Process: 60/2015-T

Date: October 20, 2015

Tax Type: IVA

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 60/2015-T) involved VAT assessments totaling €23,621.94 for 2010-2011, challenged by A… Ltd after their reconsideration complaint was dismissed. The taxpayer contested multiple VAT deduction denials: (1) Invoice €33,645.74 from B… Ltd, rejected as simulated because it wasn't recorded in the supplier's accounting; (2) Vehicle repair costs for registration …-…-… incurred before formal title transfer completion; (3) Diesel fuel invoices from B… Ltd issued during a period when B… had an undisclosed business transfer agreement with C… Ltd for fuel station operations; (4) Subcontracting expenses of €32,202.44 with D… Ltd, deemed improperly documented. The taxpayer argued the reconsideration dismissal lacked proper reasoning, merely referencing the inspection report without independent analysis under Article 77 LGT. The Tax Authority maintained that simulated transactions and improper documentation justified the VAT deduction denials. The arbitral tribunal, constituted under RJAT provisions with arbitrator Arlindo José Francisco, held hearings where witness testimony was presented. The case raised fundamental questions about the burden of proof in VAT deduction disputes, the extent of taxpayer due diligence obligations regarding supplier activities, the timing of asset acquisition for VAT purposes, and the adequacy of administrative decision reasoning. The procedural framework demonstrates CAAD's role in providing specialized tax dispute resolution outside traditional court systems.

Full Decision

I - REPORT

1 – A…, Ltd[1] holder of NIPC[1]…, with registered office at the place of …, …, …. …, …, area of the Finance Service of … presented on 04/02/2015 a request for the constitution of an arbitral tribunal, under the terms set out in paragraph a) of no. 1 of article 2, paragraph a) of no. 2 of article 5 and no. 1 of article 6, all of the RJAT[2], with a view to declaring the illegality of the tax acts embodied in VAT[3] assessments nos. …,…,…,…,…,…,…,…, referring to the year 2010 and 13239 referring to the year 2011, in the total amount of € 23,621.94 and against which it had filed a complaint for reconsideration which was declared inadmissible by Order of the Deputy Director of Finance of ..., of 21 October 2014, a decision with which it did not agree.

2 – The request for the constitution of the arbitral tribunal was made without exercising the option of designating an arbitrator, and was accepted by His Excellency the President of CAAD[4] and automatically notified to AT[5] on 04/02/2015.

3 – Pursuant to the terms and for the purposes provided in no. 2 of article 6 of the RJAT, by decision of His Excellency the President of the Deontological Council, duly communicated to the parties within the applicable legal time limits, Arlindo José Francisco was designated as arbitrator, who communicated to the Council of Administrative Arbitration Deontology the acceptance of the appointment within the legally stipulated period.

4 - The tribunal was constituted on 13/04/2015 in accordance with the provisions contained in paragraph c) of no. 1 of article 11 of the RJAT, in the version introduced by article 228 of Law no. 66-B/2012, of 31 December.

5 – With its application, the claimant seeks that the illegality of the dismissal of the complaint for reconsideration be declared, which, from its point of view, is tainted by the defect of lack or insufficient reasoning and that the aforementioned assessments are affected by illegality, as will be seen in summary below.

6 – To this end, it argues that the decision in question merely refers to the inspection report, without substantiating its assessment.

7 – As regards the assessments, it contends that the arguments put forward by AT in the inspection report are fanciful and fallacious, given that the claimant cannot be imputed the fact that the invoice in the amount of € 33,645.74 was not recorded in the accounting of B… Ltd, the supplier of the merchandise.

8 – On the other hand, the vehicle …-…-… was transferred to the possession of the claimant on 30-11-2010, which for reasons of formalizing the assignment of the contractual position with the leasing company and the previous owner, its registration in the name of the claimant only took place later, therefore the VAT on the repair of the vehicle that occurred on 24/12/2010 should be deductible by the claimant.

9 – Also, AT disregarded the invoices for the sale of diesel made by Company B… Ltd issued between 01/06/2010 to 31/12/2010, given that this company in the said period had a contract for the assignment of the operation with C… Ltd, which the claimant was unaware of and had no obligation to know, therefore they should be considered.

10 – Finally, AT also did not consider the expenses with subcontracts that the claimant made with company D… Ltd in the amount of € 32,202.44, given that the claimant has not been able to demonstrate that such expenses were indispensable to the formation of income, but, from its point of view, the inspector failed to ignore the explanations given to her and therefore has not made a correct and detailed analysis of the facts, therefore the VAT on the said invoices should be deductible by the claimant.

11 – In turn, AT believes that the assessments should be maintained in the legal order since they reflect a correct application of law to the facts.

12 - Rebutting all of the claimant's arguments, it says, in summary, the following:

a) As to the defect of form in the decision to dismiss the complaint for reconsideration due to lack of reasoning, it relies on the provision in no. 1 of article 77 of the LGT[6];

b) As to the non-acceptance of the VAT deduction respecting invoice 108/2010 issued by B… Ltd, this is justified by the fact that it is a simulated transaction;

c) Regarding the expense incurred on 24/12/2010 with the vehicle …-…-… whose VAT deduction was also not accepted, which is justified by the fact that the said vehicle does not appear in the company's fixed assets on the said date;

d) Also, the invoices for diesel issued in the period of 01/06/2010 to 31/12/2010 by B… Ltd, the VAT contained in them could not be deducted by the claimant given that the inspection concluded that B…, in the period in question, entered into a contract for the provision of services and commercial lease with company C… Ltd of the fuel station and, in this manner, could not issue invoices for the sale of fuel;

e) Finally, the expenses with subcontracts to D… Ltd, its VAT also cannot be deducted because the said invoices were not issued in the legal form, and therefore would not correspond to genuine transactions.

II - SANATION

The tribunal was regularly constituted and is competent ratione materiae, in accordance with article 2 of the RJAT.

The parties have legal personality and capacity, are shown to be parties and are duly represented in accordance with articles 4 and 10, no. 2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

The meeting of article 18 of the RJAT took place on 15 June 2015, without the presence of the representatives of the respondent, despite being duly notified, having declared by telephone that they did not object to the holding thereof without their presence, and 02/09/2015 was designated for the hearing of witnesses, the claimant's request for the joinder of documents was granted, with a view to the respondent for a period of 10 days and 20/10/2015 was set for the delivery of the decision.

The hearing took place on the scheduled date, the claimant having waived the witnesses E…, F… and the respondent the witnesses G… and H….

In the same meeting, the respondent's request for the joinder of documents was granted and the claimant was granted a period of 3 days to comment.

After the production of evidence, the parties agreed with the tribunal on the submission of written submissions, and the tribunal granted a successive period of 15 days for their submission.

In the submissions filed with the record by the parties, essentially, they limit themselves to confirming the positions already set forth in their respective procedural documents and previous interventions. The claimant now also supports them in the witness evidence. The respondent supports its conduct on the facts verified in the inspection action and reproduced in the respective report.

The case is not affected by nullities and no issues were raised that impede the examination of the merits of the case, and the conditions are met for a final decision to be rendered.

III - GROUNDS

1 – Issues to be settled:

a) Whether the decision of the complaint for reconsideration suffers or not from the defect of lack of reasoning,

b) Whether invoice no. 108/2010, issued by company B… Ltd, corresponds or not to a simulated transaction;

c) Whether on 2010/12/24 the vehicle …-…-… was or was not part of the claimant's fixed assets;

d) Whether the invoices issued by B… Ltd in the period of 01/06/2010 to 31/12/2010 correspond or not to simulated transactions.

e) Whether the expenses with subcontracts to D… Ltd correspond or not to simulated transactions.

2 - Factual Matter:

The factual matter considered relevant and proved on the basis of the elements filed with the record is as follows:

2.1 As to the defect of lack of reasoning of the complaint for reconsideration:

In the decision of the complaint for reconsideration there was an adherence to the information from the inspection services.

2.2 As to invoice 108/2010, issued by company B… Sole Ltd

The same was not recorded in the accounting of the issuing company, just as the acquisition of merchandise from company I… Ltd, inactive since late 2006, at whose registered office another different company was operating, was not recorded.

In the testimony of witness J…, then manager of the claimant, it was stated that B… Ltd would have abandoned the business.

The managers of the claimant and I… are relatives.

Payment of the said invoice by the claimant occurred on 02/12/2011 in cash.

The merchandise contained in the invoice did not pass through B… which did not have physical space to store the volume of merchandise in question.

The original of the CMR issued by the claimant was not shown to the inspection services, with the justification that only a copy existed.

2.3 As to whether vehicle …-…-… was part of the claimant's fixed assets on 24/12/2010

The vehicle in question only appeared in the claimant's fixed assets in November 2011.

Until October 2011, the leasing contract was in the name of company K… Ltd.

The travel documents of the vehicle intended to prove that it was in the possession of the claimant relate to transport carried out in 2011 and not in 2010.

2.4 As to whether the invoices issued by B… Ltd in the period of 01/06/2010 to 31/12/2010 correspond or not to simulated transactions.

B… issued invoices for the sale of fuel to the claimant in the period in question.

But in that period, it was not B… that operated the fuel station given that it had entered into a contract for the provision of services and commercial lease with company C… Ltd.

C… Ltd had at the fuel station books of cash sales issued typographically that allowed the issuance of proof of purchase.

The claimant alleges not knowing such fact, a situation that AT considers unreasonable, given the relationship between the manager of B… and the claimant, but does not justify such unreasonableness.

In the period, fuel sales are declared by C… Ltd, while B… declares commissions on the quantities sold.

The claimant stated that C… Ltd never required any payment from it for the supplies in question, given that the same were made to B….

AT did not challenge the refueling of the claimant's vehicles at the fuel station in question nor the payment by the claimant of the said invoices, only considers that B… could not have issued them, given that it was not operating the fuel station, a situation that we consider beyond the claimant's control.

Neither was the legal form of the invoices challenged.

The diesel consumption ratios of the claimant are within the normal range for the activity, a fact not contested by the respondent, who merely considers it irrelevant.

2.5 As to whether the expenses with subcontracts to D… Ltd correspond or not to simulated transactions.

The invoices of company D… do not mention the date of service provision.

All of them contain the date of charging of 12/12/2010 at 9:44 hours and 11:11 hours.

The vehicle …-…-… did not appear in the registry of vehicles of company D….

The sum of the invoiced amounts is less than that stated in the subcontracts.

The invoices make a generic description of the service, impeding its verification.

The witness evidence produced justified some deficiencies with the need to streamline the operational activity and meet competition.

3 - Legal Matter

3.1 As to the defect of lack of reasoning of the complaint for reconsideration

No. 1 of article 77 of the LGT provides that "The decision of a procedure is always reasoned by means of a brief statement of the reasons of fact and law that motivated it, and the reasoning may consist of a mere declaration of agreement with the grounds of previous opinions, information or proposals, including those that are part of the tax inspection report."

Now in the factual matter proved, it is verified that the decision was supported by complete adherence to the information provided by the tax inspection services, and no defect of lack of reasoning is perceived in the decision that fell on the complaint.

3.2 As to invoice 108/2010, issued by company B… Sole Ltd

From the factual matter considered proved we can conclude that company B…, having abandoned the business, having recorded neither the acquisition of merchandise nor its sale, the invoice in question does not correspond to any transaction and, as such, the VAT contained therein could not be deducted, as prescribed in no. 3 of article 19 of the VAT Code[7].

On the other hand, the claimant, in alleging payment in cash, disregarded the provisions contained in article 63-C of the LGT and, it need not be said, that the wording of this rule was introduced by Law 20/2012 of 14 May, for that reason, inapplicable to the specific case. In fact, article 63-C of the LGT was added by Law 55-B/2004, of 30/12 and, in the wording of Law 37/2010 of 02 September, applicable here, payment would have to be necessarily made by bank transfer, check payable to order or direct debit which did not happen.

All this leads us to conclude that the correction made by AT of VAT unduly deducted by the claimant in the amount of € 7,065.61 should be maintained in the legal order, as well as the respective compensatory interest, given that it complies with the applicable legal norms.

3.3 As to whether vehicle …-…-… was part of the claimant's fixed assets on 24/12/2010

From the factual matter proved we conclude that the vehicle in question was not part of the claimant's fixed assets on 24/12/2010, which would only occur in November 2011, thus, the claimant could not, under article 20 of the VAT Code, deduct the VAT incurred in a repair of the vehicle that occurred on 24/12/2010, and the correction made by AT of VAT unduly deducted, in the amount of € 871.74 and respective compensatory interest, should be maintained.

3.4 - As to whether the invoices issued by B… Ltd in the period of 01/06/2010 to 31/12/2010 correspond or not to simulated transactions.

From the factual matter proved it does not result that there had not been sales of diesel and AT tells us nothing whether the VAT contained in the invoices at issue was or was not delivered to the State coffers by B…, the issuer of the same, at the same time that neither is its legal form questioned.

Contrary to the understanding of AT, the tribunal considers relevant that the diesel consumption ratios of the claimant are below the sector average.

If they were above average, it could be admitted that the invoicing in question would correspond to non-existent transactions, which was not proved.

In these terms, the tribunal understands that the situation provided for in no. 3 of article 19 of the VAT Code is not present, therefore it is not to be accepted the correction made by AT, and the right to deduction of VAT in the amount of € 6,129.73 is recognized by the claimant, and to the annulment of the corresponding compensatory interest.

3.5 - As to whether the expenses with subcontracts to D… Ltd correspond or not to simulated transactions.

The explanations of the witness regarding the complexity of the transport business, the need to maximize the profitability of fleets, namely when it comes to export and import services, the need to give drivers rest and the imposition of invoicing that the Multinational imposes, they may even be understandable, but one cannot accept that operators use systems that make difficult or even prevent rigorous control of the circuit.

Regardless of the competitive difficulties of the market, taxable persons must adapt their administrative machinery in order to comply with the legally prescribed procedures.

The norms of the VAT Code, in particular no. 1 of article 20, no. 2 of article 19 and paragraph b) of no. 5 of article 36, specify the conditions under which there is a right to VAT deduction and the legal form that invoices must comply with.

In the present case it was not possible for the claimant to demonstrate compliance with the said norms, therefore, since the invoicing does not comply with the applicable legal requirements, the VAT mentioned therein is not deductible, given that paragraph a) of no. 2 of article 19 of the VAT Code only permits its deduction in situations where invoices are issued in the legal form, and therefore the correction made by AT of VAT unduly deducted in the amount of € 7,406.56 should be maintained, plus the respective compensatory interest.

IV – DECISION

In view of the foregoing, the tribunal decides as follows:

a) To declare that the decision of the complaint for reconsideration does not suffer from the defect of lack of reasoning, since it respects the stipulated in no. 1 of article 77 of the LGT.

b) To declare that invoice 108/2010 issued by company B… Sole Ltd does not correspond to any acquisition by the claimant from the issuer of the same, therefore the VAT contained therein, in the amount of € 7,065.61, is not deductible, as prescribed in no. 3 of article 19 of the VAT Code, thus maintaining in the legal order the correction made by AT in the said amount and respective compensatory interest.

c) To declare that on 2010/12/24 the vehicle …-…-… was not part of the claimant's fixed assets, and consequently to declare valid the correction of VAT, in the amount of € 871.74, made by AT, respecting the invoice for repair of the said vehicle, of the same date, and respective compensatory interest.

d) To declare that the invoices issued by B… Ltd in the period of 01/06/2010 to 31/12/2010 do not correspond to simulated transactions but to genuine acquisitions of fuel for the claimant's vehicles, therefore the VAT contained therein, in the amount of € 6,129.73 is deductible, withdrawing from the legal order the correction made by AT of the same value, and of the respective compensatory interest.

e) To declare that the expenses with subcontracts to D… Ltd may not be considered as genuine transactions, insofar as the invoices supporting them do not comply with the legal requirements, namely those provided for in paragraph b) of no. 5 of article 36 of the VAT Code, which prevents the tax contained therein from being deductible, paragraph a) of no. 2 of article 19 of the VAT Code, thus maintaining in the legal order the correction made by AT in the amount of € 7,406.56 and respective compensatory interest.

f) To fix the value of the case at € 23,621.94 corresponding to the VAT in question and respective compensatory interest in accordance with the provisions contained in article 299, no. 1 of the CPC[8], article 97-A of the CPPT[9] and article 3, no. 2 of the RCPAT[10].

g) To fix the costs under the provisions of no. 4 of article 22 of the RJAT, in the amount of € 1,224.00, in accordance with the provisions of table I of article 4 of the RCPAT, which are to be borne by the claimant and the respondent in proportion to their defeat; that is € 349.37 to be borne by the respondent and € 874.63 to be borne by the claimant.

Notify

Lisbon, 20 October 2015

Text prepared by computer, pursuant to article 131, no. 5 of the CPC, applicable by referral of article 29, no. 1, paragraph e) of the RJAT, with blank verses and revised by the tribunal.

The Arbitrator,

Arlindo José Francisco

[1] Acronym for Tax Identification Number for Legal Entities
[2] Acronym for Legal Regime of Arbitration in Tax Matters
[3] Acronym for Value Added Tax
[4] Acronym for Administrative Arbitration Center
[5] Acronym for Tax and Customs Authority
[6] Acronym for General Tax Law
[7] Acronym for Value Added Tax Code
[8] Acronym for Code of Civil Procedure
[9] Acronym for Code of Procedure and Tax Process
[10] Acronym for Regulation on Costs in Tax Arbitration Proceedings

Frequently Asked Questions

Automatically Created

What happens when Portuguese tax authorities fail to properly justify VAT assessment decisions?
When Portuguese tax authorities fail to properly justify VAT assessment decisions, the decisions may be deemed illegal for lack of reasoning (falta de fundamentação), a formal defect that violates Article 77 of the LGT (Lei Geral Tributária). Tax decisions must contain autonomous reasoning beyond merely referencing inspection reports. Taxpayers can challenge insufficiently reasoned decisions through reconsideration complaints and, if dismissed, through CAAD arbitration under RJAT. The tribunal examines whether the decision provides adequate explanation of the factual and legal basis for the assessment, allowing the taxpayer to understand and effectively challenge the determination.
Can a taxpayer deduct VAT on invoices not recorded in the supplier's accounting records?
Generally, VAT cannot be deducted on invoices not recorded in the supplier's accounting records, as Portuguese tax authorities typically view such discrepancies as evidence of simulated transactions. The burden falls on the taxpayer to demonstrate the transaction's genuineness. However, taxpayers argue they cannot be held responsible for suppliers' accounting failures when they acted in good faith. The CAAD examines whether the taxpayer exercised reasonable diligence and whether the transaction actually occurred. The right to VAT deduction under the IVA Code requires genuine transactions with proper documentation, but the extent of verification obligations imposed on purchasers regarding supplier compliance remains a contentious issue in Portuguese tax law.
Is VAT deductible on vehicle repairs before the formal registration transfer is completed?
VAT deductibility on vehicle repairs before formal registration transfer depends on when economic ownership transferred, not merely formal title registration. If the vehicle was effectively in the taxpayer's possession and used for business purposes (posse), VAT may be deductible even before registration formalities conclude. In this case, the taxpayer claimed the vehicle was transferred to their possession on 30/11/2010, with registration delayed only due to leasing contract formalities with the previous owner. The Tax Authority required the vehicle to appear in fixed assets on the expense date (24/12/2010). This reflects the tension between substance-over-form principles and formal documentation requirements in Portuguese VAT law.
Can VAT on fuel invoices be denied when the supplier had an undisclosed business transfer agreement?
VAT on fuel invoices can be denied when the supplier had an undisclosed business transfer agreement because such arrangements may render the supplier unauthorized to issue invoices for those operations. In this case, B… Ltd had transferred fuel station operations to C… Ltd through a service provision and commercial lease contract during 01/06/2010-31/12/2010, yet continued issuing fuel invoices. The Tax Authority argued B… lacked capacity to issue valid invoices during this period. However, taxpayers contend they cannot be expected to know about suppliers' undisclosed contractual arrangements and should not lose deduction rights when acting in good faith with apparently valid invoices from registered taxpayers.
How does the CAAD arbitration process work for challenging IVA (VAT) liquidation decisions in Portugal?
The CAAD (Centro de Arbitragem Administrativa) arbitration process for challenging IVA liquidation decisions follows RJAT procedures: (1) Taxpayer files arbitration request after exhausting reconsideration complaint; (2) CAAD President accepts the request and notifies the Tax Authority; (3) An arbitrator is designated (by agreement or by the President); (4) The tribunal constitutes within legal deadlines; (5) Pre-trial hearing (Article 18 RJAT) addresses procedural matters; (6) Evidence production including witness hearings occurs; (7) Parties submit written conclusions; (8) The arbitrator issues a binding decision. This case demonstrates the typical timeline: request filed 04/02/2015, tribunal constituted 13/04/2015, hearings in June-September 2015, with decision scheduled for October 2015. CAAD provides specialized, expedited alternative to judicial courts for tax disputes.