Process: 595/2017-T

Date: June 1, 2018

Tax Type: IVA

Source: Original CAAD Decision

Summary

CAAD Arbitral Decision 595/2017-T addressed whether a Portuguese football club could deduct VAT on payments made for intermediation services and athletes' image rights. The Tax Authority challenged VAT deductions totaling €129,950 for 2013-2014, arguing the club improperly deducted VAT on services acquired by players rather than the club itself. The central issue concerned Article 19 and Article 20 of the Portuguese VAT Code (CIVA), which permit deductions only for tax incurred on goods or services acquired for carrying out taxable operations. The Tax Authority's inspection report concluded that intermediation services were provided to players by their agents, not to the club, meaning the club was not the actual acquirer of these services. Since the agents represented players' interests in contract negotiations, the services should be attributed to the players who imposed their representatives' presence. The tribunal examined whether the club had the right to deduct VAT under Article 20(1)(a) CIVA, which requires that deductible VAT relate to acquisitions for taxable output operations. The case highlights critical issues in Portuguese VAT law regarding the attribution of services, the right to deduct (direito à dedução), and proper documentation of commercial relationships in sports industry transactions. This decision has significant implications for football clubs and sports entities regarding VAT treatment of image rights and agent fees, establishing important precedents for determining who is the true acquirer of intermediation services in athlete contract negotiations.

Full Decision

ARBITRAL DECISION (consult full version in PDF)

The arbitrators Advisor Jorge Manuel Lopes de Sousa (arbitrator-president, designated by the other Arbitrators), Prof. Doctor Rui Duarte Morais and Dr. Emanuel Augusto Vidal Lima, designated by the Claimant and the Respondent, respectively, to form the Arbitral Tribunal, constituted on 16-09-2016, agree as follows:

1. Report

A..., Tax Identification Number..., with registered office at ..., ..., ... ..., ... (hereinafter A... or Claimant), came, under the terms of paragraph a) of article 2, paragraph b) of article 6, and paragraph a) of articles 1 and 2 of article 10, of Decree-Law No. 10/2011, of 20 January (hereinafter "RJAT"), to submit requests for annulment of the following VAT assessments and compensatory interest:

a) VAT for 2013/10 (Assessment No. 2016...), in the amount payable of €106,950.00;

b) Compensatory interest from the previous assessment (Assessment 2016...), in the amount of €11,697.35

c) VAT for 2014/02 (Assessment No. 2016...), in the amount payable of €23,000.00; ( [1] )

d) Compensatory and default interest relating to the previous assessment (Assessments No. 2016.... and 2016...), in the amount payable of €2,927.20.

The RESPONDENT is the TAX AND CUSTOMS AUTHORITY.

The Claimant designated as Arbitrator Prof. Doctor Rui Duarte Morais, under the terms of article 6, paragraph 2, subparagraph b), of the RJAT.

The request for constitution of the Arbitral Tribunal was accepted by the President of the CAAD and automatically notified to the Tax and Customs Authority on 14-11-2017.

Under the terms of paragraph b) of article 6, paragraph 2, and article 6, paragraph 3 of the RJAT, and within the deadline provided in article 13, paragraph 1 of the RJAT, the highest-ranking official of the Tax Administration service designated as Arbitrator Dr. Emanuel Augusto Vidal Lima.

The Arbitrators designated by the Parties agreed to designate Advisor Jorge Lopes de Sousa as arbitrator-president, who accepted the designation.

Under the terms and for the purposes of article 11, paragraph 7 of the RJAT, the President of the CAAD informed the Parties of this designation on 19-01-2018.

Thus, in accordance with article 11, paragraph 7 of the RJAT, once the deadline provided in article 13, paragraph 1 of the RJAT had elapsed without the Parties making any submissions, the Collective Arbitral Tribunal was constituted on 08-02-2018.

The Tax and Customs Authority submitted a response in which it argues that the exception of res judicata should be judged unfounded, at least in part, and the request for arbitral pronouncement.

The recording of the testimonies given in arbitral proceedings No. 345/2016-T was attached to the file, under the terms of article 421 of the CPC.

On 04-05-2018, a hearing was held in which two witnesses were examined and it was decided that the proceedings would continue with written submissions.

The Parties submitted their arguments.

The Arbitral Tribunal has been duly constituted and is competent.

The parties have legal personality and legal capacity and are legitimate (articles 4 and 10, paragraph 2, of the same instrument and article 1 of Ordinance No. 112-A/2011, of 22 March) and are duly represented.

There are no obstacles to examining the merits of the case.

2. Facts

2.1. Proved Facts

The following facts are considered proved:

  • The Claimant is the sports company that comprises the activity of professional male football of V...;

  • An inspection action was carried out on the Claimant under Service Order OI 2016 ...;

  • In this inspection, the Tax Inspection Report was drawn up, which forms part of the administrative file whose contents are reproduced hereby, in which it states, among other things, the following:

III.3. VAT DEDUCTED IMPROPERLY

From the analysis of the accounting of B..., the existence of records of expenses incurred with the acquisition of intermediation services in the hiring of players and with the alleged acquisition of player image rights was found.

It is also verified that the taxpayer deducted the VAT incurred with the acquisition of some of these goods/services.

Under paragraph a) of article 19, paragraph 1 of the VAT Code, for the calculation of VAT to be paid to the State, the taxpayer deducts, from the VAT charged, the tax incurred with the acquisition of goods or services from other taxpayers.

Article 20 of the same code delimits the deductible tax to that which has been incurred relating to the acquisition of goods or services for the carrying out of active operations, provided for in paragraphs a) or b) of the same provision.

Under paragraph a) of that article, only VAT that has been incurred relating to goods or services acquired for the carrying out of taxable active operations may be deducted.

III.3.1. VAT DEDUCTED IMPROPERLY IN THE ACQUISITION OF INTERMEDIATION SERVICES

From the analysis carried out on the accounting of B..., the existence of expenses incurred with service provisions paid to various companies in the hiring of various players was found.

In the employment contracts for sports concluded with the players, there appears the link of the agents to the players, with those representing the interests of their principals. This situation is confirmed, in these contracts, both by B... and by the players and agents who also sign the employment contracts for sports.

In other situations, where the employment contract for sports is silent or does not state that the agent represented the player, it was confirmed by other sources that the agent acted in representation of the player, as described in chapter III.1.1 of this report.

Thus, it results from the contracts that B... agrees to bear the costs of intermediation/representation carried out on behalf of the players.

Having the services not been acquired by the taxpayer, but rather by the players who "imposed" the presence of their representative in negotiations with B..., the deduction of VAT incurred does not find provision in paragraph 1 of article 19 of the VAT Code.

Furthermore, under paragraph a) of article 20, paragraph 1 of the VAT Code, only tax inciding on goods or services acquired for the carrying out of taxable operations (transfers of goods and/or provision of services) which are subject to and not exempt from tax may be deducted.

The services provided by the agent in the negotiation are provided in the capacity of representative of the players, whereby it is this entity – the player – that could carry out taxable operations which, under article 20 of the VAT Code, could allow the deduction of this tax.

Whereby, having the services not been acquired by B..., it is concluded that neither were taxable operations carried out associated with the disputed "inputs".

In the following chapters the analysis of the deductibility of VAT incurred by B... in the alleged acquisition of intermediation services in the hiring of players is carried out.

III.3.1.1. VAT deducted in the hiring of C...

From the analysis carried out on the accounting of B..., the existence of expenses incurred with service provisions paid to company D..., Ltd., relating to the hiring of player C..., recorded in the accounting was found:

In chapter III.1.1.3 of this report, a conclusion had already been reached to the effect of the increase to taxable profit of the amount of expenses improperly incurred, since it was demonstrated that agent E..., shareholder and representative of D..., Ltd., acted in representation of the player and not of B....

Having the representation services of the player not been acquired by B..., but rather by the player who imposed the presence of his representative in the hiring, the deduction of VAT incurred does not find provision in paragraph 1 of article 19 of the VAT Code.

Furthermore, under paragraph a) of article 20, paragraph 1 of the VAT Code, only tax inciding on goods or services acquired for the carrying out of taxable operations – transfers of goods or provision of services – which are subject to and not exempt from tax may be deducted.

The services provided by the agent are provided, in representation of the second party, that is, in the capacity of representative of the player, whereby it would be this entity – the player – who could carry out taxable active operations which, under article 20 of the VAT Code, could allow the deduction of this tax.

Having the services not been acquired by B..., it is concluded that neither were taxable active operations carried out associated with the "inputs" or passive operations here disputed.

Consequently, in view of paragraph 1 of article 20 of the VAT Code, the correction to the VAT deducted by the taxpayer is proposed for the period of 2013.02, in the amount of €5,750.00, to which is added compensatory interest, under paragraph 1 of article 35 of the General Tax Law and paragraph 1 of article 96 of the VAT Code.

III.3.1.2. VAT deducted in the hiring of F... ("F...")

From the analysis carried out on the accounting of B..., the existence of expenses incurred with service provisions paid to company G..., Ltd, with Tax Identification Number..., relating to the hiring of player F..., in the amount of €50,000.00, plus VAT in the amount of €11,500.00 was found:

In chapter III.1.1.12 of the report drawn up at the conclusion of the inspection action accredited by service order No. OI 2014..., a conclusion had already been reached to the effect of the increase to taxable profit of the amount of expenses improperly incurred, since it was demonstrated that the agent had a business link with the player, and not with B....

Having the representation services of the player not been acquired by B..., but rather by the player who imposed the presence of his representative in the hiring, the deduction of VAT incurred does not find provision in paragraph 1 of article 19 of the VAT Code.

Furthermore, under paragraph a) of article 20, paragraph 1 of the VAT Code, only tax inciding on goods or services acquired for the carrying out of taxable operations – transfers of goods or provision of services – which are subject to and not exempt from tax may be deducted.

The services provided by the agent are provided in representation of the player, whereby it would be this entity – the player – who could carry out taxable active operations which, under article 20 of the VAT Code, could allow the deduction of this tax.

Having the services not been acquired by B..., it is concluded that neither were taxable active operations carried out associated with the "inputs" or passive operations here disputed.

Consequently, in view of paragraph 1 of article 20 of the VAT Code, the correction to the VAT deducted by the taxpayer is proposed for the period of 2013.02, in the amount of €11,500.00, to which is added compensatory interest, under paragraph 1 of article 35 of the General Tax Law and paragraph 1 of article 96 of the VAT Code.

III.3.1.3. VAT deducted in the hiring of H...

From the analysis carried out on the accounting of B..., the existence of expenses incurred with service provisions paid to company I... Ltd., with registered office in Malta, relating to the hiring of player H..., in the amount of €150,000.00, plus VAT deducted in the amount of €34,500.00 was found:

In chapter III.1.1.5 of this report, a conclusion had already been reached to the effect of the increase to taxable profit of the amount of expenses improperly incurred, since it was demonstrated that the agent had a business link with the player, and not with B....

Having the representation services of the player not been acquired by B..., but rather by the player who imposed the presence of his representative in the hiring, the deduction of VAT incurred does not find provision in paragraph 1 of article 19 of the VAT Code.

Furthermore, under paragraph a) of article 20, paragraph 1 of the VAT Code, only tax inciding on goods or services acquired for the carrying out of taxable operations – transfers of goods or provision of services – which are subject to and not exempt from tax may be deducted.

The services provided by the agent are provided in representation of the player, whereby it would be this entity – the player – who could carry out taxable active operations which, under article 20 of the VAT Code, could allow the deduction of this tax.

Having the services not been acquired by B..., it is concluded that neither were taxable active operations carried out associated with the "inputs" or passive operations here disputed.

Consequently, in view of paragraph 1 of article 20 of the VAT Code, the correction to the VAT deducted by the taxpayer is proposed, in the amount of €34,500.00, to which is added compensatory interest, under paragraph 1 of article 35 of the General Tax Law and paragraph 1 of article 96 of the VAT Code.

III.3.1.4. VAT deducted in the hiring of J...

From the analysis carried out on the accounting of B..., the existence of expenses incurred with service provisions paid to entity K..., with registered office in Poland, relating to the hiring of player J..., in the amount of €100,000.00, plus VAT deducted in the amount of €23,000.00 was found:

In chapter III.1.1.6 of this report, a conclusion had already been reached to the effect of the increase to taxable profit of the amount of expenses improperly incurred, since it was demonstrated that the agent had a business link with the player, and not with B....

Having the representation services of the player not been acquired by B..., but rather by the player who imposed the presence of his representative in the hiring, the deduction of VAT incurred does not find provision in paragraph 1 of article 19 of the VAT Code.

Furthermore, under paragraph a) of article 20, paragraph 1 of the VAT Code, only tax inciding on goods or services acquired for the carrying out of taxable operations – transfers of goods or provision of services – which are subject to and not exempt from tax may be deducted.

The services provided by the agent are provided in representation of the player, whereby it would be this entity – the player – who could carry out taxable active operations which, under article 20 of the VAT Code, could allow the deduction of this tax.

Having the services not been acquired by B..., it is concluded that neither were taxable active operations carried out associated with the "inputs" or passive operations here disputed.

Consequently, in view of paragraph 1 of article 20 of the VAT Code, the correction to the VAT deducted by the taxpayer is proposed, in the amount of €23,000.00, to which is added compensatory interest, under paragraph 1 of article 35 of the General Tax Law and paragraph 1 of article 96 of the VAT Code.

III.3.2. VAT DEDUCTED IMPROPERLY IN THE ACQUISITION OF PLAYER IMAGE RIGHTS

It follows from paragraph a) of article 6, paragraph 6 of the VAT Code that the acquisition by a Club/SAD resident in Portuguese territory, of "image rights" of a player with whom it concluded an employment contract for sports, is subject to VAT.

Under paragraph a) of article 20, paragraph 1 of the VAT Code, only tax inciding on goods or services acquired for the carrying out of taxable operations – transfers of goods or provision of services – which are subject to and not exempt from tax may be deducted.

In the following chapters the analysis of the deductibility of VAT incurred by B... in the alleged acquisition of image rights of players L... and M... is carried out.

III.3.2.1. VAT deducted relating to image rights of player L... ("L...")

On 2011-06-21, B... concluded with entity N..., Ltd., with registered office in Brazil, a "Contract for assignment of rights to the exploitation of the image of a professional football player".

From the analysis carried out on the accounting of B..., the existence of the record of expenses incurred, in the year 2013, with the alleged acquisition of image rights of player L... ("L...") was found:

B... self-assessed the VAT corresponding to the acquisition of those alleged "image rights", under paragraph a) of article 6, paragraph 6 of the VAT Code.

In point III.1.3.1 of the inspection report of the action accredited by service order No. OI 2015..., a conclusion had already been reached to the effect of the increase to taxable profit of the amount of expenses improperly incurred, since the taxpayer did not prove the indispensability of B... bearing the expenses in question:

"In conclusion, having not been proved the indispensability of B... bearing the expenses in question, for the obtaining of income subject to tax or for the maintenance of the source of production, in accordance with paragraph 1 of article 23 of the Corporate Income Tax Code, the expenses in the amount of €210,000.00 are not fiscally accepted."

It was further concluded that B... alleged paying amounts relating to rights for which it did not record any income and does not possess nor has set up adequate business structure for their exploitation. It is concluded, therefore, that taxable active operations were not carried out associated with the "inputs" or passive operations here disputed.

Under paragraph a) of article 20, paragraph 1 of the VAT Code, only tax inciding on goods or services acquired for the carrying out of taxable operations – transfers of goods or provision of services – which are subject to and not exempt from tax may be deducted.

Consequently, in view of paragraph 1 of article 20 of the VAT Code, the correction to the VAT deducted by the taxpayer is proposed, in the global amount of €32,200.00, to which is added compensatory interest, under paragraph 1 of article 35 of the General Tax Law and paragraph 1 of article 96 of the VAT Code.

III.3.2.2. VAT deducted relating to image rights of player M...

From the analysis carried out on the accounting of B..., the existence of records of expenses incurred, in the year 2013, with the alleged acquisition of image rights of player M... from entity O..., Ltd., with Tax Identification Number... was found:

In point III.1.3.2 of the inspection report of the action accredited by service order No. OI 2015..., a conclusion had already been reached to the effect of the increase to taxable profit of the amount of expenses improperly incurred, since the taxpayer did not prove the indispensability of B... bearing the expenses in question.

It was further concluded that B... alleged paying amounts relating to rights for which it did not record any income and does not possess nor has set up adequate business structure for their exploitation.

It is concluded that neither were taxable active operations carried out associated with the "inputs" or passive operations here disputed.

Furthermore, under paragraph a) of article 20, paragraph 1 of the VAT Code, only tax inciding on goods or services acquired for the carrying out of taxable operations – transfers of goods or provision of services – which are subject to and not exempt from tax may be deducted.

Consequently, in view of paragraph 1 of article 20 of the VAT Code, the correction to the VAT deducted by the taxpayer is proposed, in the periods identified in the table above, in the total amount of €23,000.00, to which is added compensatory interest, under paragraph 1 of article 35 of the General Tax Law and paragraph 1 of article 96 of the VAT Code.

  • Following the inspection, the Tax and Customs Authority issued the VAT assessments and compensatory interest that appear in documents Nos. 1, 2, 3 and 4 attached with the request for arbitral pronouncement, whose contents are reproduced hereby:

a) VAT for 2013/10 (Assessment No. 2016...) in the amount payable of €106,950.00, dated 23-09-2016;

b) Compensatory interest from the previous assessment (Assessment 2016...), in the amount of €11,697.35, dated 23-09-2016;

c) VAT for 2014/02 (Assessment No. 2016...), in the amount payable of €23,000.00, dated 25-09-2016; ([2])

d) Compensatory and default interest relating to the previous assessment (Assessments No. 2016 ... and 2016...), in the amount payable of €2,927.20, dated 26-09-2016;

  • The Claimant filed a claim for reconsideration against those assessment acts, which was rejected (document No. 5 attached with the request for arbitral pronouncement, whose contents are reproduced hereby);

  • The Claimant, with a view to accessing football players at a good price-quality ratio, normally hires the services of specialized professionals for that purpose (football agents), with indication of their profile and characteristics;

  • The Claimant understands that, because V... is a club of considerable sporting success, if it were to go directly to the market to hire players, approaching them or their respective clubs, it would make contracts at higher prices than it is able to obtain through agents, because interest in hiring inflates the price;

  • The Claimant probes several agents verbally, sometimes five or six, with a view to hiring each player, only formalizing an intermediation contract with the agent who indicates to it the player who comes to be hired;

  • The services of the agent are, in general, contacted verbally, by telephone, by the club president, with a written contract being concluded, with indication of the agent's remuneration, only when the hiring of a particular player is already practically settled;

  • Agents do not limit themselves to presenting for hiring players with whom they have some relationship;

  • The Claimant does not know, when it contacts the agents, whether the companies have or do not have representation contracts with players with the desired characteristics, only ascertaining whether the players have representatives when the formalization of contracts with the players occurs;

  • The Claimant does not have its own means of prospecting players that satisfy its needs and considers that it would be too onerous to have such means, namely observers (scouts) spread throughout the world;

  • Once each player hiring transaction is completed, with the agent's intervention, the Claimant pays it the respective commission and indicates its intervention in the written contract of the player hiring;

  • There are agents who do not represent players, providing only prospecting services;

  • It has occurred that two agents have presented the same player;

  • Payments to agents only occur when there is consideration for services rendered;

  • It was on those terms that they intervened as agents and payments were made by the Claimant to the companies:

– D..., Ltd (represented by P...), for the hiring of player C..., who had as businessman E... (shareholder of D..., Ltd), indicated as such in the contract concluded;

– G..., Ltd (represented by Q...), for the hiring of player F..., with that Q... being indicated as his businessman on information pages of news outlets, but not being so indicated in the contract concluded;

– I... Ltd., represented by its director R..., relating to the hiring of player H...;

– K..., with registered office in Poland, relating to the hiring of player J...;

  • Sometimes, agents suggest players in representation of these, without prior contact by the Claimant, situations in which the Claimant does not pay any commission to the agent;

  • The Claimant has sponsors who, sometimes, wish to use more high-profile football players in promotional actions and normally a clause is included in contracts with sponsors that imposes on the Claimant the obligation to make available two players for those actions;

  • Contracts with sponsors are financially important to the Claimant, receiving just from the most important one €1,000,000.00 relating to the year 2012;

  • In addition to the provision of players for sponsor actions, the Claimant has other clients, of VIP boxes, who have the right to use players in promotional actions of their products;

  • The Claimant considered that the players L... and M..., by their professional curriculum (internationals for the main teams of Brazil and Portugal, respectively) were the most sought after for marketing events and maintenance and acquisition of sponsors, whereby, in addition to their hiring, it acquired their image rights for the period in which they were hired;

  • The player L... had already assigned his image rights to a company with registered office and effective management in Brazil, N..., Ltd, whereby the Claimant acquired those rights from this company, self-assessing the corresponding VAT, in the amount of €32,200.00, in the year 2013, depending on the payment tranches, which it then deducted;

  • The player M... had already assigned his image rights to a company with registered office and effective management in Portugal, O..., Ltd, whereby the Claimant acquired those rights from this company, self-assessing the corresponding VAT, in the amount of €23,000.00, in the year 2013, which it then deducted;

  • In the contracts for assignment of image rights, it was the players L... and M... themselves who signed for N... and O..., respectively;

  • The acquisition of image rights was carried out by the Claimant with a view to preventing the players to whom it acquired them, which it considered more high-profile, from being able to associate with brands competing with the sponsors of the Claimant or refuse to participate in promotional campaigns of sponsor products, which could harm the maintenance and obtaining of sponsorships;

  • Contracts with sponsors are made for two or three years, with their content not including the names of the players who will be sought for promotional actions of sponsored products;

  • It is inherent to sponsorship contracts the possibility of using players in promotional actions of sponsor products, with more recent contracts including a specific clause providing for the obligation to provide players for those actions;

  • The acquisition of image rights of players with the consequent availability of these for promotional actions of sponsor products constitutes an added value in sponsorship negotiations, because of the interest that sponsors have in being able to have more high-profile players in promotional actions of their products;

  • The player M... participated in promotional actions of the beer brand ..., namely autograph sessions, within the scope of the contract concluded by the Claimant with the company that commercializes it;

  • In May 2016, the Claimant provided a guarantee through the establishment of a pledge of credits up to the maximum limit of €1,819,294.03 to suspend various tax enforcement proceedings (document No. 9 attached with the request for arbitral pronouncement, whose contents are reproduced hereby);

  • On 03-11-2017, the Claimant presented the request for constitution of the arbitral tribunal that gave rise to this proceeding.

2.2. Unproved Facts

It was not proved that the guarantee provided is related to any tax enforcement proceeding instituted for the collection of the amounts determined by the assessments that are the subject of this proceeding.

The guarantee was provided in May 2016 and the assessments were issued in September 2016, which leads to the conclusion that none of the tax enforcement proceedings mentioned in document No. 9 will have been instituted for the collection of these amounts.

2.3. Grounds for the Decision on the Facts

The facts were determined as proved based on the Tax Inspection Report, documents attached to the request for arbitral pronouncement and documents in the administrative file, which were affirmed by the Claimant and are not questioned by the Tax and Customs Authority.

The witnesses examined appeared to testify with impartiality and with knowledge of the facts on which they testified.

The witness testimony clarified that the Claimant has an interest in acquiring image rights of football players with greater high-profile status, to avoid the risk that they might come to sponsor products of brands competing with those of its sponsors or refuse to participate in promotional campaigns of sponsor products, which could harm the maintenance and obtaining of sponsorships, which constitute a considerable revenue for the Claimant (testimonies of witnesses S..., T... and U...).

The witness testimony also clarified the reasons why the Claimant uses the services of agents to hire players and the relationships between the Claimant and V... (testimonies of witnesses T... and U...).

3. Legal Matters

3.1. Question of Res Judicata Formed by the Decision in Proceeding No. 345/2016-T

The Claimant invokes violation of res judicata formed by the decision in arbitral proceeding No. 345/2016-T which examined identical questions to those referred to in this proceeding regarding the cases of players C..., L... ("L...") and M..., relating to VAT deduction in other periods.

The object of arbitral proceedings is the declaration of legality of acts of the types indicated in article 2 of the RJAT and not the direct definition of the legal relationships underlying them, which is the proper object of actions for recognition of a right or legitimate interest.

The Supreme Administrative Court has repeatedly stated, in proceedings of the type objecting to acts, that res judicata encompasses the qualification as defects, positive or negative, of the circumstances examined in the decision that has become final, and must be respected, in execution of the judgment, the determination made on that matter. ([3])

However, outside the scope of the execution of a judgment, following a declaration of illegality of certain acts, in an objection-type proceeding, nothing prevents the Administration from taking new acts of the same type as the previous ones, with or without new grounds, because the declaration of illegality on which res judicata is formed is restricted to the acts that were examined.

Res judicata has objective limits: "the judgment constitutes res judicata within the precise limits and terms in which it judges" (article 621, paragraph 1, of the CPC).

In the case at hand, in proceeding No. 345/2016-T, the illegality of certain acts that were the subject of that proceeding was declared, but nothing was decided regarding hypothetical acts of the same type relating to prior years nor to future years.

It was on those terms that the decision was made, whereby it was on those terms and with those limits that res judicata was formed.

Based on the above, the invocation of res judicata does not proceed.

3.2. Question of the Non-Acceptance of VAT Deduction Relating to the Acquisition of Intermediation Services in the Hiring of Various Players, Based on Articles 19 and 20 of the VAT Code

The Tax and Customs Authority did not accept the deduction by the Claimant of the VAT incurred in the payments made to agents who participated in the hiring of players C..., F... ("F..."), H....

In accordance with article 2 of Council Directive No. 2006/112/EC, of 28-11-2006, the following are subject to VAT, among others: supplies of goods made for consideration in the territory of a Member State by a taxable person acting as such; intra-Community acquisitions of goods made for consideration in the territory of a Member State; supplies of services made for consideration in the territory of a Member State by a taxable person acting as such; and imports of goods.

In the same line, the Value Added Tax Code (VAT Code) establishes in its article 1 that this tax applies to transfers of goods and supplies of services made in national territory, for consideration, by a taxable person acting as such, imports of goods, and intra-Community operations carried out in national territory, as defined and regulated in the VAT Regime in Intra-Community Transactions.

Under article 9 of the Directive, "'taxable person' means any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity" and "'economic activity' means any activity of production, commercialization or provision of services, including extractive activities, agricultural activities and activities of the liberal professions or equivalent. In particular, it is considered an economic activity the exploitation of tangible or intangible property with the purpose of obtaining income on a permanent basis".

The VAT Code establishes that taxable persons are, among others, "natural or legal persons who, in an independent manner and with habitual character, carry out activities of production, commerce or provision of services, including extractive, agricultural activities and activities of the liberal professions, and also those who, in the same independent manner, carry out a single taxable operation, provided that such operation is connected with the exercise of those activities, wherever it occurs, or when, regardless of that connection, such operation meets the material requirements of the real incidence of income tax on natural persons (IRS) or income tax on legal persons (IRC)".

The right to deduction arises at the moment the tax becomes due (article 167 of Directive No. 2006/112/EC and article 22, paragraph 1 of the VAT Code) and, as a rule, only tax inciding on goods or services acquired, imported or used by the taxable person for the carrying out of taxed operations may be deducted (articles 168 of Directive No. 2006/112/EC and 20, paragraph 1, of the VAT Code).

The Claimant deducted the VAT assessed relating to payments made as consideration for the acquisition of intermediation agency services in the hiring of players.

The Tax and Customs Authority understood, in sum, that:

– the Claimant agreed to bear intermediation/representation costs incurred on behalf of the players, the services not having been acquired by the Claimant but rather by the players who imposed the presence of their representative in negotiations with B..., whereby the deduction of VAT does not find provision in paragraph 1 of article 19 of the VAT Code;

– under article 20 of the VAT Code "only tax inciding on goods or services acquired for the carrying out of taxable operations (transfer of goods or provision of services) which are subject to and not exempt from tax may be deducted";

– the services provided by the agents are provided in the capacity of representatives of the players – and not of the Claimant – whereby it would be the players who could permit the deduction of VAT, under article 20 of the VAT Code, if they happened to meet the other requirements;

– such deductions could never be made by the Claimant: "whereby, having the services not been acquired by B..., it is concluded that neither were taxable operations carried out associated with the disputed inputs".

The evidence produced contradicts the factual assumptions on which this correction effected by the Tax and Customs Authority was based.

In truth, it was proved that the Claimant does not have its own means for surveying the football player market, whereby it contacted various agents with a view to achieving the hiring of players with the characteristics it desired, which is its usual procedure, with the formalization by writing of contracts with agents and the payment for services rendered being dependent on the completion of player hirings.

It was not proved that, in any of the cases in which the Tax and Customs Authority understood that the services had not been acquired by the Claimant, it was the players who imposed the presence of agents as their representatives in negotiations, nor that the Claimant concluded any contract or made any payment relating to the representation of the players.

Thus, it results from the evidence produced that there were indeed services provided to the Claimant by the agents, connected with the activity of the Claimant, whereby the obstacle to the deduction of VAT that the Claimant incurred in making payments for those services does not exist.

Based on the above, the contested assessments are affected by the defect of violation of law, due to error regarding the factual assumptions, in the parts in which they were based on the non-acceptance of the deduction of VAT incurred relating to payments made to agents in connection with the hirings of players C..., F... ("F..."), H....

3.3. Question of the Non-Acceptance of VAT Deduction Relating to the Acquisition of Image Rights of Various Players, Based on Articles 6 and 20 of the VAT Code

The Claimant acquired image rights of players L... ("L...") and M..., having incurred VAT, which it deducted.

The Tax and Customs Authority understood that the deduction of VAT was made improperly because, in sum:

– it was not proved that the indispensability of B... bearing the expenses in question was satisfied, for the obtaining of income subject to tax or for the maintenance of the source of production, in accordance with paragraph 1 of article 23 of the Corporate Income Tax Code;

– B... alleged paying amounts relating to rights for which it did not record any income and does not possess nor has set up adequate business structure for their exploitation.

For the requirement of indispensability provided in article 23, paragraph 1, of the Corporate Income Tax Code to be satisfied, it is sufficient that expenses be incurred in the interest of the company and be connected with its activity, regardless of whether profits have been obtained with them or whether their relevance for the maintenance of the source of production has been confirmed.

On the other hand, it was proved that the Claimant gave effective use to the acquired image rights, directly using the players in its own promotional actions, providing the players for sponsor and VIP box client promotional actions.

Furthermore, it resulted from the evidence produced that the acquisition of image rights of the players mentioned is indeed connected with the revenue obtained by the Claimant, as it aims to ensure compliance with obligations arising from contracts concluded with sponsors, create conditions to achieve them on more favorable terms and enhance the obtaining of new sponsors.

On the other hand, as mentioned in the judgment of the CJEU of 06-09-2012, handed down in case No. C-496/11 ([4]), "a right to deduction in favor of the taxable person is also admitted, even in the absence of a direct and immediate nexus between a particular upstream operation and one or more downstream operations with the right to deduction, when the costs of the services in question form part of its general expenses and are, as such, constituent elements of the price of the goods it supplies or the services it provides. These costs have, in fact, a direct and immediate nexus with the whole of the taxable person's economic activity". ([5])

In the case at hand, it resulted from the evidence produced that, regardless of the use given to image rights, the expenses for their acquisition enabled and enhance the obtaining of sponsorships, which are revenue from the activity of the Claimant, whereby the expenses for the acquisition of these image rights have a direct and immediate nexus with the whole of the Claimant's activity.

Thus, it must be concluded that the contested assessments, in the part in which they are based on corrections relating to VAT deducted that was incurred with the acquisition of image rights, are affected by error regarding the factual assumptions.

4. Compensatory Interest

As the VAT assessments contested are illegal, due to error regarding the factual assumptions, the assessments of compensatory interest are also illegal, which have those assessments as their basis.

5. Indemnification for Undue Guarantee

The Claimant makes a request for indemnification for the provision of an undue guarantee.

Article 171 of the Tax Procedure Code (CPPT) establishes that "indemnification in case of a bank guarantee or equivalent improperly provided shall be requested in the proceeding in which the legality of the enforceable debt is contested" and that "indemnification must be requested in the claim, objection or appeal or in case its grounds are subsequent within 30 days after their occurrence".

The request for constitution of the arbitral tribunal and for arbitral pronouncement has as its corollary the proceeding in which the arbitral tribunal will be discussed on the "legality of the enforceable debt", whereby, as results from the express contents of that paragraph 1 of that article 171 of the CPPT, it is also the arbitral proceeding that is appropriate to examine the request for indemnification for undue guarantee.

The regime of the right to indemnification for undue guarantee is in article 53 of the General Tax Law (LGT), which establishes the following:

Article 53

Guarantee in case of undue provision

  1. The debtor who, to suspend execution, offers a bank guarantee or equivalent shall be indemnified fully or partially for the losses resulting from its provision, if he has maintained it for a period exceeding three years in proportion to the outcome in administrative appeal, objection or opposition to execution that have as their object the guaranteed debt.

  2. The deadline referred to in the previous number does not apply when it is verified, in a claim for reconsideration or judicial objection, that there was error attributable to the services in the assessment of the tax.

  3. The indemnification referred to in number 1 has as its maximum limit the amount resulting from the application to the guaranteed value of the rate of indemnificatory interest provided for in this law and may be requested in the claim itself or judicial objection, or autonomously.

  4. Indemnification for provision of an undue guarantee shall be paid by charging to the revenue of the tax of the year in which payment is made.

As stated in the determination of the facts, it was not proved that any of the tax enforcement proceedings indicated in document No. 9 attached with the request for arbitral pronouncement, dated May 2016, has as its object the coercive collection of the amounts that are in question in the assessments contested in this proceeding, dated September 2016.

Based on the above, the request for indemnification for undue guarantee does not proceed.

6. Request for Extinction of Guarantee

It does not fall within the competence of arbitral tribunals defined in article 2 of the RJAT to decide on the extinction of guarantees provided in tax enforcement proceedings.

For this reason, no notice is taken of this request.

7. Decision

On these grounds, the members of this Arbitral Tribunal agree to:

  • Judge the request for arbitral pronouncement as well-founded;

  • Annul the following VAT and compensatory interest assessments:

– VAT for 2013/10 (Assessment No. 2016...) in the amount payable of €106,950.00, dated 23-09-2016;

– Compensatory interest from the previous assessment (Assessment 2016...) in the amount of €11,697.35, dated 23-09-2016;

– VAT for 2014/02 (Assessment No. 2016...), in the amount payable of €23,000.00, dated 25-09-2016;

– Assessment of compensatory interest No. 2016..., relating to period 1212 (document No. 2016...);

– Compensatory and default interest relating to the previous assessment (Assessments No. 2016... and 2016...), in the amount payable of €2,927.20, dated 26-09-2016;

  • Judge as unfounded the request for indemnification for undue guarantee;

  • Take no notice of the request for extinction of guarantee.

8. Value of the Proceeding

In accordance with article 306, paragraph 2, of the CPC and article 97-A, paragraph 1, subparagraph a), of the CPPT and article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceeding is fixed at €144,574.55.

Lisbon, 01-06-2018

The Arbitrators

(Jorge Lopes de Sousa)

(Rui Duarte Morais)

(Emanuel Augusto Vidal Lima)

[1] The Claimant indicates number 2016..., but what appears in document No. 3 is 2016....

[2] The Claimant indicates number 2016..., but what appears in document No. 3 is 2016....

[3] Mário Aroso de Almeida, On the Authority of Res Judicata of Judgments Annulling Administrative Acts, page 136.
In this sense, three recent judgments cited may also be seen.

[4] Citing previous CJEC case law adopted in the judgments Kretztechnik, No. 36, Investrand, No. 24, and SF, No. 58.

[5] In the same line, the judgment of the Supreme Administrative Court of 03-07-2013, case No. 1148/11 may be seen.

Frequently Asked Questions

Automatically Created

Can VAT be deducted on payments related to athletes' image rights in Portugal?
Under Portuguese VAT law, VAT deduction on athletes' image rights depends on whether the football club actually acquired the services for its own taxable operations. According to Article 19 and Article 20 of the VAT Code (CIVA), deduction rights exist only when the taxpayer acquires goods or services to carry out taxable operations. If agents represent players rather than clubs, the club cannot deduct the VAT, as established in CAAD case 595/2017-T.
What was the outcome of CAAD arbitral decision 595/2017-T regarding VAT deductions on image rights?
CAAD Decision 595/2017-T involved a challenge to VAT assessments totaling €129,950 where the Tax Authority disallowed deductions on intermediation services and image rights payments. The Tax Authority argued that since agents represented players' interests in negotiations rather than the club's interests, the club improperly deducted VAT on services it did not actually acquire. The tribunal examined whether the club met requirements under Articles 19 and 20 of the VAT Code for valid deductions.
How does Portuguese tax law treat VAT on the exploitation of sports image rights?
Portuguese tax law treats VAT on sports image rights exploitation according to general VAT principles under the CIVA. The right to deduct (direito à dedução) requires that: (1) the taxpayer actually acquires the goods or services, (2) the acquisition relates to carrying out taxable operations under Article 20(1)(a), and (3) proper documentation exists. When agents represent athletes rather than clubs, the club cannot claim VAT deductions on those services, as the player, not the club, is the true service recipient.
What are the requirements for VAT deduction rights (direito à dedução) under Portuguese tax law?
Under Portuguese VAT law, the requirements for exercising the right to VAT deduction (direito à dedução) are governed by Articles 19 and 20 of the VAT Code. Article 19(1)(a) permits taxpayers to deduct VAT charged on acquisitions of goods or services from other taxpayers. However, Article 20(1)(a) limits deductible tax to that incurred on acquisitions made for carrying out taxable operations subject to VAT and not exempt. The taxpayer must be the actual acquirer of the services, and there must be a direct link between the input and taxable output operations.
Can taxpayers challenge VAT assessments and compensatory interest through CAAD arbitral proceedings?
Yes, taxpayers can challenge VAT assessments and compensatory interest through CAAD (Centro de Arbitragem Administrativa) arbitral proceedings under Decree-Law 10/2011 (RJAT). In case 595/2017-T, the claimant challenged VAT assessments for periods 2013/10 and 2014/02 totaling €129,950, plus compensatory and default interest of €14,624.55. The RJAT provides jurisdiction under Article 2(1)(a) and Article 10(1)(a) for challenging tax assessment decisions through binding arbitration as an alternative to judicial courts, offering a specialized forum for resolving tax disputes.