of the AT) that, as the Claimant had an activity framed in Article 9 of the CIVA and as it was not obliged to assess VAT on the transmission of goods or provision of services that it carried out, it could not, in return, deduce tax supported in acquisitions (having, as a consequence, according to the same understanding, the VAT assessed to be delivered to the State coffers and the VAT deducted not to be so, due to non-conformity with the provision of subparagraph a) of paragraph 1 of Article 20 of the CIVA), should not prevail, insofar as it constitutes abuse of right, embodied in a clear venire contra factum proprium.

2.15. The activity of the Claimant (exercised, since 21/02/1961, fundamentally in the area of "Healthcare establishment with hospitalization") took place under the exemption regime - Article 9, paragraph 2 of the CIVA), until, on 1 March 2010, it submitted to the competent Financial Service an "Declaration of Amendments to Activity" to support the waiver of such exemption (subparagraph b) of paragraph 1 of Article 12 of the CIVA).

2.16. In form 09, field 6 – "Intra-community acquisitions … began to carry out"; form 11 – VAT – Type of operations, field 2 – "Transmission of goods and/or provision of exempt services that do not confer the right to deduction", was left blank; form 10 (relating to Type of Operations), which, initially (Registration Declaration, completed and submitted on 26/02/1985), was completed, ceased to be so (in the "Declaration of Amendments to Activity" completed and submitted on 01 March 2010 which now appears in form 11 – VAT – "TYPE OF OPERATIONS"). Thus, from 1 March 2010, the Claimant operationalized the waiver of the VAT exemption provided in paragraph 2 of Article 9 of the CIVA.

2.17. Such waiver is confirmed by the content of the "Confirmation of… form "TYPE OF OPERATIONS" - to the question – Exempt that do not confer the right to deduction – is written – NO…" and by the fact that the Viseu Financial Service did not complete form 10 of the "Declaration of Amendments to Activity" FOR EXCLUSIVE USE OF SERVICES – in field 5 (which refers to Exclusive exercise of transmission of goods and/or provision of exempt services that do not confer the right to deduction – Article 9).

2.18. Although the AT maintains that the aforementioned waiver would presuppose the completion of the fields of forms 12 and 13 of the "Declaration of Amendments to Activity", from the instructions for completion of the aforementioned "Declaration of Amendments to Activity", only form 13, field 1, is relevant to the choice for taxation regime (no longer form 12), and if the Claimant did not complete such form, this was due to error attributable to the services, given that the competent Financial Service, bound as it is by the DUTY of cooperation (Article 59 of the LGT), should have provided all necessary assistance in fulfilling ancillary duties (pursuant to subparagraphs c) and f) of paragraph 3 of Article 59 of the LGT), that is, to the correct completion of the aforementioned "Declaration of Amendments to Activity".

2.19. Following the submission of the aforementioned "Declaration of Amendments to Activity", the Claimant began to be listed in the register "NORMAL MONTHLY REGIME BY OPTION", proceeding to the deduction of VAT on inputs in accordance and assessing it on outputs, in accordance with List 1 – Goods and services subject to the reduced rate – item 2.7 and filling in accordingly the periodic VAT declarations, having, in the first periodic VAT declaration that it submitted following the submission of the aforementioned "Declaration of Amendments to Activity", relating to the first quarter of 2010, requested the VAT refund in the amount of € 307,334.29.

2.20. Following this request that the inspection procedure took place, in the context of which at no time was the type of operations put in question, nor the choice of the taxation regime. On the contrary, the waiver of exemption was confirmed by the dispatch issued by the technician (confirmed by a superior authority), which states: "Now, the taxpayer on 2010-03-01, waived the VAT exemption in which it was framed (Article 9, No. 2)", adding, at the end, "No other irregularities were detected, proposing its full approval". In accordance, the refund request was Authorized and Disposed Favorably by the Tax Authority, having had FULL APPROVAL.

2.21. The Dispatch of authorized refund in 2010 relating to the 1st Quarter was now corrected in the same amount of € 319,895.18 and by the same Tax Authority, invoking this that "The analysis of the refund request is an atypical procedure and, as such, does not constitute an inspection procedure. The inspection procedure is regulated in the RCPIT..." and, thus, that, in 2010, there was no inspection action. Pursuant to the Dispatch issued and which covered the period of 2010-03T, only acts of consultation, collection and crossing of elements were carried out, without investigatory character...". However, the Claimant understands (invoking an Opinion that it attaches) that, in 2010, there was an inspection procedure that observed the norms of the RCPIT.

2.22. Proceeding, after more than 4 years, to make additional assessments, the AT adopted conduct in clear contradiction with what it had previously decided, incurring in clear and manifest abuse of right, in the form of venire contra factum proprium, when the activity of tax assessment should be guided by a principle of justice, being also as an organ of justice that the AT should act in the revision of tax acts.

2.23. The Claimant concludes by formulating requests for annulment of the additional assessments challenged, as well as condemnation of the AT to return to the Claimant the amount of € 499,774.83 (required in Enforcement Proceedings No. …2015…, instituted by the Financial Service of Viseu, the payment of which it made on 23/07/2015 in the context of the aforementioned enforcement) and accrued compensatory interest counted from the date of improper payment until effective and complete reimbursement.

1. Notified for this purpose, the Respondent presented its Answer, basing the defense it offered, essentially, on the following arguments:

3.1. The Claimant initiated, on 21-02-1961, the exercise of the activity of healthcare establishments with hospitalization, but has been exercising, in a secondary manner, real estate operations, namely, the lease of real estate (exempt activity) and the activity subject to and not exempt from provision of services (namely, use of spaces by various entities and also of goods and services from A…). However, on 26-02-1985 (before Decree-Law No. 393-B/84 of 26 December, which approved the VAT Code and whose entry into force occurred on 01-01-1986), the Claimant presented a registration declaration where it declared to exercise the main activity of healthcare establishments with hospitalization, not specifying the remaining activities exercised, albeit in a secondary manner.

3.2. In order to provide coverage for a greater number of patients, the Claimant established agreements/conventions with public subsystems, integrated in the National Health System [NHS], namely: C… [D]; D…. [D]; E… [E] and F…[F].

3.3. With regard to the type of operations carried out, the Claimant indicated in form 10 of the aforementioned declaration that it would carry out, in the exercise of its activity: Transmission of goods and/or provision of services that confer the right to deduction (field 1 of form 10); Transmission of goods and/or provision of exempt services that do not confer the right to deduction (field 2 of form 10). Configuring itself as a mixed taxpayer, the Claimant also indicated, in the aforementioned form 10, that it would not carry out the deduction of tax according to actual allocation but, rather, that it would proceed to carry out the deduction of tax supported according to the pro rata deduction method. In the aforementioned declaration, the Claimant did not complete form 11 relating to "option for taxation regimes", where is indicated, namely, the option for the exemption waiver regimes provided for in Article 12 of the CIVA.

3.3. On 01-03-2010, the Claimant proceeded to submit a declaration of amendments to activity, altering only forms 9 and 11 of the aforementioned declaration, which relate to data relating to activity and data relating to the type of operations (in form 09 it declared that, in the exercise of its activity, it began to carry out intra-community acquisitions of goods, marking for this purpose, field 6. In form 11 it declared that, in the exercise of its activity, it began to carry out the deduction of tax supported according to the actual allocation method, marking for this purpose, fields 3 and 5. The Claimant did not mark any field of form 12 [which is entitled: "OPTION FOR TAXATION REGIME (if you do not intend to exercise any option, proceed to the following form)"] or 13, relating to exemption waiver regimes, albeit relating to different operations. The Claimant did not mark, namely, in form 13 "if you intend to exercise the right to the option, meeting for this the necessary conditions, indicate the regime for which you opt (Articles 12, 55 and 63 of the CIVA)", as expressly stated in the first item of the aforementioned form). In form 30, which corresponds to the heading "THIS DECLARATION CORRESPONDS TO THE TRUTH AND DOES NOT OMIT ANY INFORMATION REQUESTED", appear the signatures of the taxpayer or legal representative as well as of the official accountant.

3.4. By altering forms 9 and 11 of the aforementioned declaration, the Claimant indicated, respectively, by so doing, that it would begin to carry out intra-community acquisitions of goods and to carry out the deduction of tax supported according to the actual allocation of all goods and services used. Declared in field 5 of form 11 (intention to deduct tax by the actual allocation method) completed by itself, as it refers therein that it intends to proceed to the actual allocation of all goods.

3.5. Now, the such deduction method should only be applied when, in the exercise of its activity, the taxpayer carries out transmission of goods and/or provision of services that do not confer the right to deduction and transmission of goods and/or provision of services that confer the right to deduction.

3.6. According to the provisions of Article 32 of the CIVA, the waiver of exemption must be express, through the completion of forms 12 and 13, and it is certain that the declaration of amendments to activities includes instructions that have the merit of clarifying the taxpayer on the completion of the respective forms.

3.7. In the context of the tax inspection procedure carried out by the Financial Directorate of …, pursuant to Service Order No. OI2014…, for the tax periods 2010/03T; 2010/06T; 2010/09T and 2010/12T, it was found, namely, that the Claimant assessed tax at the reduced rate, relating to the operations provided for in subparagraph 2) of Article 9 of the CIVA, that is, on the medical service provision carried out by the Claimant, as a hospital establishment, with hospitalization, as well as that it proceeded to the deduction of tax on all goods and services acquired, including those related to the practice of exempt operations aforementioned.

3.8. Further declared, the Tax Inspection Services, that "the taxpayer was and remains in the exemption regime, on the provision of health care operations in establishments with hospitalization, as well as on real estate operations/lease of real estate, which is its own regime", given that, being subordinate to the exemption regime "simple or incomplete" (in which "the economic operator, is not obliged to assess tax on the transmission of goods or provision of services that it carries out, but, cannot, in return, deduce the tax supported on acquisitions"), did not make any "option to waive in the declaration of amendments, submitted on 01-03-2010 or at any time after this", when the "option would have to be made in form 13 of the declaration of amendments, marking the taxpayer field 1 of that form "If you intend to exercise the right to the option, meeting the necessary conditions, indicate the regime for which you opt [Articles 12, 55 and 63 of the CIVA]", as well as "in form 12 of the same declaration of amendments, field 1, regarding the practice of real estate operations", Not being, the waiver of exemption in question, "susceptible to be presumed", "It is concluded thus that, the taxpayer did not waive the exemption regarding the exempt operations of subparagraph 2) of Article 9 of the CIVA, nor could it, due to lack of the requirements provided in subparagraph b) of paragraph 1 of Article 12 of the same Decree. Furthermore, what was invoked by the taxpayer contradicts what was declared in field 5 of form 11 completed by itself, as it states therein that it proceeded to the actual allocation of all goods, and, it can only do so, regarding goods and services of mixed use."

3.9. It was ascertained, in conclusion, "that tax was improperly deducted", and two arithmetic corrections were proposed for all tax periods of the year 2010: "arithmetic corrections for all tax periods of the year 2010, corresponding to: €413,015.07 relating to improper deduction of tax, in the terms referred to above; and €13,109.08 relating to unassessed tax relating to an indemnity received".

3.10. The Claimant reacted against the additional VAT and compensatory interest assessments by means of hierarchical appeal and arbitral challenge, but did not challenge, however, one of the corrections made, in the context of the inspection procedure (relating to a compensation for the renegotiation of the cooperation contract agreed between the Claimant and G…, in the amount of €62,427.62, and which does not relate to corrections for improper deduction, but rather to the non-assessment of tax on an indemnity due to property damage namely for lost profits), which generated the additional assessment in the amount of € 13,109.80, wherefore the tribunal cannot pronounce on the legality of the assessment in that part, due to absolute lack of indication of the cause of action and the legal grounds supporting the claim filed, generating ineptness of the initial petition.

3.11. On the matter of perfection of notifications, the Tax Authority states that nullity is decreed when there is lack of indication of the author of the act and, in case the latter has acted in the use of delegation or subdelegation of competencies, the quality in which it decided, its sense and its date (Article 39, paragraph 12 C.P.P.T.- "The notification act shall be null in case of lack of indication of the author of the act and, in case the latter has acted in the use of delegation or subdelegation of competencies, the quality in which it decided, its sense and its date"). It contends, however, that, in the case at issue, such requirements are fully complied with, in particular, the indication of the author of the act, the practice of the same in the use of subdelegation of competencies, the sense and the date, defending that there is no legal obligation to indicate the date of subdelegation and the date of publication in the Official Journal.

3.12. The Respondent further states that, even if such were not the case, the sanction for such omission would not correspond to the vice of nullity – although the mention of the normative instrument that specifies the delegation or subdelegation of powers were mandatory, which it is not, the insufficiency of notification would still not lead to nullity of the act, merely giving to the notified party the right to request notification of the omitted elements or the issuance of a certified copy containing them, within the deadline set in paragraph 1 of the cited Article 37 of the CPPT, and, making use of such faculty, the deadline for reacting (graciously or contentiously) against the tax act is counted from the notification of the requirements that had been omitted or from the issuance of a certified copy containing them. Even if the author of the act had not mentioned, even, that it acted within the scope of the subdelegation of competencies (which did not happen), such omission constitutes merely a formal irregularity that should be considered cured if it is demonstrated that the purpose which was sought to be achieved by the legal requirement of such mention, especially, the administrative or contentious challenge of the act, was achieved.

3.13. With regard to the waiver of VAT exemption, the Respondent maintains that there was no valid waiver of such exemption by the Claimant, insofar as such waiver must be express, which was not verified in the case at issue. Notwithstanding the instructions appearing in the declaration of amendments to activities clarifying the taxpayer on the completion of the respective forms (which include fields 12 and 13), the Claimant only altered fields 9 and 11. On the other hand, the declaration that it makes in field 5 of form 11, to the effect that it intended to proceed to the actual allocation of all goods, is contrary to such exemption.

3.14. The Respondent further states that the declarations of taxpayers submitted in accordance with the law are presumed to be true and made in good faith, with it being incumbent on the AT to accept such declarations as true.

3.15. It emphasizes, for this purpose, that the circumstance that the submission of the declaration was carried out personally with the services resulted from a choice of the Claimant, which did so accompanied by its Official Accountant, the aforementioned declaration having been signed with the mention that this "corresponds to the truth and does not omit any information requested".

3.16. Based on the invocation of such arguments, the Respondent concludes that the Claimant never ceased to be subordinate to the exemption regime (incomplete), whether as regards the activities of provision of health care with hospitalization, or as regards real estate operations/lease of real estate, from which results the impossibility of full deduction, by the Claimant, of the tax supported on its acquisitions and, consequently, the corrections carried out by the AT are legal.

3.17. With regard to the relevance, in the concrete case, of the running of the period provided for in Article 45, paragraph 2 of the LGT, the Respondent maintains that, in the present situation, such relevance does not exist, given that there is no error evidenced in the taxpayer's declaration.

3.18. The AT finally maintains that the fact that the Tax Administration accepted, in 2010, the Claimant's refund request relating to the first quarter of that year does not mean acceptance, by the same Tax Administration, of the waiver of exemption, the Respondent further stating, in that sense, that such acceptance would only occur if the Claimant had filed a binding information request, which it did not. The acts of consultation, collection and crossing of elements carried out by the AT were performed in the exercise of its competence to supervise the compliance of the conduct of taxpayers with the law, in order to verify the truthfulness of the elements declared by the Claimant, bound as the Respondent is, in accordance with the principle of legality, to proceed to "confirmation of the elements declared by taxpayers and other tax-obligated parties", such obligation existing whether there is a valid waiver of the exemption regime or whether there is non-existence or invalidity of such waiver.

3.19. The Respondent concludes, formulating a request for approval of the exception invoked, as well as for rejection of the claims deduced by the Claimant.

1. Following the exception of ineptness of the initial petition, invoked by the Respondent, the Claimant presented a response pleading on such matter, in which it contended that the invocation of the aforementioned nullity should be considered groundless. It further added that, given that the right to make the assessment has expired, the requested relief to the claim filed in the initial petition should be granted.

2. By order of 12 January 2016, pursuant to the principles of tribunal autonomy in conducting the proceedings, and in order to promote expedition, simplification and informality thereof, the hearing provided for in Article 18 of the RJAT was dispensed with, and 11 May 2016 was set as the deadline for rendering the arbitral decision.

3. Both parties waived the production of arguments.

II. PRELIMINARY ISSUES

The Arbitral Tribunal was regularly constituted and has jurisdiction.

With regard to procedural nullities, the Respondent invokes the ineptness of the initial petition, based on the circumstance that, according to its allegation, the Claimant did not challenge, nor invoke cause of action, regarding one of the corrections made in the context of the inspection procedure and which generated the assessment in the amount of €13,109.80. A correction made, not due to the fact that the Claimant made improper deduction, but due to the fact that it failed to assess tax due following an indemnity for property damage (namely for lost profits), in the amount of €62,427.62, arising from the renegotiation (agreed between the Claimant and G…) of a cooperation contract.

Faced with the invocation of such a dilatory exception, the Claimant contended for its rejection, maintaining that, given that the right had expired, it reiterates the content of the request for pronouncement it made in the initial petition.

It is necessary to decide.

The ineptness of the initial petition corresponds to the dilatory exception that occurs when one of the circumstances provided for in paragraph 2 of Article 186 of the Civil Procedure Code (now subsidiary applicable in accordance with that provided for in Article 29, paragraph 2, subparagraph e), of the RJAT) is verified, and these are reduced to the following: lack of claim or cause of action, unintelligibility of the claim or cause of action, contradiction between the claims, contradiction between causes of action and contradiction between the claim and the cause of action.

None of these circumstances appears to be verified, however, in the process under analysis.

In fact, the action does not suffer from lack of cause of action or claim, as the claimant deduces claims and invokes, for these, factual foundations of support (causes of action). The causes of action that it invokes and the claims that it formulates are shown, on the other hand, to be intelligible and compatible with each other. Equally compatible appear the various causes of action alleged, as well as, between themselves, the claims deduced.

There is no ineptness of the initial petition in this regard, not occurring, consequently, the corollary that, in accordance with Article 186, paragraph 1 of the Civil Procedure Code, would follow from it.

This does not mean, however, that the groundlessness of the argument developed by the Claimant to the effect that the Tribunal should know of the expiration of the aforementioned additional assessment is recognized.

In fact, the Tribunal can only know (and insofar as within the limits of its jurisdiction) what is defined, by the Claimant, as the object of the proceeding, pronouncing itself, on the other hand, in the context of deciding the proceeding, regarding the claims deduced by the Claimant.

As the Claimant recognizes in point 5 of the Response to the exception invoked by the AT, it did not include (contrary to what it should have, as it makes explicit) in the periodic declaration relating to the month of December 2010 (4th quarter of 2010), the amount of VAT of €13,109.80.

The Claimant enumerates, in an express and detailed manner, the object of the action that it proposes in the present instance, in Article 1 of the initial petition, which it subordinates, precisely, to the heading: "Of the object of the request for arbitral pronouncement", further specifying, in the said heading, that this has the purpose of "Identification of the challenged assessments".

The list that it enumerates therein consists of eight additional assessments, all relating to VAT and Compensatory Interest and referring to the year 2010.

Tax acts which, with detail (by reference to the number of the assessment, period, number of Collection Document and amount), it thus delineates and identifies:

a) Additional assessment No…, relating to period 1003T, with Collection Document No…, in the amount of € 319,895.18;

b) Additional assessment No…, relating to period 1006T, with Collection Document No…, in the amount of € 27,909.45;

c) Additional assessment No…, relating to period 1009T, with Collection Document No…, in the amount of € 32,740.47;

d) Additional assessment No…, relating to period 1012T, with Collection Document No…, in the amount of € 45,597.77;

e) Additional assessment No … of CI, relating to period 1003T, with Collection Document No…, in the amount of € 57,002.69;

f) Additional assessment No … of CI, relating to period 1006T, with Collection Document No…, in the amount of € 4,694.90;

g) Additional assessment No … of CI, relating to period 1009T, with Collection Document No…, in the amount of € 5,181.07; and

h) Additional assessment No …of CI, relating to period 1012T, with Collection Document No…, in the amount of € 6,753.30.

In a concluding delimitation, the Claimant makes explicit, in the same article, that the total amount challenged corresponds to €499,774.83 (amount coinciding with the sum of the amounts of the aforementioned additional assessments).

The Claimant also reflected, in a congruent manner, such circumscription of the object of pronouncement, whether in the amount that it defined as that of the economic utility of the claim - €499,774.83 (making explicit, for this purpose, that: "The value of the economic utility of the claim is the value corresponding to the VAT and compensatory interest assessments challenged, which amounts to €499,774.83), whether in the terms in which it delineates the claim, limiting it expressly to the annulment of the "assessments now challenged above-mentioned" and, in consequence, to the refund "of the sum of €499,774.83" and accrued interest.

The assessment in the amount of €13,109.80 does not fall within, thus, the list of assessments that the Claimant defines as integrating the object of the present action, nor does the Claimant include it, either, in the context of the claims formulated therein.

The reference to which, in one of the articles of the initial petition, the Claimant, telegraphically, makes to the expiration of such assessment, assumes, thus, a lateral character and detached, in the context of the instance in question, not integrating itself in its object, nor in the claim formulated therein.

There are not, in consequence, in this proceeding, the minimum requirements for the Tribunal to be able to pronounce on the regularity of such tax act, because it was outside the objective scope of the instance, of the claims deduced therein and of the value corresponding to the economic utility of the claim.

The proceeding does not suffer from nullities.

The parties have legal standing and capacity, are duly represented and are legitimate.

There are no other exceptions or preliminary questions that prevent or hinder the substantive examination and of which it is necessary to know.

III. FACTUAL FINDINGS

III.1. FACTS FOUND PROVEN

The following facts are found proven:

a) The Claimant – A… – initiated the exercise of its activity of provision of medical services on 21/02/1961, under the exemption regime provided for in Article 9, paragraph 2 of the CIVA.

b) On 26/02/1985, the Claimant presented a registration declaration, where it declared, in field 1, of segment A, of field 10 (this, with the heading "Type of Operations"), that in the exercise of its activity, it carried out "Transmission of goods and/or provision of services that confer the right to deduction"), as well as, in field 2, of the same segment and field, that in the exercise of its activity, it carried out "Transmission of goods and/or provision of exempt services that do not confer the right to deduction").

c) In segment B, field 4, of the aforementioned form 10, the Claimant declared that it would not carry out the deduction of tax supported according to ACTUAL ALLOCATION, marking, on the other hand, in field 7 of the same segment and form, that it would deduct VAT supported by the pro rata method, at the percentage of 67%, pursuant to paragraphs 2 and 4 of Article 23 of the CIVA.

d) The Claimant did not complete form 11 relating to "option for taxation regimes", where is marked, namely, the option for the exemption waiver regimes provided for in Article 12 of the CIVA.

e) The Claimant presented, to the Tax Administration, on 01/03/2010, the declaration of amendments to activity, provided for in Article 32 of the CIVA, through which it introduced modifications relative to what was initially declared.

f) It made clear therein, in field 6, of form 9 (this with the heading "Amendment of data relating to activity"), that it began to carry out intra-community acquisitions.

g) Form 10 (which corresponds to the heading "For exclusive use of services) of such declaration is not completed in any of its fields (relating to the framework defined by the Tax Service in Income Tax and VAT), and field 5 of the second segment of such form relates to the "Exclusive exercise of transmission of goods and/or provision of exempt services that do not confer the right to deduction – Article 9".

h) Field 1 (relating to "Transmission of goods and/or provision of services that confer the right to deduction") and field 2 (relating to "Transmission of goods and/or provision of exempt services that do not confer the right to deduction") of segment A of form 11 (with the heading "Type of Operations") were not completed.

i) Fields 3 and 5 of segment B of the same form 11 were completed by the Claimant with the indication that it would carry out the deduction of tax supported according to ACTUAL ALLOCATION of all goods and services used.

j) The fields of forms 12 (relating to Practice of real estate operations) and 13 (relating to Option for taxation regime) were not completed.

k) In the aforementioned declaration of amendments to activity it does not appear that the Claimant exercises, in a secondary manner, real estate operations, namely, the lease of real estate and the activity subject to and not exempt from provision of services (namely, use of spaces by various entities and also of goods and services from A…).

l) The aforementioned form is signed by the Claimant and by its official accountant, under declaration that its content corresponds to the truth and does not omit any information requested.

m) Instructions for completion of the respective forms appear in the aforementioned declaration of amendments to activities.

n) Following the submission of the aforementioned "Declaration of Amendments to Activity", the Claimant began to be listed in the register "NORMAL MONTHLY REGIME BY OPTION", proceeding to the deduction of VAT on inputs in accordance and assessing it on outputs, in accordance with List 1 – Goods and services subject to the reduced rate – item 2.7.

o) The Claimant also began to complete the periodic VAT declarations.

p) The Claimant established agreements/conventions with public subsystems, integrated in the National Health System [NHS], namely: C…[C]; D… [D]; E… [E] and F…[F].

q) In the first periodic VAT declaration that it submitted following the submission of the aforementioned "Declaration of Amendments to Activity", relating to the first quarter of 2010, it requested the VAT refund in the amount of € 307,334.29.

r) Subsequently to the submission of the VAT refund request of € 323,025.33, dated 10/03/2010, the Tax Inspection Services of the Financial Directorate of … conducted a procedure, aimed at "VAT Reframing", which occurred approximately 3 months (from 6/07/2010 to 31/08/2010) after the submission of the aforementioned declaration of amendments.

s) From the detail of the refund request, made on 30.08.2010, as per certified copy joined to the proceedings of Dispatch DI 2010…, appears, among other things, the following:

t) Pursuant to Service Order No. OI2014…, the Financial Directorate of … conducted, with the Claimant, a tax inspection procedure, which had as its object the tax periods 2010/03T; 2010/06T; 2010/09T and 2010/12T.

u) The Claimant exercised, on 27/10/2014, the right of prior hearing in relation to the draft report, following notification for this purpose.

v) The Claimant was notified of the final report (dated 3/11/2014), which contains the assessments challenged in the present proceeding, determined by corrections in VAT that the AT made based on improper deduction of expenses by the Claimant and on the failure to assess tax for the year 2010.

w) The Dispatch relating to the Final Tax Inspection Report that gave rise to the additional assessments was signed on 03/11/2014 by the "Deputy Director of Finance, By subdelegation, B… – Head of Division in Substitution Capacity". However, the same does not contain any reference to the Official Journal in which such delegation of powers is shown to be published.

x) The Claimant was subject to additional VAT and compensatory interest assessments relating to the year 2010, Nos. … (relating to period 1003T, with Collection Document No…, in the amount of € 319,895.18), … (relating to period 1006T, with Collection Document No…, in the amount of € 27,909.45), … (relating to period 1009T, with Collection Document No…, in the amount of € 32,740.47), … (relating to period 1012T, with Collection Document No…, in the amount of € 45,597.77), No. … of CI (relating to period 1003T, with Collection Document No…, in the amount of € 57,002.69), …of CI (relating to period 1006T, with Collection Document No…, in the amount of € 4,694.90), … of CI, relating to period 1009T, with Collection Document No…, in the amount of € 5,181.07) and …of CI (relating to period 1012T, with Collection Document No…, in the amount of € 6,753.30), which, overall, corresponds to an additional assessment in the amount of €499,774.83.

y) The Dispatch of approval of the refund, authorized in 2010 and relating to the 1st Quarter of that year, was corrected in the same amount of € 319,895.18, the AT invoking, in the Inspection Report of 03/11/2014, that "The analysis of the refund request is an atypical procedure and, as such, does not constitute an inspection procedure. The inspection procedure is regulated in the RCPIT…", adding, regarding the acts carried out in 2010 (subsequent to the refund request filed by the Claimant), that "Thus, there was no inspection action. Pursuant to the Dispatch issued and which covered the period of 2010-03T, only acts of consultation, collection and crossing of elements were carried out, without investigatory character...".

z) By way of foundation for the additional assessments to which it proceeded, the AT invoked, having found that the Claimant assessed tax at the reduced rate, relating to the operations provided for in subparagraph 2) of Article 9 of the CIVA, that is, on the medical service provision carried out by the Claimant, as a hospital establishment, with hospitalization, as well as that it proceeded to the deduction of tax on all goods and services acquired, including those related to the practice of exempt operations aforementioned.

aa) The Tax Inspection Services likewise state that "the taxpayer was and remains in the exemption regime, on the provision of health care operations in establishments with hospitalization, as well as on real estate operations/lease of real estate, which is its own regime", given that, being subordinate to the exemption regime "simple or incomplete" (in which "the economic operator, is not obliged to assess tax on the transmission of goods or provision of services that it carries out, but, cannot, in return, deduce the tax supported on acquisitions"), it did not make any "option to waive in the declaration of amendments, submitted on 01-03-2010 or at any time after this", when the "option would have to be made in form 13 of the declaration of amendments, marking the taxpayer field 1 of that form "If you intend to exercise the right to the option, meeting the necessary conditions, indicate the regime for which you opt [Articles 12, 55 and 63 of the CIVA]", as well as "in form 12 of the same declaration of amendments, field 1, regarding the practice of real estate operations", Not being, the waiver of exemption in question, "susceptible to be presumed", "It is concluded thus that, the taxpayer did not waive the exemption regarding the exempt operations of subparagraph 2) of Article 9 of the CIVA, nor could it, due to lack of the requirements provided in subparagraph b) of paragraph 1 of Article 12 of the same Decree. Furthermore, what was invoked by the taxpayer contradicts what was declared in field 5 of form 11 completed by itself, as it states therein that it proceeded to the actual allocation of all goods, and, it can only do so, regarding goods and services of mixed use."

bb) Based on such grounds, the aforementioned Services concluded that "tax was improperly deducted", which would determine that two arithmetic corrections should be made for all tax periods of the year 2010: "arithmetic corrections for all tax periods of the year 2010, corresponding to: €413,015.07 relating to improper deduction of tax, in the terms referred to above; and €13,109.08 relating to unassessed tax relating to an indemnity received". Corrections generating the aforementioned additional assessments.

cc) The tax acts relating to the VAT assessments of 2010 and object of challenge in the present action were notified to the Claimant in December 2014.

dd) The Claimant filed a gracious complaint on 22/12/2014, seeking the annulment of the aforementioned assessments, and was notified of the corresponding rejection decision by letter dated 20/02/2015, received on 25/02/2015, after which it filed a hierarchical appeal addressed to the Minister of Finance on 26/03/2015 (appeal not yet decided at the date of filing of the present action).

ee) The Claimant proceeded to pay all of the aforementioned assessments and respective accruals on 23/07/2015, in the context of Enforcement Proceedings No. …2015….

§2. FACTS NOT FOUND PROVEN

With relevance for the appraisal and decision of the case, there are no facts that were not proven.

§3. MOTIVATION REGARDING FACTUAL FINDINGS

Regarding the factual findings proven, the Tribunal's conviction was based on the free appraisal of the positions assumed by the parties regarding the factual findings, as well as the content of the documents (in particular of the administrative proceeding) and the opinion joined to the file.

III.2. LEGAL ISSUES

A. Regarding the Expiration of the Challenged Assessments due to Error Evidenced in the Declaration

According to the provisions of paragraph 1 of Article 45 of the LGT, "the right to assess taxes expires if the assessment is not validly notified to the taxpayer within four years, when the law does not set another".

In turn, according to what is stated in paragraph 2 of the same provision, "In cases of error evidenced in the taxpayer's declaration (…) the limitation period referred to in the preceding paragraph is three years".

It is jurisprudence of the STA, following the guidance of doctrine, that it incorporates into the error in the declaration, for the purposes of what is established in paragraph 2 of Article 45 of the LGT, "the error that the AT can detect by mere examination of the coherence of its elements, without recourse to any other external documentation, even when this is in the possession of the tax administration, and obtained by internal or external inspection or by any other means" (see, among others, the Decision issued on 14/6/2012, in proceeding No. 0402/2012).

To ascertain whether we are faced with a situation of error evidenced in the declaration, it is important, essentially, to determine, in the case at issue, the following aspects:

‒ The nature of the information conveyed by the taxpayer on its classification under value added tax (VAT) through the registration declarations it filed with the Tax and Customs Authority (AT);

‒ The consequences of the declared classification;

‒ The configuration of the irregularities declared as error evidenced in the declaration.

According to the provisions of paragraph 1 of Article 29 of the VAT Code (CIVA), taxpayers of the tax are obliged to submit, according to the modalities and forms prescribed by law, an initial declaration and, whenever justified, a declaration of amendments.

The initial declaration of activity must be submitted before the exercise of activity is initiated. In fact, paragraph 1 of Article 31 of the CIVA requires all those who are going to initiate the exercise of an economic activity to previously inform the tax authorities of this situation so that they may become acquainted with the universe of taxpayers responsible for the assessment of VAT.

The implementation of VAT on 1986-01-01 required that, on the date of entry into force of the respective Code, all taxpayers of that tax were already registered. Thus, by virtue of already exercising its activity at that date, A… (A) was obliged, pursuant to the provisions of Article 10 of Decree-Law No. 394-B/84 of 26 December, to submit a registration declaration.

According to Article 4 of this decree-law, the aforementioned registration declaration produced the effects of the initial declaration of activity referred to in Article 30 of the CIVA (current Article 31) and the rights of option exercised therein had effect from the date of entry into force of the same Code.

On 1985-02-27, A… submitted the registration declaration to which it was obliged, where it provided the following information of interest for its classification under VAT:

a) In form 08, relating to "characterization of activities", it declared the exercise of the main activity of "healthcare establishment with hospitalization", not having declared other activities even though secondary;

b) In form 09, on "data relating to the activity verified", it declared having reached a turnover of 50,075 thousand contos in the year 1984;

c) In form 10, relating to "type of operations", it declared that in the exercise of its activity it carried out:

i. Operations that confer the right to deduction (in field 1); and

ii. Exempt operations that do not confer the right to deduction (in field 2);

d) In the same form 10, it declared that it would not carry out the deduction of tax supported according to actual allocation (field 4) but, rather, in accordance with the pro rata deduction rule provided for in paragraph 4 of Article 23 of the CIVA, using the percentage of 67% (field 7);

e) In form 12, on "option relating to the tax period", it informed that it was not subject to any of the special regimes provided for small economic operators, referred to in Articles 53 and 60 of the CIVA, and declared the option, provided for in paragraph 2 of Article 40 of the CIVA (at the time, it was paragraph 3 of Article 40), for monthly submission of periodic declarations;

f) In form 11, relating to "option for taxation regimes", it did not declare any option.

Given the nature of this information, the taxpayer was classified in the normal regime with monthly periodicity.

From this declaration there does not appear any incompatibility, with the AT coming to know, in essence, that, in addition to exempt operations that do not confer the right to deduction, A… also carried out operations that confer the right to deduction.

The main activity declared of "healthcare establishment with hospitalization" consists, in fact, of the provision of services covered by the exemption provided for in paragraph 2 of Article 9. It is an incomplete exemption, in the sense that it does not allow A… to carry out the deduction of tax supported upstream.

However, A…, although not specifying them, declared that it also carried out other downstream operations whose nature did not involve the restriction of the right to deduction. These are the operations provided for in subparagraphs a) and b) of paragraph 1 of Article 20 of the CIVA, namely transmission of goods and/or provision of services subject and not exempt, that is, operations effectively assessed by the taxpayer. And these operations, by being assessed, allow the taxpayer to exercise the right to deduct the tax it supports on acquisitions.

Thus, by carrying out both types of operations, the Claimant enjoys a right to partial deduction.

Such right to deduction was evaluated by A… at 67% based on the operations carried out in the previous year, which means that, on the date the registration declaration was submitted, the assessed operations represented that proportion in relation to the total operations carried out by the taxpayer.

From the declared elements it can further be concluded that A…, by not completing any of the fields 1, 2 and 3 of form 11 of the registration declaration, did not manifest any intention to opt for taxation of the exempt operations referred to therein, in particular those that represented its main activity (provided for in field 2).

In fact, by not exercising the faculty of waiving the exemption provided for in Article 12 of the CIVA, in particular in subparagraph b) of paragraph 1, in relation to medical and health services provided in a hospital environment, the Claimant did not intend to opt for taxation of the exempt operations it carried out.

The correct management of the tax also requires knowledge of the updated situation of taxpayers, which is why paragraph 1 of Article 32 establishes that whenever there are amendments to any of the elements contained in the declaration relating to the commencement of activity, taxpayers must submit the respective declaration of amendments within 15 days from the date of the amendment.

Now, on 2010-03-01, the Claimant proceeded to submit a declaration of amendments in which it only communicates to the tax authorities the following information relating to the exercise of its activity:

1. In form 9, which concerns "amendment of data relating to activity", it declares that it began to carry out intra-community acquisitions (field 6); and

2. In form 11, relating to "type of operations", it declares that it began to carry out the deduction of tax supported according to the actual allocation of all goods and services used (fields 3 and 5).

What is made known to the AT through this declaration is very simple: a) First, it communicates that it carries out acquisitions of goods, although sporadic, shipped or transported to national territory from other Member States; b) Second, it informs that it will proceed to carry out the deduction of tax supported on its acquisitions according to the actual allocation rule. That is, having the right to partial deduction of tax supported upstream, given that it does not exclusively carry out assessed operations (which give the right to carry out deduction of tax supported) but also practices exempt operations (which do not allow the exercise of the right to deduction), the Claimant makes explicit that it will exercise that right in accordance with actual allocation.

Moreover, after the amendments introduced to Article 23 of the CIVA by Article 52 of Law No. 67-A/2007 of 31 December, regarding the exercise of the right to deduction, partial or mixed taxpayers became obliged to carry out the deduction of tax supported according to the actual allocation of goods and services used. The pro rata method became exceptional and was maintained only for the purposes of exercising the right to deduction in relation to tax supported in goods and services of mixed use, that is, in relation to goods and services which, given their nature, do not allow their exclusive allocation to any of the activities carried out by the taxpayer, due to the fact that they are used jointly in the exercise of an economic activity that confers the right to deduction with economic activities that do not confer that right.

In fact, the general principles underlying the exercise of the right to deduct VAT supported by taxpayers of the tax are provided for in Articles 19 and 20 of the CIVA, resulting therefrom that for VAT supported in acquisitions of goods and services to be deductible, these must have a direct and immediate relationship with downstream operations that confer that right.

As a general rule, with the exception of the situations outlined in Article 21 of the CIVA, all tax supported in acquisitions of goods and services for the exercise of an economic activity is deductible provided it relates to transmission of goods and provision of services that confer the right to deduction in accordance with Article 20 of the CIVA, including those not considered to be located in national territory by application of the localization rules contained in Article 6 of the CIVA, being, however, also qualified as operations that confer the right to deduction by subparagraph b) of paragraph 1 of Article 20 of the CIVA.

Thus, the right to full deduction of tax supported on the acquisition of goods or services is permitted when they are exclusively allocated to operations that, integrating the concept of economic activity for tax purposes, are assessed, exempt with the right to deduction, or, even, not assessed, which confer that right, in accordance with subparagraph b), II), of paragraph 1 of Article 20 of the CIVA.

Naturally, the exercise of the right to deduction is not permissible in cases where tax is supported on the acquisition of goods or services exclusively allocated to operations subject to tax, but without the right to deduction (exempt operations referred to in Article 9 of the CIVA) or to operations not subject to tax (due to the fact that they do not fall within the exercise of economic activities for VAT purposes).

It is important to emphasize again that the application of Article 23 of the CIVA is restricted to the determination of deductible tax relating to goods and/or services of mixed use, that is, to goods and/or services used jointly in activities that confer the right to deduction and in activities that do not confer that right.

In fact, in the case of goods or services exclusively allocated to operations with the right to deduction of tax, presenting a direct and immediate relationship with those operations, the respective tax is subject to full deduction, in accordance with Article 20 of the CIVA.

In turn, in the case of goods or services exclusively allocated to operations subject to tax but exempt without the right to deduction, or to operations which, although encompassed by the concept of economic activity, are outside the rules of incidence of the tax, or even to operations not arising from an economic activity, the respective VAT supported cannot be subject to deduction.

Where it is a matter of goods or services of mixed use, that is, which are allocated to the performance of operations arising from the exercise of an economic activity, part of which do not confer the right to deduction, subparagraph b) of paragraph 1 of Article 23 of the CIVA establishes that deductible tax be determined by using a percentage, ascertained in accordance with paragraph 4 of the same article, without prejudice to the taxpayer being able to opt for actual allocation, in accordance with paragraph 2.

Now, with the declaration of amendments submitted on 2010-03-01, the Claimant informs the AT that it will carry out the deduction of tax supported according to the actual allocation of all goods and services used, even if it is, therefore, goods or services of mixed use.

If, with the presentation of this declaration, the Claimant understood that it was communicating to the AT that it intended, from then on, to waive the exemption on the operations it carries out and which are covered by exemptions under Article 9, namely in medical assistance services in a hospital environment and also in leases of real estate, the fact is that it did not. And the AT could not draw such a conclusion from the declared elements.

For this purpose, the Claimant should have manifested this intention in the declaration of amendments through the completion of the forms intended for that purpose, respectively:

1. Form 13, relating to "option for taxation regimes", for medical assistance services in a hospital environment (field 1), and

2. Form 12, relating to "practice of real estate operations" for real estate lease operations (field 1).

By failing to complete these forms appropriately, the Claimant has no legitimacy to assess the provision of medical assistance services, nor to assess the leases of real estate, given that these are mandatory exempt operations. And regarding which it did not expressly opt for taxation. In assessing tax improperly on these operations, it assumes the obligation to deliver that tax to the State, but does not acquire, by that fact, the right to deduct the tax supported on acquisitions. Because in light of the classification that results from its declarations it has no legitimacy to assess the services carried out, provided for in the exemptions of Article 9. Only by waiving the exemption would it acquire such legitimacy. And that waiver of exemption would have to be effected through appropriate completion of the fields of the declaration expressly provided for that purpose.

The conduct of the Claimant becomes completely non-conforming with the information it provided through the declaration of amendments submitted: it began to assess all operations carried out, even those covered by the exemptions provided for in Article 9, without having waived those exemptions, and began to fully deduct the tax supported upstream, when what it declared was the exercise of the right to deduction according to actual allocation.

It may be, as is alleged, an error of the Claimant, but such error does not configure itself as an error evidenced in the declaration. That is, the declaration does not contain any information that would even permit admission of the existence of irregularities in its completion. The declared information is objective and, from that point of view, is clear. However, even though contrary to the Claimant's intentions, the AT did not have any conditions to know them.

Accordingly, the argument of the Taxpayer that the AT was in a situation in which it could, by means of simple reading or analysis of the declaration presented at the appropriate time, become aware of the incorrectness thereof, lacks merit.

In this sequence, the limitation period for the right to assess to be considered is the normal period of four years (paragraph 1 of Article 45 of the LGT), a period which, in the case of VAT, is counted from the civil year following that in which, respectively, the exigibility of the tax or the taxable event occurred (paragraph 4 of Article 45 of the LGT).

As results from the factual findings established, relating to the additional assessments in question for the year 2010 and, having the notification of the assessments occurred, according to the Claimant itself, in December 2014, they do not suffer from expiration.

The Claimant's request is therefore groundless.

B. Regarding the Nullity of the Final Inspection Report due to Pretermission of Essential Formalities

The Claimant alleges that the omission of the legal reference pursuant to which the delegation of powers was made, in terms of which the Final Tax Inspection Report was sanctioned at a superior level by means of a dispatch signed by Head of Division B…, in substitution capacity, by subdelegation of the Deputy Director of Finance, constitutes an insurmountable vice of nullity in accordance with the provisions of Article 39, paragraph 12, of the CPPT.

Let us examine this.

That provision states as follows: "The notification act shall be null in case of lack of indication of the author of the act and, in case the latter has acted in the use of delegation or subdelegation of competencies, the quality in which it decided, its sense and its date".

From the reading of the provision it is clear that the formal mentions imposed by law concern only the indication of the quality of the author of the act, when this is performed in the use of delegated or subdelegated powers, and not also the remaining formal elements of the subdelegation invoked, in particular, the indication of the Official Journal in which the respective delegation or subdelegation of powers dispatch has been published.

In the same sense, JORGE LOPES DE SOUSA defends, when he states that "It is a requirement of the notification act the mention of delegation or subdelegation of powers and not also the indication of the Official Journal in which the delegation or subdelegation dispatch was published" [cfr. Code of Tax Procedure and Procedure, 6th ed., Áreas Editora, 2011, p. 344, note (607) and jurisprudence indicated].

In the case at issue, in the words of the Claimant itself, analyzing the Final Tax Inspection Report that gave rise to the additional assessments, it is verified that "the Dispatch was signed on 03/11/2014 by the "Deputy Director of Finance, By subdelegation, B…- Head of Division in Substitution Capacity"".

What means that it complies with the formal requirements established in paragraph 12 of Article 39 of the CPPT.

Furthermore, according to the Author cited above, this formal requirement was justified, in the tax contentious matter prior to the entry into force of the CPTA, only by the "need to ensure the notified party the possibility of becoming aware of the definitive nature of the act performed by whoever is not the entity to whom it is incumbent, in the first place, to perform it, so that it can immediately challenge it contentiously. Being this the reason for such requirement of notification, the lack of mention of delegation or subdelegation of powers therein, when the act has been performed in its use, should be considered as pretermission of a legal formality, which would be degraded to a non-essential, if the possibility of contentious challenge by the appellant were not affected" (ibidem).

In such terms, for the reasons exposed, the allegation by the Claimant regarding the vice of nullity due to violation of paragraph 12 of Article 39 of the CPPT is groundless.

C. Regarding the (Alleged) Improper Deduction of VAT (First Quarter of 2010) and the Abuse of Right by the AT

The Claimant alleges, in summary, that, in the first periodic VAT declaration, relating to the first quarter of 2010, which it submitted, after the "Declaration of Amendment to Activity", it requested the VAT refund, in the amount of € 307,334.29.

Following this request, according to the Claimant, "the inspection procedure" took place, in the context of which "the waiver of exemption was confirmed by the dispatch issued by the technician (confirmed at a superior level), which states: "Now, the taxpayer on 2010-03-01, waived the VAT exemption in which it was framed (Article 9, No. 2)", adding, at the end, "No other irregularities were detected, proposing its full approval". In accordance, the refund request was Authorized and Disposed Favorably by the Tax Authority, having had FULL APPROVAL".

For the Claimant, the Dispatch of authorized refund in 2010 relating to the 1st quarter cannot now be corrected, as it was, in the same amount of € 319,895.18 and by the same Tax Authority. It understands, having elapsed more than 4 years.

In proceeding to make additional assessments, the AT adopted, according to the Claimant, "conduct in clear contradiction with what it had previously decided, incurring in clear and manifest abuse of right, in the form of venire contra factum proprium, when the activity of tax assessment should be guided by a principle of justice, being also as an organ of justice that the AT should act in the revision of tax acts."

Against this argument, the AT alleges, in summary, that "The analysis of the refund request is an atypical procedure and, as such, does not constitute an inspection procedure. The inspection procedure is regulated in the RCPIT..." and, thus, that, in 2010, there was no inspection action. Pursuant to the Dispatch issued and which covered the period of 2010-03T, only "acts of consultation, collection and crossing of elements" were carried out, without investigatory character...", in order to verify the truthfulness of the elements declared by the Claimant.

It is important, in this manner, to ascertain whether the Claimant's argument is correct.

For this purpose, it is important to analyze, in a first moment, the legal nature and relevance of the aforementioned refund dispatch authorized in 2010, in order to ascertain the consequences of the revocation/annulment of this dispatch on the additional assessments underlying it. In a second moment, it is necessary to distinguish the regime of this refund dispatch from the legal regime of the remaining additional assessments.

Let us examine this.

C) 1. Legal Nature and Regime of the Refund Dispatch

VAT, as a consumption tax, is characterized essentially as a typical indirect tax, which incides on each of the transactions or provision of services and allows taxpayers to divest themselves of the burden of tax supported upstream and ensuring that the taxation incides, at each stage of the economic circuit, on the value added, being supported, mainly, by the final consumer. Each taxpayer assesses tax, at the applicable legal rate, on its sales or provision of services, doing so increase the taxable amount contained in the invoices or equivalent documents that it passes to its customers. At the end of each period (the month or the quarter), the taxpayer pays to the public coffers only the difference between the tax thus repercussed on its active operations and the tax supported on its acquisitions and contained in the invoices of which it was recipient.

VAT is based on a credit mechanism, in which the tax owing to the State is ascertained by deduction of the tax mentioned in the invoice that has been supported by economic operators on their purchases (passive operations) to the tax mentioned in the invoice assessed by economic operators on their sales (active operations). This credit mechanism is regulated in Articles 19 to 26 of the VAT Code and thus presupposes a periodic settlement of accounts between taxpayers and the State, to be performed monthly or quarterly, according to the declarative period applicable to them.

In accordance with the provisions of Article 22, paragraph 1 of the VAT Code, the right to deduct VAT arises at the moment the deductible tax becomes due, being effected by subtraction from the total amount of tax owing on the taxable operations of the taxpayer, during a declaration period, of the amount of deductible tax owing during the same period.

In turn, paragraph 4 of the same provision states: "Whenever the deduction of tax that should take place exceeds the amount owing on taxable operations, in the corresponding period, the excess is deducted in following tax periods", in the terms explained in the following paragraphs.

As follows from paragraph 8 of the provision under analysis, refunds are made "when due", that is, after confirmation that in the period to which the refund request refers, the total deduction of tax that should take place exceeds the amount owing for all taxable operations.

As was stated in the Decision of the STA of 12 July, proceeding No. 0303/07, "To effect this confirmation, the Tax Administration can make corrections to the declarations of taxpayers, relating to the period of time to which the refund relates, and can also require them to provide additional documents and information, as follows from the provision of paragraph 10" of Article 22 of the VAT Code.

"Refund requests are rejected when the taxpayer does not provide elements that allow determination of the legitimacy of the refund, (…)", with recourse from such "rejection to hierarchical appeal, complaint or judicial challenge" (paragraphs 11 and 13 of Article 22 of the VAT Code).

In the case at issue, the documents attached to the file and identified in points r) and s) of the factual findings evidence that there was an inspection procedure, of external nature (DI 2010…), in the context of which it is also duly marked that there was consultation, collection and crossing of elements (field 4.1), the copy of the inspection document being initialed by the Taxpayer and the Accountant.

In any case, regardless of the conclusion drawn in this regard (that is, regarding the internal or external nature of the inspection), the truth is that there was, in any case, a procedure, which culminated in a decision to approve the refund request. We are not faced with a mere automatic decision or a mere material operation of payment. We are, yes, faced with a decision of authority, which is favorable to the Taxpayer, and which was obtained through a procedure, in the context of which analysis was made of the prerequisites of the refund request. It should be emphasized, moreover, that, as we have seen, the law provides for a proper and autonomous procedure for VAT refund, with proper modes of challenge.

It is, in this manner, a positive administrative act constitutive of rights: administrative act in a taxable matter, which follows the regime of administrative acts in general. In administrative law, once the period for judicial challenge of administrative acts has expired, they acquire the legal force of "matter settled" as "decisions of authority that define the right of the concrete case in a stable manner, in the name of legal certainty" (VIEIRA DE ANDRADE, Lessons of Administrative Law, 2nd ed., Coimbra, 2011, p. 163.), being only able to be reviewed in the terms and cases provided by law.

What means that, even if the approval of the refund request is based on incorrect factual premises, the truth is that administrative organs cannot freely revoke acts constitutive of rights, nor annul invalid acts that have become unimpeachable. As it is a constitutive act, it could be annulled by the AT, precisely because it is illegal, but only within a period of one year (Articles 141 of the CPA and Article 58, paragraph 2, subparagraph a), of the CPTA (according to the interpretation at the time of the facts)), which did not happen.

What has just been explained means that the AT is prevented from proceeding to make additional assessments that put in question the previous act of approval of the refund request, not because with this conduct it incurs in abuse of right, as the Claimant maintains, but because it is obliged to respect the previous "matter settled".

In such terms, contrary to the thesis of the Claimant, the additional assessments relating to the refund request are not illegal because the AT has incurred in manifest abuse of right, in the form of venire contra factum proprium. The additional assessments, which put in question the refund request, authorized by dispatch of 2010, relating to the 1st quarter in the amount of € 319,895.18, are illegal due to violation of the matter settled or resolved.

C) 2. Legal Nature and Regime of the Remaining Additional Assessments

A different question is whether, as the Claimant claims, the waiver of exemption can be considered confirmed by the dispatch approving the refund request, in such terms as to bind the AT in relation to the remaining additional assessments.

From that dispatch, issued by the technician (confirmed at a superior level), appears: "Now, the taxpayer on 2010-03-01, waived the VAT exemption in which it was framed (Article 9, No. 2)", adding at the end, "No other irregularities were detected, proposing its full approval", as follows from the document No. 15 attached by the Claimant (points 80 and 81 of the Arbitral Request).

In fact, the aforementioned dispatch was made on the basis of the (erroneous) assumption that the Claimant had waived the exemption. This consideration, however, only binds the AT in the context of the decision-making process in which such assumption was considered, that is, in the scope and exclusively for the purposes of deciding the refund request.

In fact, it is important, in the first place, to emphasize that the additional assessments, as tax acts, do not follow the regime of administrative acts in tax matters. Consequently, the AT is not, in this manner, prevented from, within the period of expiration, correcting the declarations of the Taxpayer.

The fact that the AT departed from the (erroneous) assumption that the Claimant had waived the exemption, for the purpose of the refund request, does not serve to justify a classification for VAT purposes that never existed because the Claimant did not exercise the right to opt for taxation of the respective operations (or of waiver of exemption of the same), which presupposed express declaration in that sense.

With the approval of the refund request, the AT becomes only bound not to put in question the effects associated with the approval of the refund. Even though the assumption – relating to the waiver of exemption – was incorrect, once matter settled is formed, the decision granting the refund becomes, as said, unmodifiable regarding the granting of this request. This does not mean that the decision is not based on a vice, but only that that act ceases to be capable of being attacked judicially on the basis of that illegality. As emphasized by VIEIRA DE ANDRADE, cited above, that "the consolidation of the effects of invalid acts, by expiration of the right to judicial challenge, does not mean (…) that the acts are healed of their respective vices, but only that their effects become definitive" (ibidem).

Finally, considering the aforementioned (circumscribed) effects of matter settled, there is no violation of the protection of confidence when this is based on an illegal act. As was stated in the Decision of the TCA, proceeding No. 1188/02, "the application of the principle of protection of confidence is dependent on various prerequisites, especially that which relates to the need to be faced with a confidence "legitimate", which takes place, in particular, by its appropriateness to the Law, not being able to invoke the violation of the principle of confidence when this is rooted in an earlier clearly illegal act, such illegality being perceptible by the one who claims to invoke the aforementioned principle in its favor."

Finally, also there is no evidence in the file that there was on the part of the AT any violation of the duties of cooperation with the Claimant. As was said, from the declared elements, the AT could only conclude that the Claimant did not waive any exemption. Even though the Claimant's intentions were different from what it expressed in the declaration, the AT did not have objective conditions that would allow it to know such intentions, as was demonstrated.

In such terms, the Claimant's request is to the extent applicable, only regarding the illegality of the additional assessments of VAT and compensatory interest, relating to the year 2010, Nos. … (relating to period 1003T, with Collection Document No…, in the amount of € 319,895.18), being groundless the request for annulment regarding the remaining ones.

D. Regarding the Right to Compensatory Interest and Reimbursement of Improperly Paid Tax

The Claimant further requested payment of compensatory interest, pursuant to Article 43 of the LGT. It follows from paragraph 1 of that article that "when it is determined, in gracious complaint or judicial challenge, that there was error attributable to the services from which results payment of the debt [...]