Process: 557/2017-T

Date: March 19, 2018

Tax Type: ISP

Source: Original CAAD Decision

Summary

In CAAD Process 557/2017-T, a fuel retailer challenged an ISP (Tax on Petroleum Products and Energy) and CSR (Road Services Contribution) assessment totaling €57,637.40 plus compensatory interest. The dispute arose from an inspection covering 2014-2016 that identified irregularities in the sale of colored and marked diesel (GMC). The Tax Authority found that the company sold 161,291.92 liters of GMC without complying with Article 93(5) of the Special Consumption Tax Code (CIEC), specifically: issuing invoices marked 'final consumer' without identifying the cardholder, processing sales without the microcircuit card of the authorized holder, and selling to customers without active cards. The Authority assessed the difference between standard road diesel tax rates and the reduced GMC rates. The taxpayer argued that the Tax Authority misinterpreted Article 93(5) CIEC and that no legal basis existed for the additional assessment merely due to invoice designation deficiencies. The case illustrates the strict formality requirements governing GMC sales in Portugal, where reduced tax rates apply only when proper documentation procedures are followed, including nominative invoicing to cardholders and use of authorized microcircuit cards. The arbitration procedure followed RJAT (Legal Regime of Tax Arbitration) protocols, with tribunal constitution on 28-12-2017. The taxpayer also claimed entitlement to compensatory interest if the assessment were annulled. This decision clarifies the boundary between procedural compliance and substantive tax liability in special consumption tax regimes, with significant implications for fuel retailers selling reduced-rate petroleum products.

Full Decision

ARBITRAL DECISION

I. REPORT

1. A…, S.A., legal entity no.…, with registered office at Street…, no.… –…-… …, petitioned for the establishment of an arbitral tribunal in tax matters, requesting an arbitral decision against the assessment act for Tax on Petroleum Products and Energy (ISP), Road Services Contribution (CSR) and compensatory interest, object of the assessment record no.…, of 28-06-2017, of the Customs Office of…, relating to sales carried out in the years 2015 and 2016, of 80,429.67 liters and 80,862.25 liters of colored and marked diesel (GMC), respectively, without issuance of the corresponding invoices in the name of the cardholder. Petitioning the partial annulment of the aforementioned act and consequent refund of the amounts improperly paid, the Petitioner further requests recognition of the right to the corresponding indemnatory interest, calculated in accordance with legal terms.

2. The petition for the establishment of the arbitral tribunal was accepted by the President of the CAAD and automatically notified to the Tax and Customs Authority.

3. Pursuant to and for the purposes of the provisions of no. 1, article 6, of the RJAT, by decision of the President of the Deontological Council, duly communicated to the parties within the legally applicable periods, the undersigned was appointed arbitrator, who communicated to the Deontological Council and to the Administrative Arbitration Center the acceptance of the appointment within the regularly applicable period.

4. Thus, in accordance with the provisions of subsection c) of no. 1 of article 11 of the RJAT, with the wording introduced by article 228 of Law no. 66-B/2012, of 31/12, the single arbitral tribunal was constituted on 28-12-2017.

5. As the basis of its petition, the Petitioner alleges, in essence, that there is no legal basis supporting the additional assessment of ISP and CSR relating to the difference in tax rates applicable to road diesel and colored and marked diesel transactions in cases where the commercialization formalities for the latter product provided for in the Special Consumption Tax Code (CIEC) are not fulfilled. Specifically, the Petitioner refers to cases in which GMC supplies are documented with the issuance of invoices with the designation "final consumer," that is, without the identification, name and tax identification number of the cardholder used in the respective supply appearing therein. According to the Petitioner, the assessment made, to the extent it relates to the situations mentioned, should be subject to annulment because the Tax and Customs Authority (AT) has erred in the interpretation and application of article 93, no. 5, of the Special Consumption Tax Code (CIEC).

6. In response to what was requested, the Tax and Customs Authority (AT) opined on the lack of merit of the present petition for an arbitral decision, with the impugned tax acts remaining in the legal order and, accordingly, for the acquittal of the Respondent entity.

7. Being regularly constituted, the arbitral tribunal has material jurisdiction, in accordance with the provisions of articles 2, no. 1, subsection a), of the RJAT.

8. The parties have legal personality and judicial capacity and have standing (arts. 4 and 10, no. 2, of the RJAT, and art. 1 of Regulation no. 112-A/2011, of 22/03).

9. No nullities occur and no preliminary questions or exceptions were raised, so nothing prevents the judgment on the merits, thus the present proceedings are in conditions for the final decision to be rendered.

10. Given the knowledge that follows from the procedural documents submitted by the parties, namely from the administrative file, which is deemed sufficient for the decision, the Tribunal decided to dispense with the meeting referred to in article 18 of the RJAT.

II. STATEMENT OF FACTS

11. With relevance to the assessment of the petition for an arbitral decision, the following factual elements stand out, which, based on the documentary evidence submitted with the case file, namely from the administrative file, are considered proven:

11.1. The Petitioner is a limited company, with registered office at Street …, …, in …, whose corporate purpose is the sale of light motor vehicles, together with other activities, which include the retail sale of fuel for motor vehicles.

11.2. This activity is carried out through two service stations, one located at the company's head office and another on …Avenue, in …, the latter, which operates on a consignment basis with B…, being the only one that sells colored and marked diesel (GMC).

11.3. During the period between 14-02-2017 and 31-05-2017, the Petitioner was the subject of an inspection action developed by the Information and Inspection Division of the Customs Office of …, focused on the commercialization of colored and marked diesel at the company's service station during the years 2014, 2015 and 2016.

11.4. In the course of the aforementioned inspection action, the counting of physical inventory of GMC stored at the service station was carried out, purchase records were compared with sales records in the ATM/POS (automatic payment terminal/point of sale), the invoices issued were verified as well as any improper use of beneficiary cards.

11.5. Following the verification carried out, irregularities were detected that constitute a taxable event, due to non-compliance with the provisions of no. 5 of article 93 of the CIEC.

11.6. Thus, as stated in point 7 of the inspection report, various specific situations of improper records and lack of records (irregular sales) were identified, relating to the years 2014, 2015 and 2016, susceptible to ISP assessment, as evidenced in the following tables:

11.7. The inspection services thus found the existence of irregularities relating to the sale of colored and marked diesel, of which, as shown in the tables above, contained in the inspection report (see administrative file), the following stand out:

a) In all years covered by the inspection action, sales were made that were not recorded in the POS/ATM with the microcircuit card of the respective holder, violating the provisions of no. 5 of article 93 of the CIEC and no. 5 of Regulation no. 361-A/2008;

b) Sales of GMC were made to various customers who, at the time of the supplies, in accordance with information obtained from the DGADR Database, were not holders of an active microcircuit card, violating the provisions of the aforementioned standards;

c) Sales of GMC were made without the issuance of a nominative invoice to the cardholder, using the designation "final consumer," in the quantities determined, in violation of no. 8 of Regulation no. 361-A/2008, together with no. 5 of article 93 of the CIEC.

11.8. With respect to the quantities of colored and marked diesel supplied to the purchasers without the appropriate legal procedures being observed, the amount resulting from the difference in taxation applicable to normal road diesel under the Tax on Petroleum Products (ISP) and Road Services Contribution (CSR) was considered as owing, and the Petitioner was held responsible for its payment.

11.9. Under the aforementioned conditions, the total amount of €57,637.40 corresponding to the tax (ISP and CSR) was determined, to which the corresponding compensatory interest is added, as shown in the following summary table:

11.10. The provisions of article 60 of the Complementary Regime of Tax Inspection Procedure were duly observed, with the Petitioner being notified of the draft conclusions of the Report through official letter no.…, of the Customs Office of …, of 26-04-2017.

11.11. The right to be heard was not exercised within the 15-day period notified to the Respondent, the latter being notified of the content of the final Report and the decision rendered thereon.

11.12. Through Official Letter no.…, of 05-07-2017, received on the 6th of the same month, the Petitioner was notified of the assessments made, as well as the respective period of 15 days, counted from receipt of the notification, to make its voluntary payment.

11.13. The Petitioner made voluntary payment of the debt at the Treasury of the Customs Office of… on 20-07-2017 (Doc.3).

12. There are no other facts relevant to the decision on the merits that have not been proven.

III. LEGAL MATTERS

13. The issue is to decide, based on the facts briefly described above, on the legality of the questioned additional assessments of ISP, CSR and corresponding compensatory interest, with reference to transfers of colored and marked diesel carried out in violation of the commercialization rules for this product, but only insofar as concerns sales without the issuance of a nominative invoice issued to the microcircuit cardholder, that is, as regards sales invoiced to "final consumer," to which, in the total ISP and CSR assessment, corresponds an amount of €51,784.52.

POSITION OF THE PETITIONER

14. Acknowledging the legality of the assessments relating to the year 2014 as well as, with respect to the years 2015 and 2016, those relating to sales made to non-holders of active cards and without registration in the ATM, the Petitioner, with respect to sales of GMC with the issuance of a document using the designation 'final consumer', but where the name and tax identification number of the cardholder used in the supply do not appear, does not agree with the AT's interpretation.

15. Specifying with greater precision the object of the present petition, the Petitioner states:

"33. The petition for an arbitral decision is specifically aimed at the annulment of the assessment in the part concerning the ISP assessed with respect to the quantities determined from sales made in 2015 and 2016 with the issuance of a sales document which contains the designation 'final consumer'. Thus,

34. In the final report, the AT stated (at p. 192) that, during the year 2015, the petitioner proceeded to sell 80,429.67 liters of GMC to subjects (persons) holding active microcircuit cards, issuing a simplified invoice, or if preferred, issuing a document to the cardholder using the designation 'final consumer', without specifying the name and tax identification number thereof (see pp. 178 and 179 of the report). And that,

35. In the year 2016 the petitioner proceeded to sell 80,862.25 liters of GMC to subjects (persons) holding active microcircuit cards, issuing a document (simplified invoice) to the cardholder using the designation 'final consumer', without specifying the name and tax identification number thereof (see pp. 178 and 179 of the report).

36. As stated in the AT's final report, point 8 of Regulation no. 361-A/2008, of 12 May, provides that 'the registration in the computer system, through the POS terminals, of each supply made, does not dispense with the issuance of the respective invoice or equivalent document, issued in the name of the holder of the respective microcircuit card'. It being the case that,

37. With the modification/amendment of no. 5 of art. 93 of the C.I.E.C. made by the State Budget Law of 2015 (Law no. 82-B/2014, which in its art. 207 amended, among others, such provision) effective as of 01 January 2015, 'the owner or legal responsible for the operation of the service stations authorized for public sale became responsible for the amount of tax resulting from the difference between the level of taxation applicable to road diesel and the rate applicable to colored and marked diesel in relation to the quantities for which the corresponding invoices in the name of the cardholder are not issued'. Now,

38. The petitioner, involuntarily, was not aware of the aforementioned legislative change which, as of 01 January 2015, began to require the issuance of an invoice with the identification of the cardholder and respective tax identification number, continuing to adopt the same procedure it had adopted until then.

39. Indeed, for the holders of the active microcircuit card who refueled at the Station, the supply was recorded in the ATM, and as a rule a simplified invoice was issued, and an invoice was only issued to the cardholder who requested it..."

16. According to the Petitioner, "the interpretation of no. 5 of art. 93 of the C.I.E.C. as made by the AT, in addition to not taking into account the rational and teleological element, clearly and unequivocally violates the constitutional principle of proportionality, enshrined in arts. 18, no. 2 and 266, no. 2, of the C.R.P.".

17. Reaffirming that the sales of GMC, although invoiced to "final consumer," always had as purchasers holders of the microcircuit card entitled to its acquisition and, consequently, this fact resulted in no damage to the tax revenue.

18. Thus, in the Petitioner's view, "The AT's decision to require the petitioner to pay a tax, under the circumstances in which it did so, for the disrespect of a purely formal requirement by the petitioner, in situations in which the tax is not due (given that the supplies made under the aforementioned conditions were made to taxpayers who benefit from the tax reduction), contains in itself a manifestly excessive and disproportionate sanction. For which reason, and subject to better judgment, we are faced with a clearly illegal and unconstitutional application of no. 5 of art. 93 of the C.I.E.C., in view of the provisions of no. 2 of art. 18 and no. 2 of art. 266 of the C.R.P., which are thus violated."

19. Considering, further, with support from arbitral case law that it cites, that the provision of no. 5 of article 93 of the CIEC, on whose violation the reasoning for the assessment made by the AT is based, the Petitioner alleges that:

"86. No. 5 of art. 93 of the C.I.E.C. constitutes the implementation of art. 562 of the C.C.: 'Whoever is obliged to repair a damage must restore the situation that would exist if the event obligating the repair had not occurred'.

87. In the case at hand there is no damage to the State / to the tax revenue. Indeed,

88. When the petitioner, in the year 2015, sold 80,429.67 liters of GMC issuing a simplified invoice (instead of an Invoice) and, in the year 2016, sold 80,862.25 liters of GMC issuing a simplified invoice (instead of an Invoice), all those sales were made to taxpayers entitled to its acquisition (having an active microcircuit card, as shown in the computerized records of DGADR, those sent by SIBS, and those of '…'). Therefore,

89. The fact that the petitioner did not issue an 'Invoice' in the sales of the quantities of GMC referred to in the previous number did not cause any damage to the tax revenue. And,

90. The absence of such damage means that the conditions on which the tax responsibility of the petitioner referred to in no. 5 of art. 93 of the C.I.E.C. depends are not met.

91. In deciding otherwise, the AT erred in the interpretation and application of such provision. Therefore,

92. The assessment that is impugned should be (partially) annulled in the part in which it assesses ISP, CSR and Compensatory Interest in relation to the sale of 80,429.67 liters of GMC in the year 2015, and to the sale of 80,862.25 liters of the same product in the year 2016, with the effects flowing therefrom."

20. Along with the petition for a declaration of illegality and partial annulment of the assessment made with the consequent refund of the amounts improperly paid, the Petitioner further requests that it be granted the right to indemnatory interest, under article 43 of the General Tax Law.

POSITION OF THE RESPONDENT

21. For its part, the Respondent understands that the Petitioner's arguments have no merit, inasmuch as "The tax responsibility charged to the Petitioner with respect to the sales of GMC made between 2015 and 2016 for which invoices were not issued in the name of the cardholder has complete legal framework, in accordance with the principle of tax legality under the terms of articles 165, no. 1, subsection i) and 103, no. 2, of the Constitution of the Portuguese Republic (CRP), insofar as it is clearly set forth in article 93, no. 5 of the CIEC (as amended by Law no. 82-B/2014, of 31 December."

22. According to the Respondent, "Contrary to what is alleged by the Petitioner (…) the requirement for the issuance of an invoice in the name of the cardholder, under the terms of article 93, no. 5, of the CIEC, does not constitute a purely formal requirement that should only support an assessment of IEC when associated with the existence of damage to the tax revenue.

23. Still according to the Respondent, "The absence of issuance of an invoice in the name of the cardholder constitutes, in itself, a cause of liability of the owner or legal responsible for the operation of the service stations authorized for public sale for the payment of the relevant IEC, as results, clearly and unequivocally, from the letter of the law.

24. In this sense, "(…) the requirement for the issuance of an invoice in the name of the cardholder introduced by the aforementioned Law 82-B/2014 in no. 5 of article 93 of the CIEC was intended to complement the control of the regularity of GMC sales. Indeed, since the registration in the electronic control system is neither a formality nor a document of a commercial nature, its comparison with the corresponding commercial document – the invoice in the name of the cardholder appears to be essential for the purposes of controlling the allocation of the product, in order to verify whether the sale was actually recorded through the buyer's card.

25. Thus, concluding, the Respondent states that "(…) the failure to comply with the obligation to issue an invoice in the name of the cardholder through which the liters sold were registered makes it impossible to control the allocation of the product to entitled entities and prevents the confirmation that the GMC was sold to the holder of the card used in the registration."

26. Given the positions expressed by the Parties, summarized above, it is important at the outset to refer to the legislative framework applicable at the date of the occurrence of the taxable events, located in time, in the years 2015 and 2016.

ON THE TAX ON PETROLEUM PRODUCTS

27. For relevant extrafiscal reasons, fuels may be subject to transmission at a reduced rate. This is the case with diesel intended to be used in agricultural activities, fishing, railway transport and other uses expressly provided for in article 93 of the IEC Code.

28. In order to ensure that this fuel is used only for the purposes that justify granting the fiscal benefit, and to prevent situations of fraud and evasion, the diesel supplied to users at the reduced ISP rate has a specific coloring and fiscal mark.[i]

29. The use of colored and marked diesel is, under the terms of no. 3 of the article referred to above, conditioned to certain economic activities, being restricted to:

- Stationary motors used for irrigation;

- Coastal and inland navigation vessels intended for fishing, aquaculture and dredging;

- Agricultural tractors, combines, motor tillers, motor hoes, motor reapers, self-propelled potato harvesters, pea harvesters, forage harvesters for silage, tomato harvesters, conditioner mowers, grape harvesters, trunk shakers for olive and other fruit harvesting, as well as other equipment, including those used for aquaculture activity, approved by regulation of government members responsible for the areas of finance, agriculture and the sea;

- Vehicles for the transport of passengers and goods by railway;

- Fixed engines;

- Autonomous refrigeration motors, installed in heavy vehicles for the transport of perishable goods, powered by separate fuel tanks, and which have ATP (Perishable Transport Agreement) certification, as to be defined by regulation of government members responsible for the areas of finance, agriculture and transport.

30. In addition to coloring and marking and limitations on its use, the commercialization of the product in question is subject to a set of conditions established not only in article 93 of the CIEC, but also in Regulation no. 117-A/2008 of 8/02, and in particular in Regulation no. 361-A/2008, of 12/05. [ii]

31. Among the conditions established in the aforementioned Regulation 361-A/2008, the following stand out for their relevance in the situation under analysis:

"2. Colored and marked diesel is a product of restricted sale, whose availability in the national market can only be carried out by oil companies that have entered into a contract with the State, represented by the Directorate-General for Agriculture and Rural Development (DGADR), whereby they commit to making colored and marked diesel available for public sale, in the proportion of at least one service station for every 600,000 liters sold.

3. Colored and marked diesel can only be supplied or sold to holders of duly licensed service stations that possess point of sale (POS) terminals.

4. The provisions of the preceding number shall apply to distributors, provided that they also have POS terminals.

5. Colored and marked diesel can only be sold at service stations to beneficiaries of an exemption or reduction in ISP rate who hold microcircuit cards issued for this purpose by DGADR, through which all colored and marked diesel transactions are recorded in the computer system managed by the Interbank Services Society (SIBS).

6. The sales referred to in the preceding number shall be mandatorily recorded on the POS terminals at the moment they occur.

...

8. The recording in the computer system, through the POS terminals, of each supply made, does not dispense with the issuance of the respective invoice or equivalent document, issued in the name of the holder of the respective microcircuit card.

...

32. On the other hand, and in accordance with no. 5 of article 93 of the IEC Code, as amended at the date of occurrence of the facts referred to in the present proceedings [iii], "Colored and marked diesel can only be purchased by the holders of the electronic card established for the purposes of controlling its allocation to the destinations referred to in no. 3, and the owner or legal responsible for the operation of the service stations authorized for public sale is responsible for the payment of the amount of tax resulting from the difference between the level of taxation applicable to road diesel and the rate applicable to colored and marked diesel, in relation to the quantities they sell and which are not duly recorded in the electronic control system, as well as in relation to the quantities for which the corresponding invoices in the name of the cardholder are not issued.

33. In the situation under analysis, it is found that the Petitioner, in the course of the years 2015 and 2016, sold, respectively, 80,429.67 and 80,862.25 liters of colored and marked diesel to electronic card holders and issued the corresponding invoices but without the identification of the purchaser appearing therein, as required by law, instead only referring to "final consumer".

34. This irregularity in the commercialization of the product removes the fiscal benefit provided for in no. 1 of article 93 of the IEC Code and determines the application of normal-level taxation, defining as the taxpayer of the tax obligation the owner or legal responsible for the operation of the service station that supplied the colored and marked diesel in violation of applicable legal rules (cf., CIEC, arts. 93, no. 5 and 4, no. 2, subsection h)).

35. The obligation incumbent on the owner or legal responsible for the operation of a fuel service station that sells colored and marked diesel to the public, with regard to the issuance of an invoice in the name of the cardholder, results directly from the law and no doubts can be raised. In this case, the taxpayer did not observe a legal prescription that is clear, which it had an obligation to know and whose consequences are clearly specified in the law.

36. Concluding, thus, on the legality of the assessments now impugned, the petition for recognition of the right to indemnatory interest is rendered moot.

IV - DECISION

In these terms, and for the reasons stated, the Tribunal decides to find the petition for an arbitral decision completely without merit.

Value of the case: The value of the case is fixed at €51,784.52, under the terms of article 97-A, no. 1, subsection a) of the CPPT, applicable by reference from article 29, no. 1, subsections a) and b), of the RJAT and article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings.

Costs: Under article 22, no. 4, of the RJAT, and in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, I fix the amount of costs at €2,142.00, to be borne by the Petitioner.

Lisbon, 19 March 2018,

The Arbitrator,

Álvaro Caneira.

Frequently Asked Questions

Automatically Created

What is ISP (Imposto sobre os Produtos Petrolíferos e Energéticos) and how does it apply to colored and marked diesel in Portugal?
ISP (Imposto sobre os Produtos Petrolíferos e Energéticos) is Portugal's tax on petroleum products and energy. Colored and marked diesel (GMC - gasóleo colorido e marcado) benefits from significantly reduced ISP rates compared to standard road diesel, as it is intended for agricultural, industrial, or other non-road uses. However, this preferential treatment is conditional upon strict compliance with commercialization formalities established in the Special Consumption Tax Code (CIEC) and Regulation 361-A/2008, including proper documentation, cardholder identification, and use of authorized microcircuit cards during sales.
Can the Tax Authority impose additional ISP and CSR charges when invoices for colored and marked diesel fail to identify the cardholder?
Yes, the Tax Authority can impose additional ISP and CSR charges when required formalities are not observed. When colored and marked diesel is sold without proper invoicing to the identified cardholder - such as using generic 'final consumer' invoices - the Tax Authority may assess the difference between the reduced GMC tax rate and the standard road diesel rate. This approach treats non-compliant sales as if they were standard diesel transactions, eliminating the tax benefit. In Process 557/2017-T, this resulted in an assessment of €57,637.40 for sales totaling over 161,000 liters across 2015-2016.
What does Article 93(5) of the Portuguese Special Consumption Tax Code (CIEC) require for the sale of colored and marked diesel?
Article 93(5) of the CIEC (Código dos Impostos Especiais de Consumo) establishes mandatory commercialization procedures for colored and marked diesel. It requires that: (1) sales be recorded using the microcircuit card of the authorized cardholder; (2) invoices must be nominative, identifying the specific cardholder by name and tax identification number; (3) the cardholder must possess an active, valid card at the time of supply; and (4) generic designations like 'final consumer' are prohibited. These requirements, complemented by Regulation 361-A/2008, ensure that reduced-rate GMC is only supplied to authorized users for permitted purposes.
What is the CAAD arbitration procedure for challenging ISP and CSR tax assessments in Portugal?
The CAAD (Centro de Arbitragem Administrativa) arbitration procedure for challenging ISP and CSR assessments follows the RJAT (Legal Regime of Tax Arbitration). Taxpayers file a petition requesting tribunal establishment, which the CAAD President accepts and notifies to the Tax Authority. An arbitrator is appointed by the Deontological Council, and upon acceptance, the tribunal is constituted. Both parties submit written arguments, with the Tax Authority typically providing the administrative file. The tribunal may dispense with hearings if documentation is sufficient. The procedure offers a faster alternative to judicial courts, with binding decisions on tax assessment validity, including potential annulment and compensatory interest awards.
Are taxpayers entitled to compensatory interest (juros indemnizatórios) when an ISP tax assessment is partially annulled?
Yes, Portuguese tax law provides for compensatory interest (juros indemnizatórios) when tax assessments are annulled and amounts were improperly collected. Under Article 43 of the General Tax Law (LGT), taxpayers are entitled to interest compensation when the State wrongfully retains amounts later determined to be improperly paid. The rate and calculation follow statutory provisions in the Tax Procedures Code (CPPT). In ISP cases, if an arbitral tribunal or court annuls an assessment - whether totally or partially - the taxpayer may claim compensatory interest from the payment date until refund, as explicitly requested in Process 557/2017-T alongside the principal amount's restitution.