Summary
Full Decision
ARBITRAL DECISION
Arbitrator Marisa Almeida Araújo, appointed by the Ethics Council of the Administrative Arbitration Centre (CAAD) to constitute this Singular Arbitral Tribunal, hereby renders the following:
ARBITRAL DECISION
Report:
A… – BRANCH IN PORTUGAL, NIF …, (hereinafter referred to as "Claimant"), with establishment at …, …-… …, filed a request for arbitral pronouncement and constitution of a singular arbitral tribunal on 13 October 2017, pursuant to the provisions of Article 4 and paragraph 2 of Article 10 of Decree-Law No. 10/2011 of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter referred to as "LRATM"), in which the Tax and Customs Authority (hereinafter referred to as "Respondent" or "TA") is the respondent party.
The Claimant seeks, in the aforementioned request for arbitral pronouncement, that the additional VAT assessments for 2014 and respective interest in the total amount of €29,786.93 be declared illegal and annulled.
The request for constitution of the Singular Arbitral Tribunal was accepted by the President of CAAD and notified to the Respondent on 16 October 2017.
The Claimant did not proceed with the appointment of an arbitrator, whereby, in accordance with the provisions of subparagraph a) of paragraph 2 of Article 6 and subparagraph b) of paragraph 1 of Article 11 of the LRATM, the President of the Ethics Council of CAAD appointed the undersigned as arbitrator of the singular arbitral tribunal, who communicated acceptance of the appointment within the applicable period and the parties did not manifest rejection of the appointment, in accordance with Article 11, paragraph 1 subparagraphs a) and b) of the LRATM and Article 7 of the Ethics Code.
On 28 December 2017, the arbitral tribunal was constituted.
Notified for such purpose on 29 December 2017, the Respondent submitted its Response on 2 February 2018, having remitted a copy of the administrative file on 6 February.
On 7 February 2018, the arbitral hearing provided for in Article 18 of the LRATM was waived, and the Claimant and Respondent were invited to submit written allegations.
After clarification was requested and contested by the TA, by order of 11 May 2018 a deadline for publication of the final decision was fixed until 11 June 2018.
The Claimant supports its request, in summary, as follows:
The assessments – attached to the file with the initial request – are based on the inspection report of 26/04/2017 issued under service order No. OI2016….
The Claimant is a branch in Portugal of company B… with registered office in the Republic of Ireland and its activity consists essentially of renting equipment for the practice of golf which is reserved and paid by customers on the website https://www...com, and collected by them upon their arrival in Portugal.
The activity described was already exercised in Portugal by C…, NIF….
In 2014, by virtue of an establishment transfer contract executed in Dublin on 28 January 2014, the activity of C… was transferred, in its entirety, to B…, which, according to the terms of that transaction and in the Claimant's view, transferred the totality of the assets and liabilities that comprised the described business.
According to the Claimant, among the assets and liabilities which B… acquired from D… is the business which D… held in Portugal through its Portuguese branch C…, and in view of this transfer, B… establishes a representation in Portugal, the Claimant herein, which maintained the same activity, commenced in March 2014, with the same technical and human means, without any interruption or alteration.
The Claimant, which took over the establishment as described, including the assets and liabilities, as it sustains, encountered a credit balance of €116,645.46 relating to VAT advance payments received until February 2014, at the rate of 23%, previously assessed and remitted to the State by C…, considering that it adopted the following procedure:
It recorded as an advance the payment made by the customer at the time of reservation on the website and immediately assessed and remitted the VAT and, with the issuance of the invoice to the customer at the moment of equipment collection at the store, assessed the VAT again and regularized the VAT previously assessed on the advance received, offsetting it against the booking of the effective provision of the rental service.
For that reason, the VAT already assessed at the time of the advance was regularized by the Claimant between March and November 2014 as the effective completion of the rentals to which the equipment related occurred, and the concomitant issuance of the invoice with VAT at 23% newly assessed by it, under penalty of VAT duplication, according to the Claimant, on rentals reserved and paid until the end of February 2014, but only provided from March onwards, resulting from their cumulative assessment in the advance payment and completion of the service.
According to the Claimant, the TA takes the view that only the transfer of tangible assets from C… to A… benefits from the regime of Article 3, paragraph 4 of the CIVA.
The Claimant alleges having commenced active operations in March 2014 and that the advances of €116,645.49 were received by C… until February 2014, which assessed and remitted the respective VAT of €26,828.47 and that all assets and liabilities – including the balance of the customer advance account – transferred to A….
But the TA took the view that it should correct the regularizations of the same €26,828.47 by the Claimant, considering that they concern VAT in favor of a taxable person, arising from VAT assessed relating to advances, received and recorded by the previous branch, i.e., by another taxable person.
That is, according to the Claimant, the TA takes the view that only tangible fixed assets can benefit from the regime of paragraph 4 of Article 3 of the CIVA and therefore the VAT regularizations are improper because the VAT which it sought to adjust was assessed by another taxable person.
According to the Claimant, all the requirements of Article 3, paragraph 4 of the CIVA are nonetheless met: a transfer of absolute title of a universality of goods capable of allowing the acquirer to continue the economic activity to which they were previously bound in the sphere of the transferor and of which the respective acquirer came to be, by force of the acquisition, a taxable person of the tax in Portugal.
Whereas the TA concludes that the scope of application of paragraph 4 of Article 3 is exhausted in the non-subjection to VAT of the transfer of tangible fixed assets, which, according to the Claimant, exceeds the letter and spirit of paragraph 4 of Article 3 and perverts the spirit and letter of the VAT Directive in its Article 19, leaving out of that interpretation all current assets and liabilities, other non-current assets and all intangible assets.
Denying the TA, according to the Claimant, its quality as the transferee of the establishment and being treated as the full legal successor of the previous branch, in particular for purposes of deduction of the tax, an interpretation fundamentally flawed in light of the last part of the first paragraph of Article 19 of the VAT Directive.
Which, according to the Claimant, being a direct imposition of the Directive on all Member States which chose to transpose Article 19, as is the case of the Portuguese State, and therefore "the beneficiary succeeds to the transferor," which must be ensured by the application of paragraph 4 of Article 3 of the CIVA.
A position which the TA does not sustain, concluding that we are faced with VAT regularizations resulting from VAT assessed by a different taxable person since the Claimant has a name and NIF different from the transferring branch.
To substantiate its position, the Claimant transcribes the different wordings given in distinct languages, particularly English, French, Spanish and German.
As well as relying on the position of Advocate General Jacobs in the case Zita Modes (from his conclusions presented in case C-497/01) and as the European Commission indicates, as well as the case Faxworld (from conclusions presented in case C-137/02), making use of the German language version which uses the expression "legal successor" (Rechtsnachfolger).
Thus, even though Article 3, paragraph 4 of the CIVA is silent regarding treating the beneficiary of the transfer as a successor of the transferor, it is imposed, primarily by the principle of neutrality inherent to the common VAT system, which, according to the Claimant, is affirmed by the CJEU in the case Faxworld.
A position which, according to the Claimant, echoes in Portuguese legal scholarship.
Due to the omission of the transposition of the last segment of Article 19 of the VAT Directive, first paragraph, the TA rejects the admission of VAT regularization in favor of a taxable person, which it would otherwise admit, as in the case of the incorporating company with respect to VAT assessed by the incorporated and extinguished company by application of subparagraph a) of Article 112 of the CSC.
Furthermore, according to the Claimant, an interpretation such as that made by the TA seems to admit that the effects of the succession under Article 19 of the VAT Directive would only apply if the transferred company is organized under the form of a Portuguese company and its transfer proceeds from an alteration in the structure of its capital.
The Claimant argues that such a limitation would be incompatible with the freedoms of establishment and free movement of capital, making the transfer of a branch resident in another Member State potentially more onerous than the transfer of a Portuguese subsidiary, in equal circumstances.
Accordingly, the Claimant concludes that the provisions of domestic law substantiating the VAT assessments are incompatible with Community law and therefore should be declared illegal and annulled.
The Respondent, in turn, responded sustaining the non-merit of the request for arbitral pronouncement and alleging, in summary, that:
The VAT correction in question was determined following the inspection procedure originating from OI2016…, and relating to the year 2014, and in accordance with the TA, the Claimant's request is based on the fact that, by virtue of the acquisition of a universality of goods, it also came to have the right to correct in its favor tax previously assessed and remitted by the transferor, with which the TA disagrees and advocates for the maintenance of the assessments.
The TA emphasizes the fact that the transferor of the universality of goods maintained activity (as evidenced in the Inspection Report) until the year 2016, as the Claimant refers, and the factuality underlying the present file and set forth in the Inspection Report is not called into question and is therefore not disputed.
The TA does not sustain the Claimant's position that it is the successor of the Transferor and therefore has the right, among others, to proceed with regularizations of tax assessed by the latter, in its favor.
It points out that the Advocate General formulates in paragraph 46 of Case C-497/01 statements as commentary on the position of the tax administration of Luxembourg in those proceedings, but that the same had nothing to do with the present proceedings, since the issue there disputed was whether the acquirer of the universality of goods would have to continue the same activity as the transferor in order to benefit from that legal provision.
Furthermore, the TA alleges that the disputed relationship in question in the present proceedings was directly addressed in case C-408/98 - Abbey National plc, from which, according to the TA, it is clear that the effect sought with the expression "succession" is that the transfer not be considered either a transfer of goods or a provision of services and thus not originate a break in the chain, that is, that the transfer not be considered an operation.
It also cites case C-137/02 - Faxworld, also cited by the Claimant, from which, according to the TA, it results that, on the one hand, the Advocate General, in conclusions more recent than those of the Abbey case above mentioned, makes clear that never (save in unimaginable circumstances) could a taxable person deduct the tax borne by another, thus overturning the Claimant's theory that succession, as employed here, has a meaning close to that of a merger, for example, and that it would be succession in all rights and duties, as the transcription of the hypothesis formulated by the same Advocate General in the Abbey case might lead one to believe.
It results from the Judgment, according to the TA, that what is intended to be achieved with such expression is that the acquirer of a universality of goods shall not have to bear a tax which it could subsequently deduct in full.
The regularizations which the Claimant made in its favor, according to the TA, clearly exceed the scope of the tax which would be assessed to it by virtue of the transfer and which it could subsequently deduct.
The same idea is reinforced in case C-497/01 - Zita Modes Sàrl, also cited by the Claimant, which according to the Respondent, from a careful reading of the 3 cases cited, leaves no doubt whatsoever that the meaning and scope of the rule is just one: To prevent a taxable person from bearing a substantial tax assessed by the transferor in the transfer of the universality of goods, which it would subsequently recover by means of the exercise of the right to deduction.
To seek to attribute to this rule the right of the acquirer to regularize in its favor tax which another taxable person assessed and remitted to the State would be as if to allow a taxable person to deduct the tax borne by another, which, in the more recent conclusions of the same Advocate General who formulated the conclusions in the Abbey case, could only occur in unimaginable circumstances.
Furthermore, according to the TA, given that the Transferor maintained activity for more than two years after the transfer in question here, it would result, if the Claimant's thesis were to prevail, that both could proceed with the same regularizations, leaving the State and the broader public interest impoverished of such an amount, and therefore, according to the TA, it is unfitting to seek inspiration in situations in which the activity of one taxable person passes to another taxable person, with the first being extinguished, as for example in a merger.
Accordingly, the Respondent maintains its position and the substantiation which gave rise to the additional VAT assessments, arguing for the non-merit of the arbitral request.
Preliminary Ruling:
The parties have legal personality and capacity, are legitimate and are represented in accordance with Articles 4 and 10 of the LRATM and Article 1 of Ordinance No. 112-A/2011 of 22 March (pursuant to Article 13 of the CPC).
There are no nullities or other preliminary issues affecting the entire proceedings, wherefore it is necessary now to address the merits of the request.
Questions for Decision:
In the present proceedings, and from the position of the parties, it is important to know what the scope of application of Article 3, paragraph 4 of the CIVA is and whether the Claimant succeeds or not to the position of taxable person with respect to the VAT assessed and paid by the previous branch on the advances received until February 2014.
For the decision of the questions set forth, it is further important to determine whether the interpretation of the applicable rules violates or not the provisions of the Sixth Directive and whether there will be a need to promote a preliminary ruling to the CJEU, as suggested by the Claimant.
This question, for reasons of economy in the exposition and substantiation of the present arbitral decision, the Tribunal will address last and not as a preliminary matter, following the same order of exposition as the Claimant in its arbitral request.
Factual Matters:
Proven Facts:
It falls to the tribunal to select the facts which matter for the decision of the case and to discriminate between the proven and unproven matters (in accordance with Article 123, paragraph 2 of the CPTAX and Article 607, paragraph 3 of the CPC, applicable pursuant to Article 29, paragraph 1, subparagraphs a) and e) of the LRATM).
Thus, the facts relevant to the judgment of the case are selected and delimited in accordance with their legal relevance, which is established in view of the various plausible solutions to the question(s) of law (in accordance with the former Article 511, paragraph 1 of the CPC, corresponding to the current Article 596, applicable pursuant to Article 29, paragraph 1, subparagraph e) of the LRATM).
Thus, taking into account the positions assumed by the parties, documentary evidence and elements contained in the Administrative File attached to the record, the following facts were considered proven as relevant to the decision.
The Claimant, constituted on 22/10/2013, with the legal nature of "non-resident with permanent establishment," being a branch in Portugal of the Irish company "B…," and is taxed for the activity of "rental of recreational and sports goods," classified in the normal VAT regime since 06/11/2013, with monthly periodicity (from 01/01/2016), having previously been classified in quarterly periodicity.
The activity described was already exercised in Portugal by A…, NIF….
In 2014, by virtue of an establishment transfer contract executed in Dublin on 28 January 2014, the activity of A… was transferred, in its entirety, to B…, which, under the terms agreed, transferred the totality of the assets and liabilities that comprised the described business.
The customers, at the moment of reservation via the internet (https://www…com), occur through the Irish company and are treated by the branch in Portugal as advances which are recorded as credits to account 276 – advance on account of sales (divided into sub-accounts relating to the stores of …, … and …), based on internal lists/schedules discriminating these reservations, proceeding with the assessment of the respective VAT.
The counterpart (debit) of the accounting entry is reflected in account 25 – borrowings obtained ("parent company" – capital contributions and other loans"; B…");
For the utilization/provision of the service in Portugal, the advance accounts are debited (with account 25 as the counterpart), proceeding with the regularization of the VAT in favor of the taxable person.
The income obtained relating to the reservations is recorded in account 72 – provision of services, after the customer goes to the stores in the airports (with account 25 as counterpart), proceeding with the respective assessment of VAT at the rate of 23%.
From VAT Regularizations, in favor of the Claimant, between March and December 2014, VAT was regularized in favor of the taxable person, arising from VAT assessed relating to advances, received and recorded by the previous branch "A…", NIPC…, another taxable person.
The amounts recorded include the amounts of 3 advance accounts on account of sales:
276101 – Store ... - €106,849.20
276102 – Store ... - €9,564.42
276103 – Store ... - €231.87
The Claimant regularized VAT in its favor in the 3 quarters of 2014, from tax assessed by the previous branch, in the amount of €26,828.47.
The VAT correction was determined following the inspection procedure originating from OI2016… of 13 May 2016, with the inspection action having commenced on 23/01/2017 and concluded on 17/03/2017, with the additional VAT assessments for 2014 and the respective interest having been issued in the total amount of €29,786.93:
Assessment No. 2017… of 2017-05-16 in the amount of €10,074.65;
Assessment No. 2017… of 2017-05-16 in the amount of €14,402.69;
Assessment No. 2017… of 2017-05-16 in the amount of €1,448.69;
Assessment No. 2017… of 2017-05-16 in the amount of €902.44;
Assessment No. 2017… of 2017-05-16 in the amount of €1,187.98;
Assessment No. 2017… of 2017-05-16 in the amount of €1,549.96;
Assessment No. 2017… of 2017-05-16 in the amount of €141.41;
Assessment No. 2017… of 2017-05-16 in the amount of €79.11;
Substantiation of Proven and Unproven Factual Matters:
The conviction regarding the factual matters resulted from the allegations of the parties and the absence of disputed factual matters, together with respective documentary support attached to the file.
No other facts with relevance to the decision of the case were proven, considering the possible legal solutions.
Matters of Law:
Having established the factual matters, it is necessary to address the questions for decision set forth above, corresponding in summary to the question of illegality raised by the Claimant in the present arbitral request, for alleged error regarding the factual and legal presuppositions which led to the additional VAT assessments and interest in question in the present proceedings.
Pursuant to Article 3, under the heading "Concept of Transfer of Goods," of the CIVA:
1 - The transfer of goods shall generally be understood as the onerous transfer of tangible goods in a manner corresponding to the exercise of the right of ownership.
2 - For that purpose, electrical energy, gas, heat, cold and similar items are deemed to be tangible goods.
3 - The following are also considered transfers of goods within the meaning of paragraph 1 of this Article:
a) The physical delivery of goods in execution of a leasing contract with a clause, binding on both parties, for transfer of ownership;
b) The physical delivery of movable goods resulting from the execution of a purchase and sale contract which provides for reservation of title until the moment of full or partial payment of the price;
c) The transfers of goods between principal and agent, carried out in execution of an agency contract as defined in the Commercial Code, including the transfers between consignor and consignee of goods sent on consignment. In sales agency, the agent is deemed the buyer; in purchasing agency the principal is deemed the buyer;
d) Non-return, within a period of one year from the date of delivery to the consignee, of goods sent on consignment;
e) The delivery of movable goods produced or assembled to order, when all materials are supplied by the taxable person which produced or assembled them;
f) Notwithstanding the provisions of Article 26, the permanent allocation of goods from the business to the personal use of its owner, of the staff, or in general to purposes other than the business, as well as their free transfer, when, with respect to such goods or the elements which constitute them, there has been partial or total deduction of the tax;
g) The allocation of goods by a taxable person to an exempt activity sector and likewise the allocation to business use of goods referred to in paragraph 1 of Article 21, when, with respect to such goods or the elements which constitute them, there has been partial or total deduction of the tax.
4 – Transfers shall not be considered as such the onerous or free transfers of a business establishment, of the totality of a patrimony or of a part thereof, which is capable of constituting an independent branch of activity, when, in any of the cases, the acquirer is or comes to be, by virtue of the acquisition, a taxable person among those referred to in subparagraph a) of paragraph 1 of Article 2 (underlined in the original).
5 - For purposes of the foregoing paragraph, the tax administration adopts the appropriate regulatory measures, in particular the limitation of the right to deduction, when the acquirer is not a taxable person practicing exclusively taxable operations.
6 - Transfers are also not considered as such the documented transfers made by agricultural cooperatives to their members of goods, not packaged for commercial purposes, resulting from the first transformation of raw materials delivered by them, to the extent that they do not exceed the needs of their family consumption, according to limits and conditions to be defined by order of the Minister of Finance.
7 - Excluded from the regime established in subparagraph f) of paragraph 3, as defined by order of the Minister of Finance, are goods not intended for subsequent commercialization which, by their characteristics, or by size or format different from the product which constitutes the sales unit, aim, in the form of a sample, to present or promote goods produced or marketed by the same taxable person, as well as gifts of unitary value equal to or less than (euro) 50 and whose total annual value does not exceed five thousandths of the turnover of the taxable person in the previous calendar year, in conformity with commercial practices.
8 - In the case of commencement of activity, the permillage referred to in the foregoing paragraph applies to expected values, without prejudice to rectification to be made in the last periodic return to be filed in the year of commencement of activity, if the definitive values are lower than the expected values.
Pursuant to Article 19 of the VAT Directive it is provided that:
"Member States may consider that the transfer, for valuable consideration or gratuitously or in the form of an entry into a company, of a universality of goods or part thereof does not imply a delivery of goods and that the beneficiary succeeds to the transferor" (underlined in the original).
(…)
The Claimant argues that, pursuant to the Directive, being "successor" to the transferor it has the right – with the VAT credit being part of the rights transferred under the terms of the executed contract – to regularize the tax assessed and paid by the transferor.
Now, that is not what results from the provision.
Article 19 of the VAT Directive does indeed include the expression "(…) that the beneficiary succeeds to the transferor (…)" but, both from the expression itself and from the analysis of the factual situation, it does not permit the conclusion that, on the one hand, the Respondent did not treat the Claimant as a "successor" of the transferor (in the interpretation which results from the aforementioned provision and which is described below), nor, on the other hand, from that expression can it be concluded that from a contractual relationship – such as that which is in question in the present proceedings – and in accordance with the will of the parties, the object of the transaction is made to include, with the purpose of benefiting from the VAT regime provided, balances of advance payments from customers of the transferor which would permit the beneficiary to become a taxable person with respect to that fiscal legal relationship, regularizing the tax in its favor.
The transfer of the commercial establishment benefited, in this case, from the exclusion of taxation established in paragraph 4 of Article 3 of the CIVA, which the Respondent did not deny, nor does it deny, admitting the quality of "successor" of the assignee, although it does not do so on the terms of the interpretation which the Respondent seeks to give to that expression.
Even if it can be admitted that the parties in the transaction of transfer of establishments may have wished to include the VAT credit, such fact, within the scope of the relativity of legal transactions, is not opposable to third parties, particularly to the Tax Authority, and does not bind it in any manner by that subjective alteration of the fiscal legal relationship which the Claimant sustains (even though it has contractually established it) and which has no acceptance whatsoever in the Directive.
We understand that this is the position which has been sustained by the CJEU.
In the context of Case C-408/98 Abbey National plc against Commissioners of Customs & Excise (in https://eur-lex.europa.eu/legal-content/PT/TXT/?uri=CELEX%3A61998CJ0408) the CJEU decided that "Where a Member State has made use of the facility afforded by Article 5(8) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, so that the transfer of a universality of goods or part thereof is considered not to be a delivery of goods, the expenses incurred by the transferor with services acquired in order to effect that transfer are part of the general expenses of that taxable person and therefore maintain in principle a direct and immediate connection with the whole of the economic activity of that taxable person. Thus, if the transferor carries out simultaneously both taxable transactions and transactions exempted from tax, it follows from Article 17(5) of the Sixth Directive 77/388 that the latter may only deduct the proportion of the value added tax corresponding to the amount relating to the first category of transactions. However, if the various services acquired by the transferor in order to effect the transfer have a direct and immediate connection with a clearly delimited part of its economic activities, so that the costs of those services form part of the general expenses inherent in that part of the business, and all the transactions included in that part of the business are subject to value added tax, that taxable person may deduct the whole of the value added tax that burdened the expenses which it incurred in order to acquire those services".
With the expression "succession" what is understood is that the transfer cannot originate a break in the chain of continuity of the direct exercise of the activity by the acquirer of the universality, which only if it verifies does the "succession" verify so that the transfer is not considered an operation of provision of services or a mere transfer of goods.
But this is entirely different from the use of the provision as the Claimant seeks to give it, that is, availing itself of the expression "succession" which results from the Directive – which has already given rise to the exclusion of taxation which the Claimant benefited when acquiring the commercial establishment – wishing thereby to benefit from the deduction of tax assessed and paid by another taxable person.
From that decision the Tribunal appreciates that the regime "(…) of deductions aims to relieve the businessman entirely from the burden of VAT, due or paid, in the context of all his economic activities. The common system of value added tax therefore ensures perfect fiscal neutrality regarding all economic activities, whatever the purpose or results of those activities, provided that the activities themselves are subject to VAT (see in this sense, judgments of 14 February 1985, Rompelman, 268/83, Recueil, p. 655, n° 19; of 15 January 1998, Ghent Coal Terminal, C-37/95, Colect., p. I-1, n° 15, and of 21 March 2000, Gabalfrisa and Others, C-110/98 to C-147/98, Colect., p. I-1577, n° 44, as well as of 8 June 2000, Midlank Bank, C-98/98, Colect., p. I-4177, n° 19)".
Adding that "(…) Article 5(8) of the Sixth Directive provides that Member States may consider that the transfer of a universality of goods or part thereof does not imply a delivery of goods and that the beneficiary is assimilated to a successor of the transferor. Hence, where a Member State has made use of that facility, the transfer of a universality of goods or part thereof is not considered a delivery of goods for the purposes of the Sixth Directive. In accordance with Article 2 of the Sixth Directive, such a transfer is therefore not subject to VAT and can therefore not be considered a taxable transaction within the meaning of Article 17(2) of the Sixth Directive".
In turn, in Case C-137/02 Finanzamt Offenbach am Main-Land against Faxworld Vorgründungsgesellschaft Peter Hünninghausen und Wolfgang Klein GbR (in https://eur-lex.europa.eu/legal-content/PT/TXT/?uri=CELEX:62002CJ0137) the tribunal concludes that "A civil partnership, created with the sole purpose of establishing a company with capital, is entitled to deduct the tax borne upstream in relation to services rendered to it and goods which it has acquired if, in accordance with its articles of association, its sole downstream operation was the transfer, for valuable consideration and by formal deed, to that company with capital, after its establishment, of the services previously acquired and if, because the Member State in question has used the options provided for in Articles 5(8) and 6(5) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, as amended by Council Directive 95/7/EC of 10 April 1995, there is no delivery of goods or provision of services upon the transfer of a universality of goods.
Indeed, even if this civil partnership did not have the intention of carrying out taxable transactions itself, since its articles of association were merely to prepare the activity of the company with capital, it remains true that the tax which it seeks to deduct relates to services which it acquired with a view to carrying out taxable transactions, albeit only projected transactions of the company with capital".
Further still, in case C-497/01, which is the subject of a request to the Court of Justice pursuant to Article 234 EC by the District Court of Luxembourg (Luxembourg), intended to obtain, in the dispute pending before that court between Zita Modes Sàrl (https://eur-lex.europa.eu/legal-content/PT/ALL/?uri=CELEX:62001CJ0497) ruling on the questions submitted by the District Court of Luxembourg, by decision of 19 December 2001, it declares: Article 5(8) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes - Common system of value added tax: uniform basis of assessment, as amended by Council Directive 95/7/EC of 10 April 1995, which amends Directive 77/388/EEC and introduces new simplification measures in the field of value added tax - Scope of application of certain exemptions and practical rules for their application, must be interpreted to mean that, where a Member State has used the facility, conferred by the first sentence of this paragraph, of providing that, for VAT purposes, the transfer of a universality of goods does not imply a delivery of goods, this rule of non-delivery applies – without prejudice to any possible use of the possibility of limiting its application under the conditions provided for in the second sentence of the same paragraph – to any transfer of a commercial establishment or of an autonomous part of an undertaking, which includes tangible and, possibly, intangible elements which, taken together, constitute an undertaking or part of an undertaking which is able to carry on an independent economic activity. The beneficiary of the transfer must, however, have the intention of operating the commercial establishment or the part of the undertaking transferred in this way and not simply immediately liquidate the activity in question and possibly sell the stock.
- Where a Member State makes use of the facility afforded by Article 5(8), first sentence, of the Sixth Directive 77/388, as amended by Directive 95/7, of providing that, for VAT purposes, there is no delivery of goods as a result of the transfer of a universality of goods, the said provision is opposed to the Member State limiting the application of this rule of non-delivery solely to transfers of a universality of goods where the beneficiary has authorization to establish itself for the economic activity which that universality allows to be exercised".
Indeed, from a reading of the decisions cited, we follow the position sustained by the Respondent, that is, the scope of the rule is to prevent a taxable person from bearing a substantial tax assessed in the transfer of the universality of goods, which it would subsequently recover by means of the exercise of the right to deduction.
The Claimant being a successor of the Transferor within the meaning of the Directive, when, as a requirement for benefiting from the exclusion of tax, it maintains the economic activity which that universality allows, as results from this last cited decision, "the beneficiary of the transfer must (…) have the intention of operating the commercial establishment or the part of the undertaking transferred in this way and not simply immediately liquidate the activity in question and possibly sell the stock," that is, within the terms of the Directive, the beneficiary must succeed to the transferor, in this interpretive sense.
There being no interpretive element whatsoever which would permit equating the transfer with situations of corporate transactions of merger in which a taxable person is extinguished by incorporation into another which, by the nature of the legal relationship, does not even permit any exercise of analogy for this succession process (from the merger).
This is the interpretation which results from the judgment of the Supreme Administrative Court of 05/05/2010 (in www.dgsi.pt) and which we follow here:
1 - "The exclusion from the concept of 'transfer of goods' for VAT purposes of 'transfers, for valuable consideration or gratuitously, of a business establishment, of the totality of the patrimony or of a part thereof, which is capable of constituting an independent branch of activity,' contained in paragraph 4 of Article 3 of the CIVA, corresponding to the use by the national legislator of the facility conferred upon it by paragraph 8 of Article 5 of the Sixth Council Directive of 17 May 1977 (Directive 77/388/CEE), pursuant to which 'Member States may consider that the transfer for valuable consideration or gratuitously or in the form of an entry into a company of a universality of goods or part thereof does not imply a delivery of goods and that the beneficiary is assimilated to a successor of the transferor (…)".
2 – The Community standard sought to confer upon the Member States the possibility of establishing "a simplification of procedures" and as well as permitting them to "avoid overloading the treasuries of the companies," this objective being related to "the intention not to aggravate the financial burden of the companies which intend to commence a commercial or industrial activity, or expand or renew the activity which they are pursuing, obliging them at that moment to incur the expenditure of a substantial amount of VAT, which, in principle, would subsequently be the object of deduction in their favor".
3 – Hence the Community standard expressly refers in such cases that the beneficiary is assimilated to a successor of the transferor, an allocation which, not necessarily implying the identity of branches of activity exercised by the latter and by the former (as the Court of Justice had occasion to clarify in the Judgment of 27 November 2003, case n° C-497/01), seems to have implicit the understanding under penalty of frustration of the ratio of the rule in question (and of those which in the legal systems of the Member States concretize that facility) that the exclusion only verifies if the acquirer is or comes to be, in fact by the acquisition, a taxable person of the tax, being necessary that the acquirer continues to exercise the same economic activity which was being exercised by the transferor, in a relationship of continuous sequence and without interruptions".
This was precisely the understanding of the Respondent for the situation under judgment, that is, the transfer of the establishment benefited, pursuant to the law, including from Article 19 of the VAT Directive, from the exclusion of taxation established in paragraph 4 of Article 3 of the CIVA.
Following the decision of the Supreme Administrative Court, the expression to which the Claimant avails itself, raising an equation with the commercial regime of "merger" of commercial companies, has its own and distinct meaning from that which the Claimant seeks to give it and which is evident in the various decisions cited, that is, the beneficiary is assimilated to a successor of the transferor, being so when, by the acquisition, it is or comes to be a taxable person of the tax, continuing to exercise the same economic activity which was being exercised by the transferor, in a relationship of continuous sequence and without interruptions.
This is the meaning of "succession" which results from the Directive from which one cannot extract any other interpretation, particularly that which the Claimant seeks to give it leading it to a subjective alteration of the fiscal legal relationship which would permit it to benefit from a VAT credit of another taxable person.
For all these reasons it is concluded that the Claimant's arguments are not well-founded, and the additional assessments are maintained, the same not suffering from any type of illegality.
Question of Preliminary Ruling
The Claimant raised the preliminary ruling to the CJEU which the arbitral tribunal understood not to be necessary.
Having analyzed the matter in question in the present proceedings and having at its disposal all the elements necessary to render the present decision, with respect to which no doubts of interpretation were raised in the terms and presuppositions of application of the Sixth Directive and its compliance by the Member States regarding the subject matter under discussion in the present proceedings.
Synthetically, as results from decision No. 682/2016-T (in www.caad.pt), (i) the arbitral tribunals are part of the set of national courts as results from Article 209 of the Constitution of the Portuguese Republic (CRP), (ii) the preamble of Decree Law No. 10/2011 of 20 January made clear that "(…) in cases in which the arbitral tribunal is the final instance for decision of tax disputes, the decision is susceptible to preliminary ruling in compliance with § 3 of Article 267 of the Treaty on the Functioning of the European Union," (iii) in case of interpretive doubt regarding provisions of European law the arbitral tribunal may resort to preliminary ruling, (…)"
Additionally and conclusively, as stated in judgment 315/2015-T, reiterated in judgment 782/2015-T of CAAD (in www.caad.pt):
"As mentioned in point 7 of the Recommendations to the national courts regarding the presentation of preliminary rulings (2012/C 338/01) from the CJEU:
"The role of the Court in the context of a preliminary ruling is to interpret European law or to pronounce on its validity, and not to apply such law to the factual situation underlying the main proceedings. This role falls to the national court and therefore, it is not incumbent upon the Court to pronounce on questions of fact raised in the context of the dispute in the main proceedings or on any divergences of opinion regarding the interpretation or application of national law rules"
In point 12 of those same recommendations, the preliminary ruling should not be given when:
i. there already exists case law on the matter (and when the possibly new context does not raise any real doubt as to the possibility of applying such case law to the concrete case); or
ii. when the correct manner of interpreting the legal rule in question is unambiguous.
Consequently, it continues in point 13, "a national court may, particularly when it considers itself sufficiently clarified by the case law of the Court, decide for itself the correct interpretation of European law and its application to the factual situation of which it has knowledge.
Finally, as stated in point 18 of the same recommendations, "The national court may submit to the Court a request for a preliminary decision, from the moment it considers that a decision on the interpretation or validity is necessary to render its decision"
In this case, it is not considered that a decision on the interpretation of the Community standards is necessary.
It is understood that the available case law of the CJEU clarifies sufficiently, in terms of being able to decide the correct interpretation of European law and its application to the factual situation of which it is aware.
On the other hand, and following decision 169/2017-T (in www.caad.pt) "(…) consultation of the CJEU, mandatory in certain cases, is not so in those cases in which the national court has no doubts regarding the interpretation of applicable Community law rules, either because it understands them to be unambiguous, or because it considers that prior pronouncements of the Court of the Union have already clarified them, and not necessarily in cases similar in the concrete.
It should not be forgotten that the applicant of European law and, consequently, its interpreter, is in the first place the national court, which cannot relieve itself of its task by appealing to the CJEU in cases where such is not justified".
Thus, to resort to the process of referring one or more questions by way of preliminary ruling, for interpretation of one or more legal rules of Community law, original or derived, it is necessary that doubts subsist regarding the interpretation of the text in question.
For this reason, this tribunal understands that no doubts of interpretation subsist regarding any one of the rules in question and, to that extent, what is required of this tribunal is to decide in conformity with the applicable law, national and Community, giving full effect to both, as well as to the principles underpinning the matter at hand, taking into account the case law of the CJEU, relevant in the treatment of the matters at hand.
In this manner, this tribunal decides not to promote the preliminary ruling to the CJEU for interpretation of any preliminary question.
Regarding Liability for Payment of Arbitral Costs:
Pursuant to Article 527, paragraph 1 of the Code of Civil Procedure, ex vi Article 29, paragraph 1, e) of the LRATM, it is established that the party which gave cause to the costs shall be condemned in costs or, if there is no judgment for either party, whoever benefited from the proceedings.
Given the foregoing, the Claimant should be condemned in costs.
Decision:
For these reasons and with the substantiation above, the tribunal decides:
a. To judge the request for arbitral pronouncement as without merit.
b. To condemn the Claimant in payment of the costs of the present proceedings.
Value of the Proceedings:
In conformity with the provisions of Articles 306, paragraph 2 of the CPC and 97-A, paragraph 1 of the CPTAX and Article 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at €29,786.93.
Arbitration Fee:
The amount of the arbitration fee is fixed at €1,530.00 in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings.
Notify accordingly.
Lisbon, 11 June 2018
The Arbitrator
(Marisa Almeida Araújo)
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