CAAD 575/2017-T: VAT Deduction Rights for SGPS Holding Companies - Economic Activity Concept

ARBITRAL DECISION

I. REPORT

1. On 31 October 2017, the commercial company A…, SGPS, S.A., VAT number…, with registered office at…, n.º…,…, Lisbon (hereinafter, Claimant), filed an application for establishment of an arbitral tribunal, under the combined provisions of articles 2, n.º 1, subparagraph a), and 10, n.ºs 1, subparagraph a), and 2, of Decree-Law n.º 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by article 228 of Law n.º 66-B/2012, of 31 December (hereinafter, briefly designated as RJAT), seeking the declaration of illegality and annulment of the supplementary VAT assessment notice n.º 2017… and corresponding account settlement statement n.º 2017…, resulting from the compensation n.º 2017…, from which resulted the total amount payable of € 56,735.22.

The Claimant attached 16 (sixteen) documents and did not request the production of any other evidence.

The Respondent is the AT – Tax and Customs Authority (hereinafter, Respondent or AT).

1.1. Essentially, the Claimant alleged what is summarised in the following conclusions that it formulates, finally, in the request for arbitral pronouncement:

"A. The Claimant is a management company for equity holdings which, alongside its activity, directly intervenes in the management of its investee companies, namely through the provision of technical services to them.

B. Its activity of managing equity holdings in B… and C… presents particular characteristics, insofar as it results from (and is entirely conditioned by) an international treaty concluded between the Governments of Portugal and the Kingdom of Spain.

C. In this sense, this activity is essentially passive and assumes a merely residual nature in the overall computation of the Claimant's activities.

D. Resulting therefrom, therefore, that the goods and services acquired by it relate, essentially, to expenses incurred for the pursuit and performance of technical services – in the area of human resources, secretarial and logistical support – that it provides to its investee companies, within the scope of the contractual relationship it has assumed with them for several years and that it continues to honour on a continuous and regular basis.

E. During inspection, the AT contested a significant portion of the VAT deduction claimed by the Claimant in 2013 – approximately 84% of the total value of field 24 of its periodic declarations for that year – alleging, without proving or substantiating (contrary to the legal framework to which it is bound), its complete and exclusive consumption in the activity of management of equity holdings, which does not confer the right to deduction as it is not an economic activity.

F. Now, as has been demonstrated above, as well as in the attached documentation, the VAT deduction effected by the Claimant with respect to these expenses finds full legal, administrative and jurisprudential support.

G. The Inspection Services ignored the fact that the expenses in question were necessary for the performance of the Claimant's services to its investee companies, which is why, contrary to what was alleged, their consumption is not exhausted in the activity of management of equity holdings.

H. Considering, moreover, the type of services acquired – of a legal, financial, commercial (marketing) and IT nature –, as well as the fact that the Claimant does not have such resources at the internal level, it is easily understandable the essentiality of the same for the provision of human resources services and similar to the investee companies.

I. If, contrary to the current scenario, the Claimant had internalised these resources (i.e., if it had hired an in-house lawyer, as well as a human resources director, or an IT specialist), who would then be responsible, along with existing resources, for the provision of services to the investee companies, we believe that the AT would not have raised any question regarding the deduction of input tax.

J. This difference in treatment constitutes, however, a violation of the principle of tax neutrality, since the Claimant cannot be limited in the exercise of its right to deduction by the simple fact that it needs to resort to external contracting in order, together with its internal resources, to be able to fulfil the contractual obligations it has agreed with its investee companies, which are embodied in the performance of taxable technical services.

K. The Inspection Services also erred in law by ignoring the fact that (i) the Claimant, notwithstanding its nature as a holding company, directly intervenes in the management of its investee companies, a fact proven by the contracts concluded with them (attached to this process), which constitutes an economic activity, and (ii) such costs form part of the Claimant's general expenses, being components of the price of the services it provides downstream.

L. Whereby all VAT incurred by the Claimant on the services acquired by it and subject to corrections is fully deductible.

M. In view of the above, the notified tax assessment cannot succeed as it is manifestly illegal."

1.2. The Claimant concludes its initial pleading by petitioning the following:

"In these terms, the following is petitioned:

• To annul the supplementary VAT assessment n.º 2017… and respective account settlement statement materialised in the compensation n.º 2017…;

• To order the full and immediate restoration of the situation that would have existed had the illegality not been committed, as results from the provisions of article 100 of the General Tax Act, namely regarding the supplementary corrective assessments that were issued for periods 03T, 06T and 09T of 2013 and the reimbursement of the amount paid for this purpose;

• To condemn the Public Treasury to the payment of compensatory interest, at the legal rate of 4% per annum, from the date of payment of the assessments in question until the date of processing of the respective credit note, under the terms of articles 43, n.º 1, of the GTA and 61 of the Code of Administrative Tax Procedure."

1. The application for establishment of an arbitral tribunal was accepted and automatically notified to the AT on 6 November 2017.

2. The Claimant did not proceed to appoint an arbitrator, whereby, under the provisions of n.º 1 of article 6 and subparagraph a) of n.º 1 of article 11 of the RJAT, the President of the Deontological Council of CAAD designated the undersigned as arbitrator of the singular Arbitral Tribunal, who communicated acceptance of the assignment within the applicable period.

3.1. On 21 December 2017, the Parties were duly notified of this designation and did not express any intention to challenge the designation of the arbitrator, in accordance with the combined provisions of article 11, n.º 1, subparagraphs b) and c), of the RJAT and articles 6 and 7 of the CAAD Code of Ethics.

3.2. Thus, in compliance with the provision of subparagraph c) of n.º 1 of article 11 of the RJAT, the singular Arbitral Tribunal was constituted on 11 January 2018.

1. On 14 February 2018, the Respondent, duly notified for this purpose, filed its Reply in which it specifically contested the arguments put forward by the Claimant, concluding that this action should be dismissed.

4.1. Essentially, and also briefly, it is important to extract the most relevant arguments on which the Respondent based its Reply:

The Respondent begins by referring to the alleged defect of lack of reasoning, stating that it is shown that the Claimant understood perfectly the meaning and scope of the act, as results from the legal-argumentative exercise it performs in the present request for arbitral pronouncement, whereby the formal defect of lack of reasoning does not occur when it is manifest and indisputable that the Claimant demonstrates, throughout its request for arbitral pronouncement, a perfect understanding of the impugned act.

Furthermore, according to the Respondent, regarding the tax whose deduction was accepted, as no act harmful to the interests of the Claimant was committed, it was not necessary to substantiate its acceptance, nor does the assessment of this right to deduction fall within the scope of these proceedings; what is at issue in these proceedings is to assess whether or not the disregard for the deductible tax, whose correction the Claimant seeks to have annulled, was effected legally.

Regarding the substantive issue, the Respondent alleges that it was incumbent upon the Claimant to demonstrate, through accounting as well as through clarifications provided pursuant to the duty of cooperation, its right to deduction, and having failed to do so, the Respondent could not consider the VAT in question deductible; indeed, it is not perceivable, neither from the description of the invoices whose tax deduction thereon is disputed, nor from the clarifications provided by the Claimant to the tax inspection services, nor from the clarifications brought to these proceedings, the relationship of such inputs with the services that the Claimant provides to its investee companies.

The Claimant seeks to secure such right to deduction through an abusive use of the right to deduct tax supported in general expenses, which is admitted when such expenses are, as such, constituent elements of the price of the goods it supplies or of the services it provides.

Now, the services provided by the Claimant to its investee companies in 2013 totalled € 9,429.48, whose tax liability, at the normal rate, should have corresponded to € 2,168.78.

Thus, the allocation made by the Claimant of the invoices in question to general expenses that are constituent elements of the price of the services it provides is perfectly abusive, since it seeks to suggest that inputs with a total amount of € 67,831.52 of VAT supported are constituent elements of the price of outputs that would total the amount of € 2,168.78 of VAT liability.

Therefore, even if the Claimant seeks to create the idea of an indirect link between such inputs and the performance of those operations, considering the inputs as general operating expenses, it does not demonstrate that the inputs are constituent part of the services it provides to the investee companies, which is, moreover, shown to be impossible insofar as the tax supported can never be a constituent part of a price when that part is significantly 30 times the whole.

It is further added that it is also not understood how inputs relating to services that its investee companies provided to it can be part of the outputs of services provided by the Claimant to those same investee companies.

Not proving the assumptions for the exercise of the right to deduction, the Claimant was obliged to comply with the default regime, effecting the VAT assessment and supporting it, as if it were a final consumer, by virtue of the input being effected for the performance of operations outside the field of application of the tax.

In this way, the corrections should be maintained, as they correspond to the correct legal-tax framework of the operations in question.

Regarding the petitioned payment of compensatory interest, the Respondent maintains that, in the absence of any error attributable to the services in the tax assessment, the right to compensatory interest should not be recognised to the Claimant.

Such error must necessarily imply the existence of a defect in the legal tax relationship, that is, it will imply a judgment on the character of the undue nature of the monetary payment collected by the AT, in the light of substantive norms, this illegality which must necessarily be attributable to error of the services.

Now, the assessment in question does not result from any error of the services, resulting directly from the application of the law; indeed, the AT merely applied the legal consequences that, from a tax perspective, were required given the occurrence of the factual assumptions underlying the corrections made, whereby the challenge regarding the interest petitioned should also be judged to be unfounded.

The Respondent concludes its pleading as follows:

"In these terms, and in the other respects that Your Excellency will duly supplement, this request for arbitral pronouncement should be judged unfounded, as unproven, and the tax assessment acts impugned shall remain in the legal order, and accordingly, the entity respondent shall be absolved of the claim."

4.2. On the same occasion, the Respondent attached to the proceedings the respective administrative file (hereinafter, briefly designated as AF).

1. On 15 February 2018, an order was issued dispensing with the holding of the meeting referred to in article 18 of the RJAT, as well as stipulating the successive period of 10 (ten) days for, if desired, the Parties to submit written submissions, with 29 June 2018 being fixed as the deadline for the pronouncement of the arbitral decision.

2. Both Parties submitted written submissions, in which they reiterated the positions previously assumed in their respective pleadings.

II. PRELIMINARY MATTERS

The Arbitral Tribunal was regularly constituted and is competent.

The proceedings do not suffer from any nullities.

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

There are no exceptions or preliminary matters that prevent consideration of the merits and which require to be addressed.

III. REASONING

III.1. FACTUAL MATTERS

§1. ESTABLISHED FACTS

The following facts are considered established:

a) The Claimant is a public limited company incorporated on 16 September 2010 and which commenced its activity on 20 September 2010, having as its corporate purpose the management of equity holdings in other companies, as an indirect form of exercise of economic activities, being registered under CAE 64202 ("ACT. COMPANIES MANAGING NON-FINANCIAL EQUITY HOLDINGS"). [cf. AF attached to the proceedings and Doc. n.º 4 attached to the Initial Pleading]

b) For VAT purposes, the Claimant is subject to tax under the normal regime with quarterly periodicity. [cf. AF attached to the proceedings and Doc. n.º 4 attached to the Initial Pleading]

c) The Claimant holds equity holdings in the companies managing the Iberian Electricity Market ("MIBEL"), which resulted from a joint initiative of the Governments of the Portuguese Republic and the Kingdom of Spain, aimed at building a regional electricity market on the Iberian Peninsula, for which purpose several protocols and international agreements/treaties were signed between 2001 and 2008 by the two countries.

d) The implementation of "MIBEL" presupposed the following corporate structure, specially created for this purpose:

• two management entities – one Portuguese, B…, S.A. ("B…"), and another Spanish, C…, S.A. ("C…") – to manage the forward, daily and intra-daily markets, respectively;

• two companies, one Portuguese and one Spanish, managing the equity holdings in "B…" and "C…".

e) In this context, on 18 October 2011, the Claimant, together with its Spanish counterpart, came to hold 50% of the share capital of each of the market management companies, namely B… and C….

f) The specificity of the market in question determines that the Claimant is bound, by international treaty, to the maintenance of the equity holdings in B… and C…, and it is not possible for it to freely dispose of them.

g) In 2013, the Claimant held the following financial holdings [cf. AF attached to the proceedings and Doc. n.º 4 attached to the Initial Pleading]:

• 50% of the share capital of "B…";

• 50% of the share capital of "C…";

• 50% of the share capital of "D…, S.A.";

• 10% of the share capital of "E…, S.A.".

h) Given the particular characteristics of "MIBEL", which determine that the portfolio of securities held by the Claimant does not suffer any alterations – that is, the Claimant is not authorised to proceed with the purchase or sale of securities, as if it were a normal SGPS – the activity of management of equity holdings assumes a merely residual nature, since it is an act of holding a portfolio of securities which, for legal reasons, must be maintained without any alteration, which only allows the receipt of dividends.

i) The Claimant, in addition to holding the aforementioned equity holdings, provides technical services – consisting of advisory services in human resources, secretarial and administrative support –, on a regular and continuous basis, to two entities in the Group: "B…" and "F…, S.A. ("F…"), indirectly held by it through "B…".

j) The aforementioned investee companies are VAT taxable persons with the right to deduction.

k) On 5 December 2011, the Claimant concluded a Service Provision Contract with "B…" (attached as Doc. n.º 2 to the Initial Pleading and which is hereby considered as fully reproduced) under the terms of which it undertook to provide the following services listed in the respective clause 1: "Advisory services in human resources, comprising all services inherent to the functioning of the human resources department of B…" and "Secretarial and administrative support".

l) The Claimant's remuneration for the services provided under that contract was stipulated in the respective clause 5 and in its Annex I, resulting in the following [cf. Doc. n.º 2 attached to the Initial Pleading]:

• The remuneration is fixed at the annual amount of € 8,251.05, plus VAT at the legal rate in force, to be invoiced on a monthly basis;

• The aforementioned amount may be updated, renegotiated or altered, by agreement between the Parties, namely as a result of an increase or reduction in the volume of services provided.

m) On 4 December 2012, the Claimant concluded a Service Provision Contract with "F…" (attached as Doc. n.º 3 to the Initial Pleading and which is hereby considered as fully reproduced), under the terms of which it undertook to provide the following services listed in the respective clause 1: "Advisory services in human resources, comprising all services inherent to the functioning of the human resources department of F…" and "Secretarial and administrative support".

n) The Claimant's remuneration for the services provided under that contract was stipulated in the respective clause 5 and in its Annex I, resulting in the following [cf. Doc. n.º 3 attached to the Initial Pleading]:

• The remuneration is fixed at the annual amount of € 9,429.50, plus VAT at the legal rate in force, to be invoiced on a monthly basis;

• The aforementioned amount may be updated, renegotiated or altered, by agreement between the Parties, namely as a result of an increase or reduction in the volume of services provided, without in any case the deviation being able to exceed or fall short of 10% of the price of the services;

• The price of the services will be automatically adjusted in accordance with the evolution of the Consumer Price Index (excluding housing), on each anniversary date of the Contract, in case of renewal thereof.

o) The Claimant contracted G… and H… to carry out tasks in the areas of secretarial and administrative support, whose Fixed-Term Employment Contracts, concluded respectively on 2 November 2010 and 1 March 2013, are hereby considered as fully reproduced (cf. Docs. n.ºs 14 and 15 attached to the Initial Pleading).

p) On 26 June 2012, the Claimant concluded a Service Provision Contract with I… (attached as Doc. n.º 16 to the Initial Pleading and which is hereby considered as fully reproduced), whereby the latter undertook to provide its professional services of consultancy and management support, in the area of human resources, in exchange for payment of the monthly gross amount of € 1,500.00, plus VAT at the legal rate in force.

q) In the periodic VAT declaration for the tax period 201312T, the Claimant made a request for VAT refund in the total amount of € 107,244.38. [cf. Doc. n.º 4 attached to the Initial Pleading and AF attached to the proceedings]

r) In compliance with Service Order n.º OI2016…, issued on 25.10.2016, with the activity code "1122111506 – Monitoring of taxable persons who requested VAT refund without inspection procedure", in the Finance Directorate of Lisbon, an external partial inspection procedure was carried out on the Claimant, relating to VAT and covering the year 2013. [cf. Doc. n.º 4 attached to the Initial Pleading and AF attached to the proceedings]

s) In the course of that inspection procedure, on 23.03.2017, the Claimant was notified to provide the following clarifications [cf. Doc. n.º 4 attached to the Initial Pleading and AF attached to the proceedings]:

[Details of clarifications requested contained in document]

t) The Claimant replied on 28.03.2017, as follows [cf. Doc. n.º 4 attached to the Initial Pleading and AF attached to the proceedings]:

[Details of Claimant's response contained in document]

u) Through official letter n.º…, of 20.04.2017, from the Tax Inspection Services of the Finance Directorate of Lisbon, sent by registered mail (CTT registration: RD … PT), the Claimant was notified of the respective Draft Report of Tax Inspection and to, if desired, exercise the right of hearing, with purely arithmetic corrections being proposed, in respect of VAT, for the year 2013, with the following reasoning [cf. AF attached to the proceedings]:

[Details of proposed corrections contained in document]

v) The Claimant did not exercise that right of hearing, whereby the aforementioned VAT corrections proposed were entirely maintained in the Report of Tax Inspection, with the reasoning contained therein and which is hereby considered as fully reproduced. [cf. Doc. n.º 4 attached to the Initial Pleading and AF attached to the proceedings]

w) The Claimant was notified of the Report of Tax Inspection, through official letter n.º…, dated 22/05/2017, from the Tax Inspection Services of the Finance Directorate of Lisbon, sent by registered mail (CTT registration: RD … PT). [cf. Doc. n.º 4 attached to the Initial Pleading and AF attached to the proceedings]

x) The AT determined that the Claimant does not have the right to deduct the VAT supported in the acquisition of the services referred to in the invoices issued by "B…" (legal, financial and management advisory), "F…" (marketing and IT advisory), I… (human resources consultancy), "J…, Lda." (statutory audit), "K…" (legal services) and "L…, RL" (legal services), attached as Doc. n.º 5 to the Initial Pleading and which are hereby considered as fully reproduced.

y) By virtue of the aforementioned corrections, the following supplementary VAT assessments were made with reference to the year 2013 [cf. Docs. n.ºs 1 and 7 attached to the Initial Pleading]:

(i) Assessment n.º…, for the tax period 201303T, with an excess of tax to carry forward to the following period of € 45,420.16;

(ii) Assessment n.º…, for the tax period 201306T, with an excess of tax to carry forward to the following period of € 46,798.17;

(iii) Assessment n.º…, for the tax period 201309T, with an excess of tax to carry forward to the following period of € 49,909.14; and

(iv) Assessment n.º 2017…, for the tax period 201312T, with the amount to be refunded of € 50,509.11.

z) Together with this latter supplementary VAT assessment, the Claimant was also notified of the account settlement statement n.º 2017…, in which is materialised the compensation n.º 2017…, for the tax period 201312T, from which resulted the amount of tax to pay of € 56,735.22, with the voluntary payment deadline of 02.08.2017. [cf. Doc. n.º 1 to the Initial Pleading]

aa) The Claimant made the full and timely payment of the aforementioned amount of tax of € 56,735.22. [cf. Doc. n.º 6 to the Initial Pleading]

bb) On 31 October 2017, the application for establishment of an arbitral tribunal was filed, which gave rise to the present proceedings. [cf. case management system of CAAD]

§2. FACTS NOT ESTABLISHED

With relevance to the assessment and decision of the case, it was not ascertained what the advisory services provided by "B…" consisted of, nor what the concrete legal services provided by "L…" and "K…" to the Claimant and to which their respective invoices attached to Doc. n.º 5 to the Initial Pleading refer.

§3. MOTIVATION REGARDING THE FACTUAL MATTERS

The Tribunal based its conviction on the critical analysis of the documents (including the administrative file) referred to in each item of the established facts, whose authenticity is not impugned or disputed, nor leaves us in doubt, and on what was alleged and counter-alleged by the parties, whose adherence to reality was not called into question. As for the combination of facts represented in the documents, where applicable, the Tribunal will take into account the rules of common experience, of normality, of logic, of plausibility and of verisimilitude, inherent to the principle of free assessment of evidence.

Regarding the factuality not established, it should further be said that it was thus considered by virtue of the absence of any evidence capable of, even indirectly, proving it.

III.2. LEGAL MATTERS

In the case sub judice, the epicentre of the disagreement between the parties lies in the existence or not of the right to deduct the VAT supported by the Claimant with the acquisitions of services evidenced by the invoices contained in document n.º 5 attached to the request for arbitral pronouncement and referred to in the Tax Inspection Report which, according to it, were aimed at the provision of services to its investee companies.

In the Claimant's view, the performance of transactions subject to and not exempt from VAT consisting of services provided by the holding company to the investee companies is sufficient for the conclusion that the same exercises an economic activity and, to that extent, that it has the right to deduct the VAT incurred for its respective development. Consequently, proceeds the Claimant, the right to deduction of VAT is legitimate given the nature of the activity actually developed by it.

In the perspective of the Respondent, those concrete services acquired by the Claimant were used solely and only in the exercise of the activity of management of equity holdings and, as such, do not present any direct, causal and immediate nexus with the services provided by the Claimant to its investee companies, whereby it is denied the right to deduction of the VAT.

That said.

As was established, the Claimant is a SGPS which, alongside the exercise of the activity of management of equity holdings, develops the activity of provision of technical services of administration and management to the companies in which it has equity holdings, whereby we can take it as established that the Claimant has active and direct intervention in the management of its investee companies.

The aforementioned activity of provision of technical services of administration and management to the investee companies requires a set of resources (technical and human) which the Claimant, by itself, is unable to provide, as it does not possess an adequate physical and human structure for that purpose, whereby it resorts to third-party entities, to whom it subcontracts the provision of services in the aforementioned areas.

In those situations where the Claimant does not have sufficient or adequate means and subcontracts third-party entities, no doubts were raised, and no questions arise as to whether those entities invoice VAT to the Claimant with respect to the contracted and provided services.

For its part, on the services that the Claimant provides to the investee companies, the corresponding VAT is also invoiced.

It is, precisely, as a result of the active and direct intervention that the Claimant has in the management of its investee companies that the present dispute arises as to the possibility of deducting, or not, the VAT supported by the Claimant in the upstream inputs.

That stated. The Claimant alleges the following vitiating defects to the impugned supplementary VAT assessment act:

• lack of reasoning;

• violation of law, by error regarding the factual and legal assumptions, consisting of the erroneous interpretation and application, in particular, of articles 19 and 20 of the VAT Code.

It is therefore important to begin by establishing the order in which to address the aforementioned defects, for which we must invoke article 124 of the Code of Administrative Tax Procedure, applicable ex vi article 29, n.º 1, subparagraph a), of the RJAT, which provides as follows:

Article 124

Order of assessment of defects in the judgment

1 - In the judgment, the court shall prioritarily assess the defects that lead to the declaration of non-existence or nullity of the act impugned and, thereafter, the defects alleged that lead to its annulment.

2 - In the aforementioned groups, the assessment of the defects is made in the following order:

a) In the first group, that of defects whose procedence determines, according to the prudent discretion of the judge, the most stable or effective protection of the offended interests;

b) In the second group, that indicated by the party impugning the act, whenever it establishes between them a relationship of subsidiarity and no other defects are alleged by the Public Prosecutor or, in the other cases, that fixed in the preceding subparagraph.

This legal provision establishes a priority for the assessment of defects whose procedence determines, according to the prudent discretion of the judge, the most stable or effective protection of the offended interests.

In the concrete case, it is unequivocal that none of the defects invoked by the Claimant can be considered as arising from situations that may determine the nullity of the impugned acts in light of the legal criteria that characterise them, and furthermore the Claimant did not establish an order of priority for this assessment, whereby maximum effectiveness in the protection of its interests requires the priority assessment of the alleged defect of violation of law in relation to the indicated defect of lack of reasoning; and we will only pronounce on the latter if we conclude that the supplementary VAT assessment impugned does not suffer from the defect of violation of law, because, if otherwise, such would not make sense, having regard to the provision of the aforementioned article 124 of the Code of Administrative Tax Procedure (indeed, if in assessing a defect leading to the legal elimination of the impugned act and which permanently prevents its renewal, the judge had to assess all defects imputed to the act, the order of assessment would be irrelevant).

§1. THE LEGAL FRAMEWORK FOR SGPS

The concept of a holding company is generically used to refer to both companies that limit themselves to passively managing portfolios of securities, in a logic of risk distribution, and companies that hold controlling interests and actively intervene in the management of their investee companies, providing or not providing remunerated services to them.

It is usual to distinguish, among other modalities, between the pure holding and the mixed holding and between the financial holding and the management holding.

In the first case, the distinguishing criterion lies in the exclusive nature of its corporate purpose, whereby the pure holding devotes itself solely to the holding of equity holdings and the mixed holding also has commercial and industrial activities as its purpose.

In the second case, the differentiating criterion lies in the purpose for which the management of equity holdings is intended, whereby the management holding aims, more than the mere holding of equity holdings, at the framework and direction of the investee companies, while the financial holding is aimed solely at the profitability of the investment concentrated in the equity holdings.

With regard to SGPS, we find its legal framework defined in Decree-Law n.º 495/88, of 30 December – successively amended by Decree-Law n.º 318/94, of 24 December, Decree-Law n.º 378/98, of 27 November and Law n.º 109-B/2001, of 27 December –, which provides in its article 1 that SGPS "have as their sole contractual purpose the management of equity holdings in other companies as an indirect form of exercise of economic activities" (n.º 1), whereby "the holding of a stake in a company is considered an indirect form of exercise of that company's economic activity when it does not have an occasional character and reaches at least 10% of the capital with voting rights of the investee company, either by itself or through holdings in other companies in which the SGPS is dominant" (n.º 2), considering it "that the holding does not have an occasional character when it is held by the SGPS for a period exceeding one year" (n.º 3).

Under the terms of article 4 of the same legal instrument, SGPS are permitted "the provision of technical services of administration and management to all or some of the companies in which they hold equity holdings or with which they have concluded subordination contracts" (n.º 1), and that provision of services "shall be the subject of a written contract, in which the corresponding remuneration must be identified" (n.º 2).

In this framework, it is usual to qualify the SGPS as a pure holding – to the extent that it is limited as to its corporate purpose, in the terms referred to above, which prevents it from directly developing commercial, industrial or other economic activities except those aforementioned services – and as a management holding –, since its activity goes beyond the mere acquisition, holding and disposal of equity holdings, being able, complementary to its main activity, to provide, in certain circumstances, technical services of administration and management to all or some of the companies in which it holds equity holdings or with which it has concluded subordination contracts.

In summary, it flows from the legal framework of SGPS that the management of equity holdings in other companies, as an indirect form of exercise of an economic activity, constitutes the sole corporate purpose that, legally, any SGPS may have and pursue; this without prejudice to, as we have already mentioned, its respective activity going beyond the simple acquisition, holding and disposal of equity holdings.

§2. THE RIGHT TO VAT DEDUCTION

The right to deduction (based on the so-called input VAT credit method or credit method or indirect subtractive method or invoice method) is one of the pillars of VAT, probably the most important; indeed, "what makes VAT a tax on value added is the ability granted to each economic operator to deduct from the tax it charges on its sales the tax incurred in its purchases, remitting to the State only the difference, when the balance is positive."[1]

This has been highlighted by the CJEU in various decisions, such as in the Petroma judgment (delivered on 8 May 2013 in case C-271/12): "the right to deduction constitutes a fundamental principle of the common VAT system which cannot, in principle, be limited and which is exercised immediately in relation to all the taxes that have burdened the operations carried out upstream (…). The system of deductions thus established is intended to relieve the entrepreneur entirely of the burden of VAT due or paid in the context of all his economic activities. The common VAT system thus ensures neutrality as to the tax burden of all economic activities, regardless of their purpose or result, provided that those activities are themselves, in principle, subject to VAT".

The mechanism of the exercise of the right to deduction thus serves to ensure the neutrality characteristic of VAT, avoiding the cumulative effect and ensuring that the tax is ultimately borne by the final consumer; as it allows the taxable person to eliminate from its burden the VAT supported upstream and, in that way, not to reflect it as an operational cost of its activity, thus removing the cumulative or cascade effect, providing economic neutrality of the tax. The right to deduction of VAT supported upstream thus has special relevance in the system of this tax[2].

The mechanism of the exercise of the right to deduction is regulated in articles 167 to 192 of the VAT Directive (Directive n.º 2006/112/EC of the Council, of 28 November 2006, relating to the common system of value added tax) which, in essence, provides that taxable persons have the right to deduct from the tax charged in a Member State the tax that they have borne in that same Member State in the acquisition of goods or services, provided that these are intended exclusively for the performance of taxed operations or operations with complete exemption. In cases where the goods and services acquired by VAT taxable persons are intended exclusively for the performance of those operations, the right to deduction of the tax supported upstream is complete; if they are intended indistinctly for the performance of these and other operations that do not confer the right to deduction, the tax supported upstream is only partially deductible, with the VAT Directive establishing different methods of calculation for this purpose.

From a subjective perspective, article 168 of the VAT Directive provides that the right to deduction can only be exercised by whoever is a taxable person for VAT purposes, as the Directive itself defines them; thus, the holders of the right to deduction are the taxable persons referred to in article 9 of the VAT Directive – people who independently engage in a continuing economic activity, whatever its nature – as well as those who carry out isolated acts, whenever the Member States decide to consider them as taxable persons under article 12 of the VAT Directive. Those who become liable for the tax via the reverse charge mechanism provided for in articles 194 to 199 of the VAT Directive are also covered by the right to deduction.

From an objective perspective, article 168, subparagraph a), of the VAT Directive establishes that as a principle taxable persons may deduct the tax borne in the acquisition of all and any goods and services to other taxable persons, provided that these are used for their taxed operations. Also as a principle, only excluded from the right to deduction are goods or services that give rise to confusion between the personal sphere and the business sphere, to which article 176 of the VAT Directive alludes.

As Sérgio Vasques clarifies, the "reference to 'taxed operations' serves to make clear that only when there is effective application of the tax on the active operations is it possible to deduct the tax incurred on the passive operations. Conversely, when the active operations benefit from simple exemption, the right to deduction is excluded in principle and the taxable person comes to occupy a position similar to that of a final consumer, bearing in its sphere the tax relating to its acquisitions. Only when the active operations benefit from complete exemption is the right to deduction maintained intact, and it is to those exemptions that article 169 refers, in its subparagraphs b) and c)."[3]

The existence of a direct and immediate relationship between the goods and services acquired and one or more activities of supply of goods or provision of services that confer the right to deduction is, therefore, as a rule, indispensable for the right to deduction of VAT incurred on the goods and services acquired to be recognised to the taxable person and for determining the extent of that right.

However, the CJEU has clarified that such direct and immediate relationship is not required with respect to each output individually considered, admitting that such connection be verified with respect to the activity of the taxable person globally considered[4].

Thus, in the absence of an operation by operation nexus, the right to deduction subsists if a direct and immediate link is verified between the upstream acquisitions and the taxable activities downstream, that is, provided that there is such a relationship between the acquisitions upstream and the taxable activities of the taxable person[5].

More recently, the CJEU has gone even further in its approach to this question of the direct and immediate nexus between acquisitions and taxable operations downstream, having in the Sveda judgment[6] downplayed the requirement of direct use of the acquisition of goods or services, concluding that only by considering the ultimate purpose of the acquisition can the rationality and neutrality of the VAT system be achieved. By disregarding the immediate allocation of the input, considering its connection to the final purpose, the CJEU considers it sufficient an indirect nexus, provided that it is demonstrated that the inputs integrate the ultimate objective of pursuing an activity that confers the right to deduction or insofar as it confers it.

The CJEU has thus been following the interpretative trend that gives precedence to neutrality in the VAT system, departing from restrictive formulas in its concrete application and, therefore, has emphasised, on various occasions, that the norms of the VAT Directive that provide for limitations of the right to deduction – articles 176 and 177 – have an exceptional character within the VAT system, derogating from the principle of neutrality, whereby they must always be subject to strict interpretation[7].

In the national legal order, the VAT Code defines that taxable persons for tax purposes are, among others, "natural or legal persons who, in an independent manner and habitually, carry on activities of production, commerce or provision of services, including extractive, agricultural and liberal professions, and also those who, in the same independent manner, carry out a single taxable operation, provided that such operation is related to the exercise of the referred activities, wherever it occurs, or when, regardless of such connection, such operation meets the real incidence requirements of income tax on individuals (IRS) or on legal persons (IRC)" (article 2, n.º 1, subparagraph a)).

On the other hand, we find the right to VAT deduction regulated in articles 19 to 26 of the VAT Code, with the following norms being important to highlight (wording in force at the time of the facts):

"Article 19

Right to deduction

1 - For the calculation of the tax due, taxable persons deduct, under the terms of the following articles, from the tax charged on the taxed operations they have effected:

a) The tax due or paid for the acquisition of goods and services to other taxable persons;

(…)"

"Article 20

Operations that confer the right to deduction

1 - Tax may only be deducted that has been charged on goods or services acquired, imported or used by the taxable person for the performance of the following operations:

a) Supplies of goods and provisions of services subject to tax and not exempt from it;"

"Article 23

Methods of deduction for goods of mixed use

1 - When the taxable person, in the exercise of its activity, carries out operations that confer the right to deduction and operations that do not confer such right, under article 20, the deduction of tax borne in the acquisition of goods and services that are used in the performance of both types of operations is determined as follows:

a) Where a good or service is partially used for the performance of operations not resulting from the exercise of an economic activity provided for in subparagraph a) of n.º 1 of article 2, the non-deductible tax resulting from that partial use shall be determined under n.º 2;

b) Notwithstanding the provision of the preceding subparagraph, where a good or service is used for the performance of operations resulting from the exercise of an economic activity provided for in subparagraph a) of n.º 1 of article 2, part of which does not confer the right to deduction, the tax is deductible in the percentage corresponding to the annual amount of operations giving rise to deduction.

2 - Notwithstanding the provision in subparagraph b) of the preceding number, the taxable person may effect the deduction according to the actual allocation of all or part of the goods and services used, based on objective criteria that allow determining the degree of use of such goods and services in operations that confer the right to deduction and in operations that do not confer such right, without prejudice to the Tax Authority being able to impose special conditions on it or cease that procedure if it is found that they cause or may cause significant distortions in taxation.

3 - The tax administration may require the taxable person to proceed in accordance with the provision of the preceding number:

a) When the taxable person carries on distinct economic activities;

b) When the application of the process referred to in n.º 1 leads to significant distortions in taxation.

4 - The deduction percentage referred to in subparagraph b) of n.º 1 results from a fraction which comprises, in the numerator, the annual amount, tax excluded, of operations giving rise to deduction under n.º 1 of article 20 and, in the denominator, the annual amount, tax excluded, of all operations carried out by the taxable person resulting from the exercise of an economic activity provided for in subparagraph a) of n.º 1 of article 2, as well as non-taxed grants that are not equipment subsidies.

(…)

6 - The deduction percentage referred to in subparagraph b) of n.º 1, calculated provisionally on the basis of the amount of operations carried out in the preceding year, as well as the deduction made under n.º 2, calculated provisionally on the basis of the objective criteria initially used for applying the method of actual allocation, are corrected according to the final values for the year to which they refer, giving rise to the corresponding regularisation of deductions made, which must be included in the declaration for the last period of the year to which it relates."

In another order of considerations, it is important to emphasise that, in accordance with the case-law of the CJEU, the principle of VAT neutrality requires that the deduction of the tax paid upstream be granted if the substantial requirements have been met, even if the taxable persons have neglected certain formal requirements. Accordingly, according to the CJEU, as long as the Tax Administration has the necessary data to determine that the taxable person, as the recipient of the operations, is liable for VAT, it cannot impose, with respect to its right to deduction, additional conditions that may have the effect of making the exercise of that right absolutely impossible[8].

Regarding the aforementioned formal requirements, article 178 of the VAT Directive provides that "[i]n order to exercise the right to deduction, the taxable person must satisfy the following conditions: a) Regarding the deduction referred to in subparagraph a) of article 168°, in respect of supplies of goods and provisions of services, to be in possession of an invoice issued in compliance with articles 220° to 236°, 238°, 239° and 240°".

Article 219 of the VAT Directive provides that "[a]ny document or message amending the initial invoice and referring to it specifically and unequivocally shall be treated as an invoice".

Under article 220° of the aforementioned Directive, "[t]axable persons must ensure that an invoice is issued, by themselves, by the purchasers or recipients or, on their behalf and for their account, by third parties, in the following cases: 1) Regarding supplies of goods or provisions of services that they effect to other taxable persons or to legal persons that are not taxable persons".

Further on, article 226° of the same Directive provides that "[w]ithout prejudice to the specific provisions laid down in this Directive, the only particulars which must appear on invoices issued pursuant to articles 220° and 221° for VAT purposes are the following: (…) 6) The quantity and description of the goods supplied or the extent and nature of the services rendered; 7) The date on which the supply of goods or the provision of services was made, or completed, or the date on which the payment on account mentioned in points 4) and 5) of article 220° was made, to the extent that that date is determined and is different from the date of issue of the invoice".

Finally, article 273° of the aforementioned Directive determines the following:

"Member States may lay down other requirements which they consider necessary to ensure the correct collection of VAT and to prevent tax evasion, subject to the requirement of equal treatment for domestic transactions and transactions between Member States by taxable persons, and on condition that such requirements do not give rise, in intra-Community transactions, to formalities connected with the crossing of a frontier.

The power provided for in the first paragraph may not be used to impose invoicing requirements other than those laid down in Chapter 3."

In the VAT Code, article 19, n.º 2, determines that "[o]nly the tax mentioned in the following documents, in the name and possession of the taxable person, confers the right to deduction: a) In invoices passed in legal form"; and n.º 6 of the same article stipulates that "[f]or the purposes of the exercise of the right to deduction, invoices are considered passed in legal form which contain the elements provided for in articles 36° or 40°, as the case may be."

In n.º 5 of article 36 of the VAT Code, we find provided the following:

"5 - Invoices must be dated, numbered sequentially and contain the following elements:

a) The names, trade names or company names and the head office or domicile of the supplier of goods or provider of services and of the recipient or purchaser, as well as the corresponding tax identification numbers of taxable persons;

b) The quantity and usual denomination of the goods supplied or of the services provided, with specification of the elements necessary to determine the applicable rate; packaging not effectively transacted must be separately indicated and with express mention that it was agreed to return it;

c) The price, net of tax, and other elements included in the taxable amount;

d) The applicable rates and the amount of tax due;

e) The reason justifying the non-application of tax, if applicable;

f) The date on which the goods were made available to the purchaser, on which the services were performed or on which payments prior to the performance of the operations were made, if that date does not coincide with the date of issue of the invoice.

In the case where the operation or operations to which the invoice relates comprise goods or services subject to different tax rates, the elements mentioned in subparagraphs b), c) and d) must be indicated separately, according to the applicable rate."

The CJEU was called upon to pronounce on this subject matter, among a myriad of other cases, within the scope of a request for a preliminary ruling, submitted by an Arbitral Tribunal constituted under the auspices of CAAD, in the context of a dispute between a commercial company and the AT, regarding the latter's refusal to admit the deduction of VAT paid upstream by the company in its capacity as recipient of legal services provided by a law firm, on the grounds that the invoices issued by that firm did not meet the formal requirements provided for by national legislation.

The request for preliminary ruling thus had as its object the interpretation of article 178°, subparagraph a), and article 226°, n.° 6, both of the VAT Directive.

In the judgment then delivered[9], the CJEU pronounced itself as follows regarding the question submitted to it by the referring court:

"24. The question submitted by the referring court has two parts, which it is important to address separately. With the first part of its question, the referring court asks, in essence, whether article 226° of Directive 2006/112 must be interpreted to mean that invoices which contain only the words 'legal services provided from a certain date until now' or 'legal services provided until now', such as those at issue in the main proceedings, meet the requirements laid down in n.os 6 and 7 of this article. With the second part of its question, the referring court seeks to know whether article 178°, subparagraph a), of Directive 2006/112 must be interpreted to mean that it precludes the national tax authorities from refusing the right to deduct VAT on the sole ground that the taxable person is in possession of an invoice which does not meet the requirements laid down by article 226°, n.os 6 and 7, of this Directive, when those authorities have all the necessary information to verify whether the substantive requirements relating to the exercise of that right are satisfied.

Regarding the first part of the question, relating to compliance with article 226°, n.os 6 and 7, of Directive 2006/112

1. As a preliminary point, it should be recalled that article 226° of Directive 2006/112 clarifies that, without prejudice to the specific provisions laid down in this Directive, only the particulars cited in that article must be required to appear, for VAT purposes, on invoices issued in application of the provisions of article 220° of the Directive. It follows that it is not open to Member States to link the exercise of the right to deduct VAT to the fulfilment of assumptions relating to the contents of invoices which are not expressly provided for in the provisions of Directive 2006/112 (v., in this regard, judgment of 15 July 2010, Pannon Gép Centrum, C‑368/09, EU:C:2010:441, n.os 40 and 41).

2. First, article 226°, n.° 6, of Directive 2006/112 requires that the invoice contain particulars of the extent and nature of the services provided. The wording of this provision indicates that it is necessary to specify the extent and nature of the services provided, although it does not require that the services provided be described exhaustively in a specific manner.

3. As the Advocate General observed in n.os 30, 32 and 46 of her opinion, the purpose of the particulars which must appear on the invoice is to enable the Tax Administrations to carry out checks on the payment of the tax due and, if applicable, on the existence of the right to deduct VAT. It is therefore in the light of that purpose that it should be examined whether invoices such as those at issue in the main proceedings meet the requirements of article 226°, n.° 6, of Directive 2006/112.

4. In the main proceedings, although the invoices in question describe the services provided as 'legal services', it remains the case, as the Portuguese Government pointed out in its observations, that this concept encompasses a very wide range of services and, in particular, services which do not necessarily have a business scope. It follows that the reference to 'legal services provided from a certain date until now' or 'legal services provided until now' does not appear to indicate, in a sufficiently detailed manner, the nature of the services in question. Furthermore, this reference is so generic that it does not make it possible to identify the extent of the services provided, for the reasons set out by the Advocate General in n.os 60 to 63 of her opinion. Accordingly, that reference does not satisfy, in principle, the requirements laid down by article 226°, n.° 6, of Directive 2006/112, which it is for the referring court to ascertain.

5. Second, article 226°, n.° 7, of Directive 2006/112 requires that the invoice contain the date on which the provision of services was made or completed.

6. This requirement must also be interpreted in the light of the purpose pursued by the imposition of mandatory particulars on the invoice, as provided for in article 226° of Directive 2006/112, which is, as was recalled in n.° 27 of this judgment, to enable the Tax Administrations to carry out checks on the payment of the tax due and, if applicable, on the existence of the right to deduct VAT. For this purpose, the date of the provision of the services covered by the invoice makes it possible to check when the taxable event occurred and, therefore, to determine the provisions which must apply, from a temporal point of view, to the transaction to which the document relates.

7. In the case in point, it follows from the order for reference that the legal services to which the invoices at issue in the main proceedings relate give rise to payments on account or to successive payments. Article 64° of Directive 2006/112 provides that such provisions of services are to be considered as made at the end of the periods to which those payments relate. Accordingly, in order to satisfy the requirements of article 226°, n.° 7, of Directive 2006/112, it is imperative that those periods are mentioned on the invoices relating to such provisions.

8. In this regard, it should be noted that the invoices in question which refer to 'legal services provided from a certain date until now' appear to specify the invoicing period. By contrast, one of the invoices in question contains only the reference 'legal services provided until now'. That invoice does not mention the date when the period began and thus does not make it possible to determine the period to which those payments on account relate.

9. Accordingly, it should be held that an invoice which contains only the reference 'legal services provided until now', without specifying a start date of the invoicing period, does not meet the requirements laid down by article 226°, n.° 7, of Directive 2006/112.

10. It is, however, for the referring court, should it find that the invoices in question do not meet the requirements arising from article 226°, n.os 6 and 7, of this Directive, to verify whether the documents annexed and adduced by Barlis contain a more detailed presentation of the legal services at issue in the main proceedings and may be equated to an invoice under article 219° of the Directive, as documents which amend the initial invoice and make specific and unequivocal reference to it.

11. It follows from the foregoing considerations that the answer to the first part of the question submitted should be that article 226° of Directive 2006/112 must be interpreted to mean that invoices which contain only the reference 'legal services provided from a certain date until now', such as those at issue in the main proceedings, do not meet, in principle, the requirements laid down in n.° 6 of this article and that invoices which contain only the reference 'legal services provided until now' do not meet, in principle, the requirements laid down in n.° 6 or n.° 7 of that article, which it is, however, for the referring court to ascertain.

Regarding the second part of the question, relating to the consequences of an invoice which does not meet the requirements laid down by article 226°, n.os 6 and 7, of Directive 2006/112 for the exercise of the right to deduct VAT

1. With the second part of its question, the referring court seeks, in essence, to determine the consequences of a breach of article 226°, n.os 6 and 7, of Directive 2006/112 in the exercise of the right to deduct VAT.

2. It should be recalled that, according to settled case-law of the Court of Justice, the right of taxable persons to deduct from the VAT for which they are liable the VAT due or paid on goods acquired and services provided to them upstream constitutes a fundamental principle of the common VAT system established by EU legislation (judgment of 13 February 2014, Maks Pen, C‑18/13, EU:C:2014:69, n.° 23 and case-law cited therein).

3. The Court of Justice has repeatedly held that the right to deduct VAT provided for in articles 167 and seq. of Directive 2006/112 forms an integral part of the VAT mechanism and cannot, in principle, be limited. That right is immediately exercised in relation to all the taxes which have burdened the operations carried out upstream (v., in this regard, judgment of 13 February 2014, Maks Pen, C‑18/13, EU:C:2014:69, n.° 24 and case-law cited therein).

4. The system of deductions is intended to relieve the entrepreneur entirely of the burden of VAT due or paid in the context of all his economic activities. The common VAT system thus ensures neutrality as to the tax burden of all economic activities, whatever their purpose or result may be, provided that those activities are themselves, in principle, subject to VAT (judgment of 22 October 2015, PPUH Stehcemp, C‑277/14, EU:C:2015:719, n.° 27 and case-law cited therein).

5. With regard to the substantive requirements demanded for the constitution of the right to deduct VAT, it follows from article 168°, subparagraph a), of Directive 2006/112 that the goods and services invoked to support that right must be used by the taxable person downstream for the purposes of its own taxed operations and that, upstream, those goods or services must be supplied by another taxable person (v., in this regard, judgment of 22 October 2015, PPUH Stehcemp, C‑277/14, EU:C:2015:719, n.° 28 and case-law cited therein).

6. As regards the formal requirements relating to the exercise of the said right, it follows from article 178°, subparagraph a), of Directive 2006/112 that its exercise is subject to the possession of an invoice issued under article 226° of this Directive (v., in this regard, judgments of 1 March 2012, Kopalnia Odkrywkowa Polski Trawertyn P. Granatowicz, M. Wąsiewicz, C‑280/10, EU:C:2012:107, n.° 41, and of 22 October 2015, PPUH Stehcemp, C‑277/14, EU:C:2015:719, n.° 29).

7. The Court of Justice has held that the fundamental principle of VAT neutrality requires that the deduction of that tax paid upstream be granted if the substantive requirements are met, even if the taxable persons have neglected certain formal requirements. Accordingly, when the Tax Administration has the necessary data to know that the substantive requirements have been met, it cannot impose additional conditions on the taxable person's right to deduct the tax which may have the effect of eliminating that right (v., in this regard, judgments of 21 October 2010, Nidera Handelscompagnie, C‑385/09, EU:C:2010:627, n.° 42; of 1 March 2012, Kopalnia Odkrywkowa Polski Trawertyn P. Granatowicz, M. Wąsiewicz, C‑280/10, EU:C:2012:107, n.° 43; and of 9 July 2015, Salomie and Oltean, C‑183/14, EU:C:2015:454, n.os 58, 59 and case-law cited therein).

8. It follows that the Tax Administration cannot refuse the right to deduct VAT on the sole ground that the invoice does not meet the requirements laid down by article 226°, n.os 6 and 7, of Directive 2006/112, if it has all the data at its disposal to verify that the substantive requirements relating to this right are satisfied.

9. In this respect, the Tax Administration must not confine itself to examining the invoice itself. It must also take into account supplementary information supplied by the taxable person. This finding is confirmed by article 219° of Directive 2006/112 which treats as an invoice any document or message amending the initial invoice and referring to it specifically and unequivocally.

10. In the main proceedings, it is thus for the referring court to take into account all the information contained in the invoices in question and in the documents annexed presented by Barlis in order to verify whether the substantive requirements of its right to deduct VAT are satisfied.

11. In this context, it should be emphasised, first, that it is for the taxable person who requests the deduction of VAT to prove that it fulfils the requirements for benefiting from it (v., in this regard, judgment of 18 July 2013, Evita‑K, C‑78/12, EU:C:2013:486, n.° 37). The tax authorities may thus demand from the taxpayer themselves the evidence they consider necessary to assess whether the requested deduction should be granted or not (v., in this regard, judgment of 27 September 2007, Twoh International, C‑184/05, EU:C:2007:550, n.° 35).

12. Second, it should be noted that the Member States are competent to lay down penalties in the event of breach of the formal requirements relating to the exercise of the right to deduct VAT. Under article 273° of Directive 2006/112, Member States have the power to adopt measures to ensure the correct collection of the tax and to prevent tax evasion, provided that such measures do not go beyond what is necessary to achieve such objectives nor call into question the neutrality of VAT (v., in this regard, judgment of 9 July 2015, Salomie and Oltean, C‑183/14, EU:C:2015:454, n.° 62).

13. In particular, Union law does not preclude Member States from applying, where appropriate, a proportionate fine or financial penalty to punish breach of the formal requirements (v., in this regard, judgment of 9 July 2015, Salomie and Oltean, C‑183/14, EU:C:2015:454, n.° 63 and case-law cited therein).

14. It follows from the foregoing considerations that the answer to the second part of the question submitted should be that article 178°, subparagraph a), of Directive 2006/112 must be interpreted to mean that it precludes the national tax authorities from refusing the right to deduct VAT on the sole ground that the taxable person is in possession of an invoice which does not meet the requirements laid down by article 226°, n.os 6 and 7, of this Directive, when those authorities have all the necessary information to verify that the substantive requirements relating to the exercise of that right are satisfied."

In line with this CJEU case-law, among many others, we cite by way of example the following judgments of the Central Administrative Court of the South:

• Judgment delivered on 14.04.2016, in case n.º 07924/14 (http://www.dgsi.pt/jtca.nsf/170589492546a7fb802575c3004c6d7d/c2f43cfa55433f1380257fa2004cb2d6?OpenDocument):

"III – It is an obligation of taxable persons to issue an invoice (or equivalent document) for each supply of goods or service provided, and through it the regime and amount of VAT charged on each of the taxable operations is determined; the Tax Authority controls the tax paid or payable and, finally, it is the invoice that supports the exercise and proof by taxable persons of the right to deduct VAT.

IV – VAT and/or the operations in this context taxable and the right of deduction that may emerge from them have a very specific framework: although at the formal level the existence of a very stringent regime is evident, the fact is that, by force of the principle of neutrality, taxable operations must also be analysed in their material aspect, that is, according to the reality underlying them, whereby, if in a given situation it is proven that the formal regime was not observed, but the substantive requirements are proven, the right to VAT deduction must be recognised."

• Judgment delivered on 15.12.2016, in case n.º 1356/10.2BELRA (http://www.dgsi.pt/jtca.nsf/170589492546a7fb802575c3004c6d7d/50db962fa45b977c8025808b00537c76?OpenDocument):

"I. Article 36 of the VAT Code establishes certain requirements in the issue of invoices or equivalent documents which are a condition for the deduction of tax by the taxable person acquirer under article 19, n.º 2 of the same Code.

II. If the formal defects contained in the invoice or equivalent document do not allow the exact collection and respective supervision of the tax, the right to deduct VAT cannot be exercised."

§2.1. THE CONCEPT OF ECONOMIC ACTIVITY FOR VAT PURPOSES