VAT on Early Termination Fees by Telecom Operators: CAAD Case 596/2017-T Decision

ARBITRAL DECISION (consult full version in PDF)

The arbitrators Adviser Jorge Manuel Lopes de Sousa (arbitrator-president, appointed by the other Arbitrators), Dr. Pedro Manuel Paes de Vasconcellos e Silva and Dr. Emanuel Augusto Vidal Lima, appointed by the Claimant and the Respondent respectively, to form the Arbitral Tribunal, constituted on 30-01-2018, agree as follows:

1. Report

A…, S.A., holder of the collective person identification number …, with registered office at Avenue …, no. …, in …, a company previously designated as B…, S.A., filed a request for constitution of an arbitral tribunal, under the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, with the wording introduced by article 228 of Law no. 66-B/2012, of 31 December (hereinafter, briefly designated "LFATM"), seeking, as the principal claim, the annulment of the decision dismissing the hierarchical appeal, issued by the Deputy Director-General of the AT, on 14-08-2017, as well as the VAT assessments and compensatory interest relating to the period of 2013 with the numbers 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 … and 2015 …, in the total amount of € 7,434,640.98.

As a subsidiary claim, the Claimant requests the annulment of the decision dismissing the hierarchical appeal and the VAT assessments and compensatory interest, relating to the period of 2013 better identified above, in the part corresponding to the amount of indemnities that were invoiced by the Claimant and that were never effectively paid by its (former) customers or, alternatively, to ensure that the Claimant has effective recourse to the mechanism of regularization of the tax that is deemed to be levied on the invoiced and unpaid indemnities.

The Claimant further requests that compensation for improperly furnished security be determined.

The Respondent is the TAX AND CUSTOMS AUTHORITY.

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

On 08-08-2018 the President of CAAD informed the Parties of the appointment of the Arbitrators, in accordance with and for the purposes of the provisions of article 11(7) of the LFATM.

Thus, in accordance with the provisions of article 11(7) of the LFATM, after the period provided for in article 13(1) of the LFATM had elapsed without the Parties submitting any response, the Collective Arbitral Tribunal was constituted on 30-01-2018.

The Tax and Customs Authority submitted a response in which it argued for suspension of the proceedings until the decision in case C-295/17 of the CJEU and that the arbitral claim be dismissed as unfounded.

By order of 07-03-2018 it was decided to suspend the proceedings until a decision was issued by the CJEU in case no. C-295/17.

Following the issuance of a decision by the CJEU in that case, by order of 23-11-2018, the holding of the meeting provided for in article 18 of the LFATM was dispensed with and it was decided that the proceedings continue with simultaneous written pleadings for a period of 10 days.

The Parties submitted pleadings.

The Arbitral Tribunal was properly constituted and is competent. The parties have legal personality and capacity and are entitled (articles 4 and 10(2) of the same decree and article 1 of Ordinance no. 112-A/2011, of 22 March) and are duly represented.

There are no obstacles to the merits of the case being heard.

2. Statement of Facts

2.1. Proven Facts

The following facts are considered proven:

• A… is a limited company whose corporate purpose consists of the establishment, design, construction, management and operation of electronic communications networks and infrastructure, as well as the provision of electronic communications services and the transport and broadcast of telecommunications signals (document no. 1 attached to the request for arbitral decision, the contents of which are reproduced);

• For VAT purposes, the Claimant falls within the normal monthly periodicity regime and is a taxable person conducting operations subject to VAT;

• A tax inspection was carried out on the Claimant relating to the 2013 fiscal year, during which, after exercising the right to be heard, the Tax Inspection Report was prepared, as set out in the document submitted by the Claimant on 06-12-2018, the contents of which are reproduced, and which states, among other things, the following:

III.2. VAT

III.2.1. Unaccounted Tax - Indemnities for non-compliance with the contractual loyalty period - €6,882,275.09

B…, in the context of contracts with its customers, entered into service provision contracts, specifically contracts for the provision of broadband internet access services, and television and multimedia service provision contracts [Service for the distribution of television and, where applicable, the making available of audio and video content and provision of interactive services and other related services ("service")], within which minimum periods of contract validity were established as well as indemnities to be paid by the customer in the event of product and service deactivation at their initiative, before the agreed period had elapsed.

With respect to these contracts concluded, as occurred in the audit for the 2012 period, the explanation was requested of the composition and calculation method of the amount invoiced to customers arising from the termination, as well as the financial position of the invoices issued in 2013 for this situation.

In the response provided, B… did not add any additional elements to those previously provided in the tax inspection procedure for the 2012 period, as detailed below:

Broadband Internet Access Services

With respect to the Broadband Internet Access service, which includes, in particular, the provision of email services and personal pages (hereinafter "service"), the following is established:

"10.1. These Specific Terms enter into effect on the date of accession and apply for the minimum initial period that, on that date, is defined in the service offer conditions, duly publicized by B…; if nothing is defined in the service offer conditions, such period is deemed to be 12 (twelve) months. (…)"

10.5. In case of termination of these Specific Terms, by the CUSTOMER or for a reason attributable to the same, before the minimum period of validity has elapsed, B… shall be entitled to receive compensation calculated as follows: (minimum period of validity – number of months in which the services were active) x (value of the monthly fee).

10.6. For the purposes of the provision above, the value to be taken into consideration shall be the value of the lowest post-paid rate monthly fee in effect on the date of termination."

Provision of Television and Multimedia Service

With regard to the Provision of Television and Multimedia Service, the following is determined:

"12.1. These Specific Terms enter into effect on the date of accession and apply for a minimum initial period of 24 (twenty-four) months, except in cases where the CUSTOMER chooses to contract the service for a minimum initial period of 12 (twelve) months, in accordance with the rates in effect at each moment.

12.4. In case of termination of these Specific Terms, by the CUSTOMER or for a reason attributable to the same, before the minimum period of validity has elapsed, B… shall be entitled to receive compensation calculated as follows: (minimum period of validity - number of months in which the services were active) x (value of the monthly fee)."

In view of the above, it can be inferred that, if the minimum contractual period is not met, B… is entitled to receive compensation from its customers calculated on the basis of the number of months remaining to complete the agreed period multiplied by the agreed monthly fee value.

On Accounting

With respect to accounting, in accordance with NCRF 20 – Revenue [Prescribes the accounting treatment of revenue, understood as income arising from the ordinary activities of an entity, such as sales, fees, interest, dividends and royalties.] point 22 "Revenue is only recognized when it is probable that the economic benefits associated with the transaction will flow to the entity. However, when uncertainty arises as to the collectability of an amount already included in revenue, the amount not collectible, or the amount with respect to which recovery has ceased to be probable, is recognized as an expense (…)".

In this sequence, considering the uncertainty underlying the receipt of these values, the taxable person, at the time of invoice issuance, recognizes the value in account snc 282 - Revenue to be Recognized (account PIC 2171220000 – Deferred Revenue - Early Fact-CP-Fact. Indemnity), only recognizing in results when there is certainty that payment will be received from the customer.

On Tax Treatment

With respect to the tax treatment under value added tax, it was found that the taxable person did not levy VAT on the indemnities invoiced to its customers in 2013, on the basis that the said indemnities fall outside the scope of the said tax.

B… had already expressed its position on this issue, in the context of the tax inspection procedure for the 2012 period, through email dated 19 November 2012, stating that: "Within its activity, B…, S.A., hereinafter in abbreviated form "B…", enters into service provision contracts with its customers, specifically contracts for the provision of fixed voice, fixed broadband, and television communications services, in which it is customary to establish advantageous promotional conditions, and these conditions are, as a rule, associated with a quid pro quo: the commitment undertaken by the customer to remain bound by the contract for a certain minimum period of validity thereof.

The non-compliance by the customer with the contractual obligations to which it is bound, specifically the failure to pay on time, implies the payment of compensation to B….

In the situation in question there is no relationship between the amounts owed to B… by way of compensation and the performance of corresponding service provisions, since the obligation of compensation derives from the customer's breach of contract, the immediate effect of which is the suspension of the communications service by B… and the termination of the contract. Thus, it is the non-performance of services for the minimum period agreed upon that grounds the right to compensation in B…'s sphere. On the one hand, the compensation derives from the undeniable prejudice caused to B… by the non-continuation of the provision of communications services for a certain period of time, which would have generated business volume and profit for the company. On the other hand, the compensation amount to be received by B… does not give the "counterparty" the right to a service of any kind. Effectively the payment of compensation by customers does not generate any reciprocal obligation on the part of B…, with the amounts provided to it intended to compensate, as noted above, for the damage suffered as a consequence of breach of contract, specifically those relating to the initial investment implicit in the offer of advantageous promotional conditions, underlying the loyalty contracts. Accordingly, the compensation in question is not subject to VAT taxation.

In the course of the present tax inspection procedure, the taxable person was again requested to confirm whether VAT was levied on these operations and, if not, to justify its non-levy, and a justification identical to that described above was provided.

In this context, and to better ascertain the legal and tax framework in which the factual question should be inserted, reference is made to article 562 of the Civil Code (CC), in which the general principle relating to the obligation of compensation is found. It states the following:

"Anyone obliged to repair damage must reconstruct the situation that would have existed if the event obliging to repair had not occurred." Attention is called to the fact that this general principle expressly mentions the term "damage", a circumstance to which we will return at a later moment.

It is now important, with a view to a more thorough clarification of the problem under analysis, to make use of the doctrine on this matter, so, since it shows relevant for the assessment in question, we note below what is explained by Mário Júlio de Almeida Costa (Law of Obligations, 6th edition) on the subject of the penalty clause.

"The penalty clause is defined as the stipulation in which, in a legal transaction, specifically in a contract, the parties set the amount of compensation for the event of its breach (art. 810, no. 1). The compensation established corresponds to the name conventional penalty, although it is excluded that it is authentic penalty in a technical-legal sense, which is linked to the idea of repressive or preventive character and not to that of damage repair itself.

The penalty clause can be agreed to in view of the complete and final non-performance of the contract, specifically the principal obligation, or only the breach of one of its clauses, mere default or delay in performance and even defective performance (art. 811, no. 1). In any case, the penalty clause, in the system of our law, stands out as the anticipated fixing of compensation – compensatory or merely moratory – that is, it is directed to the repair of damage.

(…) the clause has fixed value – no more, no less – whether the prejudices are actually presented lower or higher than its amount. The law envisages it as an anticipated liquidation ("à forfait") of damages, which the parties freely agree, with only reservation of mandatory provisions.(…) The prohibition of recourse to compensation in general terms and the supplementary nature of that prohibition derive from no. 2 of art. 811 of the Civ. Code. Therein it is stated that "the establishment of the penalty clause prevents the creditor from demanding compensation for damage exceeding, unless it is otherwise agreed by the parties".(…)

Most often, the penalty clause represents merely an anticipated liquidation of repair, without modifying the general principles on which the debtor's liability depends. That is, as a rule, the entire scope of the penalty clause consists in setting a compensation amount that replaces what the judge would arbitrate if it did not exist." – emphasis ours.

As derived from the above, the penalty clause constitutes a stipulation through which the parties set the amount of compensation in case of breach. Literally, no. 1 of article 810 of the CC establishes that "The parties may, however, set by agreement the amount of compensation owed: this is what is called a penalty clause".

It is, therefore, a manner agreed upon by the parties to compensate for, indemnify, any potential damages that may occur during the validity of the contract.

We now observe what is stated by the same author, op. cit., regarding damage and, more specifically, with respect to the classification that distinguishes loss and loss of profit.

"From the perspective of civil liability, it can be said, at the outset, that damage or prejudice is any offense to third-party assets or interests protected by the legal order. Various classifications seek to establish the types and nature of damage. (…) A much-publicized classification is that made from loss ("damnum emergens") and loss of profit ("lucro cessans").

Attention is given to the configuration of the prejudice actually suffered. In this way: loss of profit ("damnum emergens") comprises the loss or decrease of values already existing in the patrimony of the injured party; and loss of profit ("lucro cessans") refers to the benefits that the latter failed to obtain as a consequence of the injury, that is, to the frustration of patrimonial increase (art. 564, no. 1)."

It follows from this that both loss and loss of profit are types of damage and, as stated above, the general principle relating to the obligation of compensation refers to anyone obliged to repair damage. In this way, the dichotomy between loss and loss of profit does not call into question, within the scope of law of obligations, the fact that both correspond to compensation as a way of reconstituting a certain situation.

On these two concepts, reference is made to the Judgment of the Supreme Court of Justice (SCJ) no. 04B3907 of 16.12.2004:

"3rd The concept of loss of profit has been, over the years, so analyzed, dissected and elaborated, that Jurisprudence and Doctrine have built peaceful opinion in the sense of corresponding to the frustration of gains and benefits, or to the non-increase of patrimony [Emphasis ours.] which, according to the normal and probable course of activity, would have been obtained, if not for the harmful act. In the case of a merchant or industrialist, the loss of earnings would correspond to revenues or sales that were not obtained and the loss of "net profit" that would provide such revenues.

As the Prof. Galvão Teles teaches, "Law of Obligations", 6th ed., p. 373, «Loss of profit is reflected in a devaluation of patrimony, loss of profit in its non-valorization. If the assets decrease or the liabilities increase, there is a loss ("damnum emergens"); if the assets cease to increase [Emphasis ours.] or the liabilities cease to decrease, there is a loss of profit ("lucrum cessans"). Here there is a loss, there the frustration of a gain.»

Nevertheless, and now refocusing the observation in progress from a fundamentally fiscal point of view, the crux of the present issue will be to verify whether, underlying the compensation, there is, or is not, a transfer of goods or provision of services, that is, whether it has an inherently remunerative character.

VAT, as a tax on consumption and which corresponds, basically, to what is laid down in Directive 2006/112/EC [previously the 6th Directive] of the Council (hereinafter Directive), aims to tax the consideration for taxable operations [Art. 1 of Directive 2006/12/EC – "1. This Directive establishes the common system of value added tax (VAT). // 2. The principle of the common VAT system is to apply to goods and services a general tax on consumption exactly proportional to the price of goods and services, regardless of the number of operations that have occurred in the process of production and distribution prior to the taxation stage. In each operation, VAT, calculated on the price of the good or service at the rate applicable to said good or service, is due, with prior deduction of the amount of tax that has directly affected the cost of the various elements making up the price. The common VAT system is applicable up to the retail stage, inclusive".] and not the compensation for prejudices that do not have a remunerative character.

The concept of provision of services contained in the Directive [article 24 of the Directive] is residual, in that as provision of services is understood any provision that is not a transfer of goods.

Following this residual formulation, the Directive gives examples [article 25 of the Directive] of provisions of services, including here "the obligation not to do or to tolerate an act or a situation.", an obligation of negative content (not to perform a certain act).

In accordance with no. 1 of article 3 of the CIVA, the transfer of goods is, in general, considered the onerous transfer of tangible goods in a manner corresponding to the exercise of the right of ownership, and in accordance with no. 1 of article 4 of the CIVA, as provisions of services are considered operations performed for consideration that do not constitute transfers, intra-community acquisitions or imports of goods.

Aligned with community legislation, the concept of provision of services given by article 4 has a residual character, being considered as provisions of services the provisions performed for consideration that do not constitute transfers or imports of goods.

VAT applies to all economic activity, which is nothing more than an operator providing services or transferring goods (except in certain particular cases) to the economic beneficiary, which will have to provide a certain consideration, existing, in this sense, a bilateral relationship.

Thus, in accordance with the foregoing, the criterion to be adopted to discern whether a given compensation is subject to VAT taxation will be related to the existence of a reposition of income, which compensates for a patrimonial increase not verified as a result of the injury, that is, of a remunerative character associated with the compensation. And if so, they have underlying an economic activity, a prerequisite of VAT taxation.

It is therefore necessary to assess whether the compensation is intended to compensate for loss of profit, that is, to restore the income level that, due to damage, the taxable person failed to obtain.

In other words, it must be determined whether the payment was intended to restore the income that would have been obtained through the provision of services, had the customer not broken the contractual relationship.

In the situation under examination, this will be the reality in question, since the compensation in dispute had this purpose, as can be seen from the contract itself, specifically from its points 10.5 and 12.4 of the specific conditions for broadband internet access services and television and multimedia services, respectively, in which the following can be read:

"In case of termination of these Specific Terms, by the CUSTOMER or for a reason attributable to the same, before the minimum period of validity has elapsed, B… shall be entitled to receive compensation calculated as follows: (minimum period of validity – number of months in which the services were active) x (value of the monthly fee)."

Thus, and insofar as the compensatory character of the compensation can be deduced from the contract text itself, it is to be considered that the same is subject to VAT.

In fact, from the manner of calculation of the compensation itself it can be inferred that it was intended to compensate B… for a loss of revenue on the assumption that it had "(…), at the moment of the injury, a right to gain that was frustrated, or rather, the ownership of a legal situation that, if maintained, would give it the right to that gain." - cfr. judgment of the S.C.J. of 23/5/78., B.M.J. no. 277; p. 258." Cf, Judgment (SCJ) no. 04B3907 of 16.12.2004, cited above.

Also, the reason why B… justifies the existence of a minimum period of contract validity, specifically "(…) by the existence of investment costs in equipment essential to the provision of the service, as well as the costs of service activation and also of customer acquisition" [Points 10.7 and 12.6 of service contracts for broadband internet access and television and multimedia services, respectively.], reflect that the recovery of the investment will be guaranteed, by the revenues obtained during the loyalty period or if that is discontinued (via customer withdrawal) the return is maintained through the compensation, since it accommodates the revenues for the months remaining until the end of the contract.

Thus the same level of profit is guaranteed. B… did not suffer prejudices in the form of loss of profit, because contractually the compensation that incorporates those profits was fixed.

What B… seeks to restore is not the investment made – that remains as it was made – what it actually seeks is to obtain revenues to recover that investment, from an economic perspective.

This goal is achieved through the existence of the loyalty period or when this is not met by the debit of compensation.

Concluding in this way that this compensation integrates the concept of loss of profit and as such is subject to VAT.

Corroborating the foregoing, the content of the information provided by B…, previously mentioned, is recovered: "Thus, it is the non-performance of services for the minimum period agreed upon that grounds the right to compensation in B…'s sphere. On the one hand, the compensation derives from the undeniable prejudice caused to B… by the non-continuation of the provision of communications services for a certain period of time, which would have generated business volume and profit for the company.(…)".

With the termination of the contract at the customer's initiative, before the contractually established period ended, B… saw its profits reduced by loss of revenue, which corresponds to a non-increase of its patrimony (through the value received from its customers). There was no reduction in existing patrimony (situation of loss), but rather a non-increase of the same, through loss of revenue, as referred to in the quote from Prof. Galvão Teles, already mentioned.

Furthermore, according to the arguments of the taxable person itself, the fact that, arising from these compensations from contractual relationships that on B…'s part embody "(…) the establishment of advantageous promotional conditions" and on the customer's part "the commitment undertaken (…) to remain bound by the contract for a certain minimum period of validity thereof.", that they arise in the context of the exercise of economic activity and concomitantly related to the provision of telecommunications services, which is B…'s activity.

In order to corroborate the position now defended, reference is made to the Judgment of the Supreme Administrative Court (SAC) no. 01158/11 of 31.10.2012, whose position clearly supports the understanding being advocated here:

"In view of all that has been set out, we conclude, in accordance with the learned Opinion of the Public Prosecutor, according to which it is necessary to distinguish:

a) Compensation paid by the insurer, "(…) intended for compensation of damage caused by loss of property", the same should be considered excluded from the objective scope of VAT, "insofar as it does not assume the nature of consideration for the transfer of a good or provision of a service (arts. 1 no. 1, 4 no. 1 and 16 no. 1 CIVA)";

b) Amounts paid by the lessee to the lessor, being paid "additionally to the lessor by lessees do not take on a compensatory nature (because they are not intended for compensation of losses and damages), but rather are rooted in the performance of contractually undertaken obligations (in each of the categories of contracts in question). Given that these contracts have the nature of service provision contracts, those amounts still represent consideration for operations taxable under VAT".

It is concluded, therefore, that the present compensations are intended to compensate for foregone income and arise from the performance of contractually undertaken obligations in the context of service provision contracts, and therefore represent consideration for operations taxable under VAT.

In terms of classification under the VAT Code, the compensations in question constitute a counterpart for a provision of services, subject and not exempt, in accordance with no. 1 of article 4, with the taxable event and consequently the tax being due at the moment of invoice issuance, in accordance with subparagraph a) of no. 1 of article 8, the taxable value being that of the compensation, in accordance with no. 1 of article 16, with the 23% rate applying, provided for in subparagraph c) of no. 1 of article 18, all of the VAT Code.

In this connection, it is necessary to proceed with the quantification of the taxable base distributed by months, and for this purpose, the taxable person was requested, (email of 23.04.2015) to provide a list of all invoices issued to customers during the year 2013, with the indication of their value and period of issuance and relating to situations of contract termination before the minimum period of validity of the same had elapsed (loyalty period).

Following the request, an Excel file was provided with the requested information. From the analysis and computer processing of the data provided by B…, it was possible to obtain a file with the following identifying elements for each record/invoice: invoice number and reference; date, period and invoice value; customer name and number; description of service and VAT rate. From this universe of properly organized data, values were analyzed by type/reason for compensation, of which those listed in Annex VI (sheets 1) were considered as subject to tax and which total the amount of €6,882,275.09, relating to paid and unpaid invoices.

Given this, it should be noted in this context that the methodology used takes into account the content of article 75 of the General Tax Law (LGT), with the heading "Declaration and other elements of taxpayers", according to no. 1 of which "The declarations of taxpayers presented in accordance with the provisions of law are presumed to be true and in good faith, as are the data and calculations entered in their accounting or records, when these are organized in accordance with commercial and tax legislation", from which also arises special binding between the available elements and the results now obtained.

Thus, based on the data obtained from the verification and validation carried out on the elements provided by the taxable person, it was possible to determine a total amount of €29,922,907.46, corresponding to compensations invoiced to customers, in which VAT was not levied, to which corresponds a total VAT value owed, at the normal rate, of €6,882,275.09 (Annex VII on CD).

In summary, in light of the foregoing, it is concluded that these compensations are subject and not exempt from tax. Consequently, in accordance with no. 1 of article 4, subparagraph a) of no. 1 of article 8, no. 1 of article 16, and subparagraph c) of no. 1 of article 18, all of the VAT Code, an outstanding tax was determined in the total amount of €6,882,275.09.

The following table presents a summary of corrections under VAT, by tax period:

[Table summary of VAT corrections by period]

• Following the tax inspection action, the Claimant was notified of VAT assessments relating to the period 2013 with the numbers 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, as well as the corresponding assessments of compensatory interest with the numbers 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 … and 2015 …, in the total amount of € 7,434,640.98, as summarized in the table below:

[Table of assessments]

(document no. 13 attached to the request for arbitral decision, whose contents are reproduced);

• The Claimant did not proceed to pay the assessment acts referred to, within the voluntary payment period for that purpose, as a result of which the respective fiscal enforcement proceedings were instituted by the AT (document no. 14 attached to the request for arbitral decision, whose contents are reproduced);

• On 30-12-2015, the Claimant submitted to the Tax and Customs Authority, for the purpose of suspension of fiscal enforcement proceedings, bank guarantee no. N…, issued by Bank…, S.A., in the amount of € 9,401,751.77 (document no. 15 attached to the request for arbitral decision, whose contents are reproduced);

• The Claimant filed an administrative appeal of the assessments as stated in document no. 16 attached to the request for arbitral decision, whose contents are reproduced);

• On 11-02-2016, the Claimant was notified of the draft dismissal of the administrative appeal set out in document no. 17 attached to the request for arbitral decision, whose contents are reproduced, and exercised the right to be heard as stated in document no. 18 attached to the request for arbitral decision, whose contents are reproduced;

• On 20-04-2016, the Claimant was notified of the decision dismissing the administrative appeal, as stated in document no. 19 attached to the request for arbitral decision, whose contents are reproduced;

• On 23-05-2016, the Claimant filed a hierarchical appeal against the decision dismissing the administrative appeal (document no. 20 attached to the request for arbitral decision, whose contents are reproduced);

• On 14-08-2017, the Claimant was notified of the decision dismissing the hierarchical appeal, as stated in document no. 21 attached to the request for arbitral decision, whose contents are reproduced;

• The Claimant made investments to implement the operation of networks seeking services that require greater bandwidth and virtualization (document no. 2 attached to the request for arbitral decision, whose contents are reproduced);

• To increase and/or maintain its market share in the electronic communications sector, the Claimant regularly develops and publicizes, to its existing and potential customers, promotional campaigns or offers giving them advantages, on the condition that they respect a certain period of permanence (document no. 3 attached to the request for arbitral decision, whose contents are reproduced);

• The Claimant makes these investments – whether in tangible fixed assets, intangible assets, or human and other resources – within a complex economic rationale that presupposes not only recovery of the costs of its investment, but also obtaining a certain profit margin (fact stated by the Claimant in article 10 of the request for arbitral decision and not questioned);

• The Claimant adjusts the volume, type, intensity, location and timing of its investments according to the acquisition of a minimum number of customers with which it will establish and maintain a certain commercial relationship (fact stated by the Claimant in article 11 of the request for arbitral decision and not questioned);

• The Claimant does not promote investments that are economically and financially unjustified, specifically by not allowing it to acquire a minimum number of customers, at a given time or place (fact stated by the Claimant in article 12 of the request for arbitral decision and not questioned);

• With a view to acquiring customers, whether natural or legal persons, the Claimant has proceeded and proceeds to commercialize its services, through recourse to various forms and channels, such as:

(i) The realization of "door-to-door" sales, in which employees of partner companies contracted by it promote the commercialization of services that the now Claimant can provide;

(ii) The realization of "in-store" sales, in which partner companies contracted by it ensure, with recourse to their own material and human means, the operation of "A…" stores, in which customer accession proposals are received and forwarded to the Claimant;

(iii) The promotion of sales through "customer acquisition agents", that is, the promotion of sales through stores not associated with the "A…" brand, in which customer accession proposals are received and forwarded to the Claimant;

(iv) The commercialization of installation kits, within which a proposal is included that customers can fill out, sign and return to the Claimant;

(v) The promotion of sales by inbound telephone (i.e., customer service) and outbound (i.e., telemarketing) or via web, in which the Claimant promotes the commercialization of services it provides (facts stated by the Claimant in article 13 of the request for arbitral decision and not questioned);

• The Claimant enters into contracts with existing and/or new customers for the provision of electronic communications, internet access and multimedia services (as per the contract form set out in document no. 4, attached to the request for arbitral decision, whose contents are reproduced);

• In contracts where the Claimant offers customers promotional conditions (giving them advantages which they would otherwise not have access to), the obligation of those customers to remain contractually bound to the Claimant for a minimum time period is established and provided (documents nos. 3 and 4 attached to the request for arbitral decision, whose contents are reproduced);

• The minimum time period, usually designated as the "loyalty period", contractually established, on an individual basis, between A… and a given customer, has the purpose of allowing the former to primarily recover all costs it has incurred with the investments made:

(i) In its global infrastructure (e.g. networks, equipment, installations, etc.);

(ii) In the customer acquisition process (e.g. commercial and marketing campaigns, payment of commissions to partner customer acquisition entities);

(iii) In the activation of the contracted service (e.g. installation in homes and offices); and,

(iv) In the granting of special advantages given to that same customer (e.g. attribution of discounts and free services); (article 22 of the request for arbitral decision, not questioned);

• By operating in a highly competitive sector and because it is common market practice to conclude, in mass, contracts for service provision, it becomes fundamental for A… to include (even if restricted to cases where necessary), a clause that provides for the fixing of a minimum loyalty period (articles 35 and 36 of the request for arbitral decision, not questioned);

• The Claimant has the need, to avoid incurring losses, to ensure that each customer acquired remains bound by the contract it concluded during the minimum agreed time period (article 25 of the request for arbitral decision, not questioned);

• It is in the interest of the Claimant to maintain its customers in a market in which there are other competing companies that seek to increase their market share through its customers;

• Consumers have the possibility of concluding contracts for service provision with any electronic communications operators without the obligation of permanence for a minimum time period being contractually required (articles 20 and 21 of the request for arbitral decision, not questioned);

• In cases where consumers choose to conclude contracts for service provision with any electronic communications operators without the obligation of permanence for a minimum time period being contractually required, the conditions provided therein (e.g. monthly costs) are different from those that apply in contracts where the minimum loyalty period is agreed upon (article 21 of the request for arbitral decision, not questioned);

• The Claimant resorts to partner companies to acquire customers and, in that context, is contractually obligated to pay such entities a certain commission for each customer acquired (article 24 of the request for arbitral decision, not questioned);

• The commissions paid by the Claimant to partner companies responsible for customer acquisition may amount to a figure corresponding to various base monthly installments that the acquired customers undertook to pay to the Claimant (article 25 of the request for arbitral decision, not questioned);

• The Claimant bears, whenever it concludes a new service provision contract with a given customer, costs for the purchase of equipment (e.g. set-top box) and costs of installation and activation (normally subcontracted to other partner companies) of the service at the customer's address (article 26 of the request for arbitral decision, not questioned);

• The brief permanence (for example, 1 month) of a customer, in the context of contractually established service provision, generates substantial losses for the Claimant, because the costs it incurred with the acquisition, installation and activation of the service and the attribution of more advantageous commercial conditions are not compensated by the amount of the monthly installment(s) possibly received by the Claimant (articles 27 and 28 of the request for arbitral decision, not questioned);

• Initially, the establishment of a minimum customer retention period has as its principal concern the recovery of the substantial investment it made to be in the market providing its services to a vast set of customers and in very demanding and sophisticated segments (article 33 of the request for arbitral decision, not questioned);

• The Claimant, in developing efforts and bearing the inherent costs of customer acquisition, expects them to remain contractually bound to it for a time period that far exceeds the contractually established loyalty period (article 31 of the request for arbitral decision, not questioned);

• When concluding a contract with a given customer in which this loyalty period is provided, it expects this to be only the beginning of a longer-lasting commercial relationship (ideally, forever; more realistically, lasting about 4 or 5 years, as is market practice), in which it can provide, in addition to the initially contracted services, other additional services (e.g. volumes of internet traffic higher than those contracted, international traffic, value-added calls, national traffic not included in the contracted service package, premium channels, etc.), subject to different prices (previously communicated to the customer) that far exceed the value of the base monthly fee previously agreed (article 32 of the request for arbitral decision, not questioned);

• In service provision contracts with promotional conditions, the Claimant included the following clauses:

"The minimum period of validity (…) is justified by the existence of investment costs in equipment essential to the provision of the service, as well as the costs of service activation and customer acquisition"

"In case of termination (…) by the customer or for a reason attributable to the same, before the minimum agreed validity period has elapsed, initial or subsequent, the (…) [Claimant] shall be entitled to receive compensation calculated as follows: (minimum period of validity - number of months in which the services were active) x (agreed monthly fee value)".

(document no. 4 attached to the request for arbitral decision, whose contents are reproduced);

• The said clause on contract maintenance for a minimum period has a deterrent effect from customer breach of the loyalty period, because the generality of these, given the consequent compensation debit, prefer to comply with the contracted conditions (i.e. the minimum loyalty period), rather than cease to benefit from any service provided by the Claimant and, still, pay it the compensation amount provided;

• Through the provision of this clause, the Claimant intends, on the one hand, to promote the performance of contracts it concludes with its customers and, on the other, in case of breach, to recover the damages caused in its sphere, associated with the investments made for the provision of contracted services (article 40 of the request for arbitral decision, not questioned);

• The said clause is essential as a deterrent to customer breach of the loyalty period, because the generality of these, given the consequent compensation debit, prefer to comply with the contracted conditions (i.e. the minimum loyalty period), rather than cease to benefit from any service provided by A… and, still, pay it the compensation amount owed (article 41 of the request for arbitral decision, not questioned);

• Additionally, in cases where a breach occurs, the activation of the compensation obligation provided in this clause by the Claimant is essential, enabling it to obtain compensation for damages caused in its sphere, without need to resort to judicial means (article 42 of the request for arbitral decision, not questioned);

• The Claimant always bears in mind the need to – in the context of maintaining a correct commercial relationship with any customer, even those who are or claim to be in breach – avoid, at all costs, the activation of the provision of such clause (article 43 of the request for arbitral decision, not questioned);

• Whenever the Claimant perceives that a given customer is (or intends to) fail to meet its payment obligations, during the loyalty period, the Claimant initiates a process called dunning (article 44 of the request for arbitral decision, not questioned);

• The dunning process has the purpose of alerting customers to the existence of amounts to be settled and collecting invoices that are in default and preventing that, between A… and a given customer, a situation is reached that leads, inevitably and definitively, to early cessation (i.e. before completion of the loyalty period) of the service provision contract concluded between both parties (article 45 of the request for arbitral decision, not questioned);

• In the context of this dunning process, starting from the example of the case in which the customer does not pay the agreed monthly fees, the Claimant begins by sending SMS or alert letters to remind the defaulting customer that there is an unpaid invoice (or more) and that the same should proceed to its payment, to avoid more serious consequences (document no. 6 attached to the request for arbitral decision, whose contents are reproduced);

• If, after sending these SMS, the customer continues to disrespect its payment obligations, the Claimant goes on to alert the defaulting customer to the need to pay the outstanding amounts, by sending letters to the known address and/or possibly by making telephone calls to the known telephone/mobile contact number (document no. 7 attached to the request for arbitral decision, whose contents are reproduced);

• Should the efforts undertaken by the Claimant to have the customer settle its breach situation prove unsuccessful, within the loyalty period, then the Claimant finds itself in the situation of, at a later moment, proceeding to suspend the contracted services (article 48 of the request for arbitral decision, not questioned);

• Only in the event that, after suspension of the contracted services, the customer in question remains in breach, the Claimant adopts the most drastic and burdensome measure, corresponding to the total and definitive resolution of the contract and subsequent activation of the clause that provides for the obligation to pay compensation, if it is a customer with a loyalty contract and if the loyalty period is still running, and issuing the invoice relating to the corresponding value, following termination of the contract (documents nos. 8 and 9 attached to the request for arbitral decision, whose contents are reproduced);

• After suspension of the contracted services, if the customer in question remains repeatedly in breach, the Claimant is legally obligated to adopt the most drastic and burdensome measure corresponding to the total and definitive termination of the service provision contract it had concluded with the customer in question (document no. 8 attached to the request for arbitral decision, whose contents are reproduced);

• Only after the early termination of the service provision contract by the customer or for a reason attributable to the customer, the Claimant ceases to provide any of the services initially contracted with the former customer (article 51 of the request for arbitral decision, not questioned);

• In the invoices that the Claimant issued in the year 2013 to these former customers in order to charge the amounts owed due to non-compliance with the loyalty period, the Claimant included the indication "Compensation for Contractual Non-Compliance" and did not levy any amount as VAT, making express mention of this through the indication "Amount in euros excl. VAT" (document no. 9 attached to the request for arbitral decision, whose contents are reproduced);

• The Claimant did not receive, up to 27-11-2018, the entire invoiced amount of € 29,922,907.00, but received up to that date at least the amount of € 2,318,918.39 regarding the compensations invoiced to its former customers in 2013, as compensation charged in situations of contractual non-compliance (document no. 1 attached to the request of 04-12-2018);

• Of the amount of € 2,318,918.39, the amount of € 2,088,639.78 corresponds to former private customers and the amount of € 230,278.63 to former VAT taxable person customers) (document no. 1 attached to the request of 04-12-2018, whose correspondence to reality is not questioned by the Tax and Customs Authority);

• The Claimant, knowing in advance the uncertainty always associated with the receipt of these compensations, at the time of issuance of the corresponding invoices, records these values only in the accounting item # 282 – Revenue to be Recognized, and only recognizes them in results when the (former) customers make the due payment (fact stated in article 56 of the request for arbitral decision and p. 34/68 of the Tax Inspection Report attached on 06-12-2018);

• The early termination of the contract by the customer or for a reason attributable to the customer alters the economic reality of the relationship that had been established between the Claimant and its (former) customer;

• The amount owed by the Claimant's (former) customer in case of non-compliance with the loyalty period does not necessarily correspond to the amount that the Claimant would have received if the loyalty period had not been breached, specifically through the use of services not covered in the value of the contracted base monthly fee and/or through the maintenance of the contract after the loyalty period;

• The decision of the Claimant's (former) customer to cease or not cease the contract is a decision substantially distinct from the decision to exercise or not exercise the right to benefit from the services that the contract concluded with the Claimant provides, because, in case of contract termination, both the Claimant's obligation to provide the services and the (former) customer's right to benefit from that provision are extinguished;

• In cases where the cessation of the contract, in a period prior to completion of the loyalty period, occurs for a reason attributable to the (former) customer, there was not necessarily any decision by the (former) customer regarding whether to exercise or not exercise the right to benefit from the services that had been contracted and agreed with the Claimant;

• The Tax and Customs Authority accepted, for the year 2015, that the Claimant proceed with voluntary regularization, in the amount of €931,687.00, in a situation where a correction in the amount of € 8,588,243.00 had been proposed relating to the failure to levy VAT on invoicing relating to amounts payable by customers for non-compliance with loyalty periods (Tax Inspection Report and Periodic VAT Declaration attached as documents nos. 2 and 3 with the request of 04-12-2018);

• In that Tax Inspection Report for the year 2015, it is stated that "With respect to the divergence between the VAT value proposed to be corrected and the voluntary regularization carried out by A… the effects of the possibility of regularization in its favor of the VAT levied were taken into account, through the VAT regularization mechanisms provided for in article 78 of the VAT Code";

• On 03-11-2017, the Claimant submitted the request for constitution of the arbitral tribunal that gave rise to the present proceedings.

2.2. Facts Not Proven

It was not proven that the Tax and Customs Authority has concluded "agreements, tax assessments and/or any other documents resulting from negotiations with other electronic communications operators (…), from which it resulted that the value on which these assessments were based corresponded to the amount of compensations for non-compliance with the loyalty period effectively received and not to all compensations invoiced by those operators to their former customers".

The Claimant stated that it "is aware that other electronic communications operators will have negotiated and reached agreements with the AT, for the rapid and early resolution of disputes on issues identical to those that are the object of the dispute in question, in which this public entity will have accepted that there would only be additional VAT levy on indemnity amounts associated with violation of the loyalty period that were effectively received by those operators" (article 385 of the request for arbitral decision) and requested that the Tax and Customs Authority be notified to present these agreements, assessments or other documents relating to other communications operators (article 387 of the request for arbitral decision and point 2 of the request for evidence), but the Tax and Customs Authority responded that it impugns and vehemently repudiates what the Claimant states and argues that there is a legal obstacle to such claim, derived from tax secrecy (articles 216 to 219 of the Response).

The Tax and Customs Authority denying the existence of this action that the Claimant attributes to it, which it says it repudiates, the response to what was requested is given, so notification for that purpose is not justified.

There being no element that allows concluding that the statement of the Tax and Customs Authority does not correspond to the truth, nor does the Claimant indicate any hypothetical reason for knowledge of what it refers to, nor has it presented documentary evidence of the existence of the alleged agreement, assessment or documents, it must be considered that the facts are not proven.

There are no other facts relevant to the decision of the case that have not been proven.

2.3. Justification for the Decision on Facts

The facts were given as proven based on the documents attached to the request for arbitral decision and with the request of 04-12-2018 and on the administrative file.

The Tax and Customs Authority, although it states in article 56 that it impugns "factual matter articulated in the initial claim as support for the Claimant's claim, for not corresponding to the truth, or for it not being possible to derive the intended legal effects", only explicitly disagrees with matter of law and on inferences to be drawn from the factual matter regarding the nature of the amounts invoiced by the Claimant, not indicating or proving any alternative factual reality, specifically regarding the changes resulting from early termination of contracts.

With respect to the quantification of the invoiced amount that was effectively collected, the Tax and Customs Authority accepts in the Tax Inspection Report the quantification presented by the Claimant, which, moreover, is presumed true by virtue of the provision of article 75, no. 1, of the LGT and does not demonstrate that the updated reality is otherwise presented in document no. 1 attached to the request of 04-12-2018.

Naturally, the possibility is not excluded that the Claimant has made or may make other collections of the invoiced amount.

3. Matter of Law

Based on contractual clauses, the Claimant invoiced amounts to its customers for non-compliance with loyalty periods, with the amounts corresponding to the amounts that the Claimant would have received in the rest of the said minimum permanence period if the early contract termination had not occurred: "(minimum period of validity - number of months in which the services were active) x (agreed monthly fee value)" (article 38 of the request for arbitral decision).

The Claimant did not levy VAT on the invoices it issued.

Only partially were the amounts invoiced by the Claimant collected.

What is at issue in the present proceedings is, first, whether those amounts are to be considered consideration for the provision of services, for purposes of VAT liability.

The Claimant, in the pleadings it submitted, made the following conclusions:

A. Making a summary of everything that has been set out in these proceedings, it can be seen that the compensation obligation plays a central role within the legal accountability of citizens for their acts, whether they have civil, commercial or other repercussions.

B. This accountability is centered on the duty incumbent on those who (namely, the Claimant's former customers) caused (by non-compliance with the contractually agreed loyalty period) a certain damage (think of the Claimant's costs with customer acquisition, installation and activation of the service) to reconstitute the legal and patrimonial situation of the injured person (in the present case, the Claimant) as if the injury or damage had not occurred (i.e. placing the Claimant in the same situation that would exist if this non-compliance had not existed).

C. Furthermore, the payment of compensation constitutes a singular act from which no idea of interdependence or commutativity arises between the compensatory provision that the wrongdoer (the former customers) is compelled to satisfy and any other provision that may fall to the injured party (the Claimant) to perform, within a logic of reciprocity.

D. That is, when the duty to pay compensation arises on the part of the contract-breaching party (the former customers), there is no relationship of bilateralism, or right of this (wrongdoer) to receive consideration from the injured entity (the Claimant), as occurs in bilateral contracts.

E. In this way, by not having this causal nexus, it cannot be considered that there is any oneroseness associated with the payment of authentic compensation, which can, in accordance with law and agreement between the parties, be anticipated set forth in penalty clauses (something which, moreover, the Respondent did not call into question throughout the tax proceeding and process).

F. Applying this understanding to the case sub judice, it is immediately seen that, in light of the principles concerning the objective incidence of VAT, this tax should not apply to the quantitative amounts paid as compensation by the Claimant's former customers, because there is no "act of consumption" here that can be framed within the concept of "provision of services" present in the VAT Directive and the VAT Code.

G. But if any doubts remained, they would be dispelled if it is considered that the value received by the Claimant can never correspond to the remuneration of any "provision of services" made to its former customer, since the invoicing and (when it occurs) payment of the respective amount occurs after the termination or, if preferred, cessation of the contract and aims solely and exclusively at the coverage of damage or prejudices caused by virtue of non-compliance with the loyalty period and early cessation of the contract by that former customer!

H. That is, contrary to what the Respondent argues, we are not faced with a remuneration of any service provision activity (which, moreover, was never even performed or individualized by the Respondent, which – indeed – is well understood since there is no provision of services that it could actually perform or individualize), since such provision ceased at a moment prior to the birth of the compensation payment obligation and in no way relates to it, within a logic of reciprocity!

I. On the other hand, the fact that the compensation is calculated, based on future provisions cannot be invoked, contrary to what the Respondent claims, to argue that we would be faced with compensation for "lost profits", since it is merely, as we have seen, a method of calculating the compensation considered by the Claimant – within the legal and regulatory framework in effect at the time of the facts and in respect of the principle of contractual freedom – as appropriate for purposes of recovery (without need to resort to courts) of the costs (transformed into damages) incurred with (and because of) these contracts.

J. Indeed, the factual assumption, which the Respondent has always ignored in its reasoning, is that the early termination of the contract implies for the Claimant a prejudice arising from the loss of the investment made, and it is precisely to compensate for this damage that the payment of compensation is contractualized.

K. Considering the foregoing, and contrary to what the Respondent argues, it is thus evident that the amounts charged as compensation are not the consideration for any provision of services or transfer of goods provided to its customers, with no bilateral relationship existing between the payment of that amount and any provision of services (which, as the Respondent acknowledged, were deactivated by the Claimant with the termination of the contract and before the issuance of the respective invoicing).

L. Consequently, lacking any onerous character that can be attributed to the amounts charged by the Claimant to its former customers as compensation for non-compliance with the loyalty period, these amounts cannot, under penalty of being faced with an evident violation of the VAT Directive, the VAT Code and also the Constitution, be subject to VAT and, as such, neither the decision dismissing the hierarchical appeal nor the VAT assessments and compensatory interest better identified above, all acts of the Respondent's authorship, can prevail in the legal order.

M. It is therefore requested of this Tribunal that it deign to judge the present request for arbitral decision as well-founded, based on the factual and legal grounds above, and better exposed in the request for arbitral decision, ordering the annulment of the tax acts now questioned for the defect of violation of law arising from direct violation of articles 4, 16 and 18 of the VAT Code, as well as articles 2, 9 and 24 of the VAT Directive, and also articles 8, 103 and 104 of the Constitution, which will result in the annulment of the decision dismissing the hierarchical appeal and the corresponding VAT assessments and compensatory interest that preceded it!

N. Subsidiarily, should this Arbitral Tribunal come to conclude (a scenario that is not conceived and is only alluded to for exclusive duties of representation), for the VAT liability of the compensations invoiced by the Claimant to its former customers as a result of non-compliance with the loyalty period by these (or for reasons attributable to them), bearing in mind the rules enshrined in the VAT Directive and the general principles that form the common system of this tax, provided that there is proven definitive uncollectibility of any credit (as is manifestly the case), the taxable persons will always have the right to regularization of the corresponding VAT.

O. Indeed, in light of those provisions and principles and in light of the judgment of the CJEU of 22.11.2018, in case C-295/17, and the conclusions of Advocate General Juliane Kokott in the same case, the value contained in the VAT assessment and interest acts now contested should be adjusted accordingly, purging for this purpose the values of compensations that, despite being invoiced, were not subject to collection by the Claimant.

P. Particularly since, unless proven otherwise, as there has been no VAT levy in the invoices issued by the Claimant in the present case, there is no justification – as a matter of justice – to subject it to the formalities inherent in VAT regularization in uncollectible credits (provided for in article 78 et seq. of the VAT Code), especially because, given the absence of tax levy, there will be no risk of any customer or consumer – whether a private person or legal person – having proceeded with any VAT deduction.

Q. In any event and in light of the foregoing, the Claimant is of the opinion that, should this Arbitral Tribunal come to adopt the theory defended by the Respondent throughout the tax proceeding – which, it is reiterated, is not accepted and is only alluded to here for exclusive duties of representation – the VAT assessments and compensatory interest better identified above, as well as the express decision dismissing the hierarchical appeal that followed them, should still be deemed illegal, for violation of, in particular, article 90 of the VAT Directive, and the same should be annulled in the proportion corresponding to the amount of compensations that were invoiced by the Claimant and that were never effectively paid by its (former) customers or ensure to the Claimant an alternative, in useful and effective terms, that guarantees that the tax can only apply to the compensations received.

R. The solution stated above, by way of subsidiary claim, would, moreover, be in accordance with the provision of the fundamental principle of equality, the principle of VAT neutrality and the principle of effective judicial protection.

S. Finally, without prejudice to all of the foregoing, as a complementary and necessarily subsidiary matter, it is considered here important to bear in mind that the tax (allegedly) due with reference to the compensations in question here, to be charged by the Claimant to its customers, would always have to constitute a component of the amount charged and never an element to be added to it.

T. This is what follows from the rules of economic and legal pass-on that are mandatory under VAT (as a tax on consumption), inherent to the mechanics underlying the operation of this tax, which should produce the same fiscal results as a single tax applied at the final stage of the tax chain, and it is certain that only with this mechanism of pass-on and deduction is the desired VAT neutrality achieved.

U. In this sense, a taxable person cannot fail to charge tax in its respective invoices, even if it wished to bear it economically.

V. In light of the foregoing, should this Arbitral Tribunal come to consider that the compensations subject to analysis in the present proceedings are subject to VAT (a scenario that is not conceded and is only admitted for exclusive duties of representation), the amount of tax to be remitted to the State, with reference to the year 2013, should be considered included in the value already charged and collected from its customers.

3.1. Case Law of the CJEU

As already referred, the proceedings were suspended to await the decision to be issued by the CJEU in its case C-295/17, which has as its object factual matter essentially identical.

In the operative part of the judgment issued on 22-11-2018, the following is stated:

1. Article 2(1)(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, is to be interpreted as meaning that the fixed amount received by an economic operator in the event of early termination of the contract by its customer, or for a reason attributable to the customer, of a service provision contract that provides for a minimum contract binding period, an amount that corresponds to the amount that that operator would have received in the remainder of the said minimum period if that contract termination had not occurred, which it is for the referring court to verify, is to be considered as the remuneration of a service provided for consideration and, as such, subject to that tax.

2. What is not decisive for the classification of the fixed amount predetermined in the service provision contract, of which the customer is the debtor in the event of early termination of that contract, is the fact that the fixed amount is intended to deter customers from breaching the minimum contract binding period and to compensate for the prejudice that the operator suffers from the breach of that period, the fact that the remuneration received by a commercial agent for the conclusion of contracts that stipulate a minimum binding period to those contracts is higher than that provided for in the context of contracts that do not stipulate such a period, and the fact that the said amount is classified, under national law, as a penalty clause.

As results from the supremacy of Union Law over National Law, provided for in article 8(4) of the Constitution and is a corollary of the mandatory preliminary ruling obligation provided for in article 267 of the Treaty on the Functioning of the European Union (which replaced article 234 of the Rome Treaty, former article 177), CJEU case law is binding on national courts when it concerns questions of Union Law. ( [1] )

In the case in question, the application of CJEU case law contained in case C-295/17 is further justified, in the precise terms in which the CJEU decided, for having been produced with respect to "an object entirely identical to that which is here under discussion", as the Claimant itself stated in article 398 of the request for arbitral decision, with the express agreement of the Tax and Customs Authority (articles 24 and 25 of the Response).

Thus, by constitutional imperative, the question of the classification of amounts invoiced to customers for non-compliance with loyalty periods as constituting or not remuneration of "provision of services" for purposes of Directive no. 2006/112/EC of the Council, of 28-11-2006, must be decided in accordance with what the CJEU decided, with the opinion of this Arbitral Tribunal being irrelevant as to whether what was decided in preliminary ruling was well or poorly decided by the CJEU.

Specifically regarding the CJEU's assessment of the situation, it should be noted that the Claimant had intervention in the preliminary ruling case in which it requested the reopening of the oral phase of the proceedings, arguing "that the conclusions of the Advocate General, in particular nos. 41, 44, 46 and 47 thereof, were based on incorrect facts, bearing in mind, specifically, the amount invoiced by A… to its customers in the event of early termination of the service provision contract" (no. 24 of the judgment).

The CJEU, stating that reopening could occur when "a party invokes a new fact that may have a decisive influence on the decision of the Court, or when the case must be resolved on the basis of an argument that was not debated between the parties or interested parties referred to in article 23 of the Statute of the Court of Justice of the European Union", rejected the Claimant's request considering "that it has all the necessary elements to answer the questions submitted by the referring court and considers that, for the purposes of judgment of the case in the principal proceedings, all arguments were debated in the Court of Justice, in particular those relating to the classification of the said amount".

Thus, from the perspective of the CJEU, which must be accepted, there are no other facts or arguments that can be considered relevant to the decision of the question of classification of the invoiced amount, other than what in the operative part was expressly referred to the Arbitral Tribunal, which is to verify whether the said "predetermined amount" received in the event of early termination of the contract by its customer "corresponds to the amount that that operator would have received in the remainder of the said period if that contract termination had not occurred".

3.1.1. Irrelevance of National Law to the Resolution of the Question of the Classification of the Amounts in Question as "Provision of Services"

It results from the text of the said judgment of the CJEU that it should be understood that:

– "according to settled case law of the Court of Justice, the terms of a provision of Union law that does not contain an express reference to the law of the Member States must normally be subject to an independent and uniform interpretation (v., to this effect, Judgment of 16 November 2017, Kozuba Premium Selection, C-308/16, EU:C:2017:869, no. 38 and case law referred to)" (paragraph 67);

– "it is irrelevant, for the purposes of interpreting the provisions of the VAT Directive, whether