Summary
Full Decision
ARBITRAL DECISION
I – Report
1. On 3.12.2018, the Claimant, A..., LDA, legal entity no. ..., with registered office in ..., ..., registered at the Commercial Registry of ... under no. ..., filed a request with CAAD for the constitution of an arbitral tribunal, in accordance with article 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in which the Tax and Customs Authority is the Respondent, with a view to annulling the supplementary VAT assessment no. ... for period 201604, the VAT assessment statements no. 2018 ... for period 201604, no. 2018 ... for period 201605, no. 2018 ... for period 201607, no. 2018 ... for period 201608, no. 2018 ... for period 201609, the interest assessment statements no. 2018 ... for period 201604, no. 2018 ... for period 201605, no. 2018 ... for period 201607, no. 2018 ... for period 201608, no. 2018 ... for period 201609, the account settlement statements no. 2018 ... for period 201604, no. 2018 ... for period 201604, no. 2018 ... for period 201605, no. 2018 ... for period 201605, no. 2018 ... for period 201607, no. 2018 ... for period 201607, no. 2018 ... for period 201608, no. 2018 ... for period 201608, no. 2018 ... for period 201609 and no. 2018 ... for period 201609.
2. The request for constitution of the arbitral tribunal was accepted by the Honourable President of CAAD and notified to the Tax and Customs Authority.
In accordance with and for the purposes of article 6, paragraph 1, of the RJAT, by decision of the President of the Deontological Council, duly communicated to the parties within the legally applicable periods, the undersigned was designated as arbitrator, who communicated acceptance of the assignment to the Deontological Council and to the Administrative Arbitration Centre within the regularly applicable period.
The Arbitral Tribunal was constituted on 13 February 2019.
3. The grounds presented by the Claimant in support of its claim were, in summary, as follows:
a. The Claimant was subject to a tax inspection action for the year 2016, which resulted in arithmetic corrections to VAT in the amount of 34,485.04.
b. The inspection report states that the Claimant proceeded, in the period 2016-04, to regularise VAT in its favour, in the amount of 34,602.47 €.
c. This regularisation included the amount of 34,485.04 €, which was classified in table 1-B of the explanatory annex to the regularisations of field 40, as constituting a regularisation under paragraph b), paragraph 4, of article 78-A of the VAT Code, relating to uncollectable credit of the Claimant.
d. The amount in question relates to a credit of the Claimant against the company B..., Lda.
e. The inspection considered that the Claimant has no right to the VAT regularisation merely because it failed to comply with the requirement established in paragraph 9 of article 78-B of the VAT Code, regarding notification to the purchaser.
f. The company B..., Lda, legal entity no. ..., was declared insolvent on 07-08-2013, in case no. .../13...T..., by the 2nd Commercial Section of the Court of ..., whose judgment became final on 28-08-2013.
g. The Claimant proceeded to claim credits before the Insolvency Administrator.
h. On 17-11-2016, a decision was issued to close the insolvency proceedings, as the final distribution had been completed, with the closing effects being those provided for in articles 233 and 234, paragraph 3 of the Insolvency and Business Recovery Code (CIRE).
i. The Claimant requested the court to issue a certificate for purposes of regularising the VAT in question.
j. The said certificate states that "it is further certified that the judgment declaring insolvency was issued on 07.08.2013 and became final on 28-08-2013".
k. The certificate further states that "it is further narratively certified that the Creditor: A..., Ldª, address: Place ... ... is listed with the claimed/recognised credit of 293445.56 €, as per the list of claimed and recognised credits prepared by the Insolvency Administrator and that from the case file there is no record to date that the creditor has received any amount for full or partial payment of the debt".
l. Now, paragraph 9 of article 78-B of the VAT Code provides that "in the case provided for in paragraph 4 of the previous article, the purchaser of the goods or service who is a taxable person is notified of the total or partial annulment of the tax, for purposes of rectifying the deduction initially made, and this notification shall identify the invoices, the amount of the credit and the tax to be regularised, the case or agreement in question, as well as the period in which the regularisation is carried out".
m. Thus, in accordance with this legal provision, notification to the purchaser of the goods or service who is a VAT taxable person shall be required; however, in the present case, the debtor B..., Lda, at the date of the VAT regularisation by the Claimant was no longer a VAT taxable person.
n. Indeed, on 04-10-2013, the activity was ceased with the Tax Authority, for VAT purposes, with the legal basis translated in article 34, paragraph 1, paragraph a) of the VAT Code and for IRC purposes on 16-10-2013 by virtue of insolvency.
o. As the debtor is not a taxable person, paragraph 9 of article 78-B of the VAT Code does not apply, which only requires notification to the debtor in the event that the latter is a taxable person; therefore, in the present case, notification cannot be required to the debtor who is not a VAT taxable person, and the VAT regularisation carried out by the Claimant, relating to the uncollectable credit against the company B..., Lda, should be accepted.
p. In basing the corrections made on the Claimant's obligation to comply with article 78-B, paragraph 9 of the VAT Code, without demonstrating the prerequisites of such rule, namely that the purchaser of the goods and services was, at the date of regularisation, a taxable person, the tax acts in question incurred in error as to the facts, and consequently legal error.
q. For which reasons the same should be annulled, as should the interest assessment statements and the account settlement statements.
r. The requirement of substantiation is an obligation for tax acts in general, being a constitutional requirement (article 268 of the CRP) and legal requirement (article 77 of the LGT).
s. Article 77, paragraph 1 of the LGT provides that: "The procedural decision is always substantiated by means of a brief exposition of the facts and legal grounds that motivated it, and the substantiation may consist of mere declaration of agreement with the grounds of previous opinions, information or proposals, including those which are part of the tax inspection report.".
t. A careful analysis of all elements and documents made available to the tax inspection would allow for the conclusion that the VAT regularisation in question should be accepted.
u. Upon examination of the substantiation provided by the Tax Authority, one cannot but conclude that the corrections in question are not properly substantiated, exhibiting characteristic features of arbitrary action, and thus there is insufficient substantiation of the corrections made.
v. Which justify the liquidations in question being entirely annulled on this ground as well.
4. The ATA – Tax and Customs Authority, called upon to make its statement, contested the Claimant's claim, defending itself by means of a defence, in summary, with the following grounds:
a. The Claimant in the VAT period 2016-04 proceeded to regularise VAT in its favour, in the amount of € 34,602.47, entering it, for this purpose, in field 40 of the Periodic VAT Declaration.
b. Through analysis of the facts and available elements, the inspection services verified that the cumulative requirements for VAT regularisation, contained in the mentioned legal provision, were not met, and the regularisation cannot be fiscally accepted.
c. Indeed, the Tax Inspection proceeded to subsume the factuality ascertained under the legal provision of the norm contained in article 78 of the VAT Code, which allows VAT to be deducted with respect to credits considered uncollectable when:
- The execution proceedings are extinguished due to lack of attachable assets; or,
- Insolvency is decreed.
- And provided that in both situations, notification is given to the purchasers of the goods and services (customers) of the total or partial annulment of the tax previously deducted by them, which did not occur, as the claimant admits.
d. The lack of merit of the argument supporting the request for arbitral pronouncement is manifest, which is developed on the basis of the consideration that the debtor B..., LDA, had ceased its activity in VAT.
e. It is important to recall here that, in the wording applicable to the date of the facts, paragraph b) of paragraph 4 of article 78-A of the VAT Code provided that:
"4 - Taxable persons may further deduct the tax relating to credits considered uncollectable in the following situations, provided the relevant event occurs at a time prior to that referred to in paragraph 2:
(…)
b) In insolvency proceedings, when the same is decreed of a limited nature, after the judgment on the verification and classification of credits provided for in the Insolvency and Business Recovery Code becomes final or, where applicable, the homologation of the plan subject to the deliberation provided for in article 156 of the same Code; (Wording given by Law no. 82-B/2014, of 31 December)."
f. Furthermore, paragraph 9 of article 78-B provides that:
"In the case provided for in paragraph 4 of the previous article, the purchaser of the goods or service who is a taxable person is notified of the total or partial annulment of the tax, for purposes of rectifying the deduction initially made, and this notification shall identify the invoices, the amount of the credit and the tax to be regularised, the case or agreement in question, as well as the period in which the regularisation is carried out."
g. The Claimant considers that there was no requirement for notification to the debtor, on the ground that B... had already ceased its activity, thereby losing, in its view, the "quality" of taxable person.
h. Cessation of activity in VAT does not determine the extinction of the company, which only occurs at the moment of closure of the liquidation preceding its dissolution.
i. Which means that the company maintains legal personality and, to that extent, is obliged to comply with the various tax obligations.
j. In accordance with paragraph a), paragraph 1, of article 2 of the VAT Code, VAT taxable persons are natural or legal persons who, independently and on a regular basis, conduct an activity in the area of production, commerce or provision of services, that is, any person who conducts an economic activity within the meaning of article 9 of Directive 2006/112/EC.
k. The case law of the CJEU has established the understanding that the concept of economic activity is a broad concept of an objective nature, including preparatory acts and even unlawful activities.
l. An inactive company that has not been liquidated continues to have legal existence and to be subject to compliance with various obligations, in particular in the tax field.
m. The process of liquidation of the company inherently involves the carrying out of operations covered by the scope of VAT, namely the alienation of company assets, subject to tax by virtue of the provision in art. 1, no. 1, al. a) and art. 3 of the respective Code.
n. Being an insolvent taxable person purchaser of goods and services, the law also expressly establishes, for the latter, the duty of notification, should it be intended to carry out the regularisation of tax incurred; therefore, the prerequisites for the acceptance of the VAT regularisation carried out are not met.
o. On the other hand, it is obvious that the requirements for substantiation of tax acts have been fully met by the Tax Authority.
p. It is uncontroversial, given the prevailing case law, that substantiation is sufficient when it enables a normal recipient to understand the cognitive and evaluative pathway followed by the author of the act, that is, when the recipient can know the reasons that led the author of the act to decide in that way and not another.
q. Now, in the case at hand, the Claimant had perfect knowledge of the content of the assessment acts and commented on the proposed corrections.
r. Indeed, the elements contained in the inspection procedure, which were notified to the Claimant, make it possible to identify and know, clearly and documentarily, the entire pathway followed by the Tax Authority to reach the total value of the corrections, making known the cognitive and evaluative pathway followed by the author of the decision and clarifying what led it to decide in a certain sense and not in any other.
s. And from which are also contained all the elements that the Claimant might need to understand and grasp the corrections that were made, as well as the assessment acts that would consequently follow.
t. It being evident that the Claimant had perfect knowledge of the substantiation of the acts carried out by the Tax Authority, as otherwise it would not be able to discuss, as it does in the present arbitral action, the corrections made.
u. Therefore, the Tax Authority fully complied with the legal requirements of substantiation of the acts contained in articles 77 of the LGT and 153 of the CPA, which determine that substantiation can be effected in summary form and may consist of mere declaration of agreement with the grounds of previous opinions, information or proposals, which shall constitute an integral part of the respective act.
v. Thus, no illegality can be attributed to the assessments now challenged.
5. As there was no situation provided for in article 18, paragraph 1, of the RJAT that would make the arbitral meeting provided for therein necessary, its conduct was dispensed with, on the ground of prohibition of useless acts.
Optional written submissions were also ordered, with the Respondent reiterating in this document what was already alleged in the defence.
The Claimant did not submit submissions.
6. The tribunal is materially competent and is regularly constituted in accordance with the RJAT.
The parties have standing and legal capacity, are entitled to proceed, and are legally represented.
The proceedings do not suffer from any defects that would invalidate them.
7. The following issues must be resolved:
a) Illegality of the tax acts due to violation of law.
b) Illegality of the tax acts due to insufficient substantiation, legally equated to lack of substantiation.
II – The Relevant Facts
8. The following facts are established:
8.1. The Claimant was subject to a tax inspection action for the year 2016, which had its origin in a central selection process aimed at assessing the legitimacy of VAT regularisations in the Claimant's favour, within the scope of "uncollectable credits", which resulted in arithmetic corrections to VAT in the amount of 34,485.04 €.
8.2. The Claimant in the VAT period 2016-04 proceeded to regularise VAT in its favour, in the amount of € 34,602.47, entering it, for this purpose, in field 40 of the Periodic VAT Declaration.
8.3. This regularisation includes the amount of € 34,485.04 which was classified in table 1-B of the explanatory annex to the regularisations of field 40, as constituting a regularisation under paragraph b) of paragraph 4 of article 78-A of the VAT Code, relating to uncollectable credits against the company with NIF ..., B..., Lda.
8.4. All these credits against the company B..., Lda became due after one January 2013.
8.5. From a certificate issued on 18.03.2016 by the court of ... - Central Court of First Instance - 2nd Commercial Section - Judge, 2, of the District of Porto, case .../13...T..., which constitutes an annex to the tax inspection report in the case file and which constitutes the ground for the tax act subject to this proceedings, the following is stated, in particular:
"(…) in this Court and Tribunal there are pending proceedings for insolvency of a legal entity (Presentation), of: Insolvent: B..., Lda., NIF – ..., address: ..., ..., ...-... Porto with case number .../13...T..., with the value of the case of €: 30,001.00, which was filed in Court on 06-08-2013.
IT IS FURTHER CERTIFIED THAT the judgment declaring insolvency was issued on 07.08.2013 and became final on 28-08-2013.
(…).
IT IS FURTHER NARRATIVELY CERTIFIED that the creditor: A..., Ldª, address: place ..., ...-... ... is listed with the claimed/recognised credit of 293445.56 €, in accordance with the list of claimed and recognised credits prepared by the Insolvency Administrator and that from the case file there is no record to date that the creditor has received any amount for full or partial payment of the debt."
8.6. From the tax inspection report the following is stated, in particular:
"Regarding the amount subject to regularisation and comparing such value with the amount contained in the relation contained in the certification issued by the ROC and with copies of the invoices sent, it is observed that the value of the VAT column contained in the ROC's certificate is consistent with the value subject to regularisation. However, comparing such invoice list with copies of the invoices, it is observed that the relation assigns a VAT value to invoice no. 300698, of 10-05-2013 of € 956.02, when in this invoice only VAT was assessed in the amount of € 683.02. It is thus concluded that the regularisation carried out exceeds by € 273.00 the value of the VAT that was actually subject to assessment in the transactions underlying the uncollectable credit.
- A... did not comply with the requirement required by paragraph 9 of article 78-B of the VAT Code, in that the Taxable Person did not notify the purchaser of the VAT regularisation it carried out in the period 2016-04, as the aforementioned article requires. This conclusion arises from the fact that in its response to the official request such evidence was not provided, as well as from contact established with both the CC and the ROC of the Claimant, who informed that such notification had not been carried out.
Regarding the argument invoked by the Claimant's ROC that such requirement, of notification to the taxable person debtor, is dispensable when the latter ceases to have such quality, of taxable person, due to the fact that its activity is found to be ceased in the Tax Authority (A.T.) database, for VAT purposes, an opinion which is supported by an Arbitral Tribunal decision dated 06-01-2017, we express our disagreement for the following reasons:
- The debtor company "B..." commenced its activity in 1978, being a VAT taxable person since the implementation of the tax in Portugal (1986).
- As previously stated, on 07-08-2013, a judgment declaring insolvency was issued, in case no. .../13... T..., by the Court of ... (District of Porto) – Central Court of First Instance – 2nd Commercial Section – 2nd Tribunal - which became final on 28-08-2013.
- On 04-10-2013, the activity was ceased with the T.A., for VAT purposes, with the legal basis translated in paragraph a) of paragraph 1 of article 34 of the VAT Code.
From the reading we have made of the Arbitral Tribunal decision, which was provided to us by the ROC, it is briefly stated that, the fact that a company, during a certain period of time, was a VAT taxable person, ceases its activity for that purpose, automatically determines its loss of the status of taxable person, provided that objectively it does not carry out taxable acts. Based on the absence of taxable acts carried out by the insolvent entity, it concludes that it is no longer a taxable person and as such is not covered by what is provided for in paragraph 9 of article 78-B of the VAT Code, that is, notification to the purchaser/debtor is only required if the latter is a taxable person.
The mere cessation of activity for VAT purposes does not mean that the same is definitive since the same corresponds to a period in which the taxable person not performing taxable acts interrupts its status as such and that, if a fact occurs that attributes such status to it, the same should be resumed, at least for compliance with the obligations inherent to such fact.
Regarding the specific fact it will be the notification referred to in paragraph 9 of article 78-B of the VAT Code that will configure the fact that will oblige it to acquire the status of taxable person again in the context of VAT, this because as this article states the notification is given to the person of the purchaser who is a taxable person.
It is thus in the capacity of purchaser that the status at the same time of VAT taxable person will be established.
At the time of acquisition of the goods or services that are at the origin of the uncollectable credit the B... was a VAT taxable person and in that capacity deducted the tax it incurred in such acquisitions and which its supplier (the A...) assessed and remitted to the State coffers. Summarising the effect of such operation in the State coffers was neutral, an effect (neutrality) which is one of the fundamental principles of VAT.
Had it not been a VAT taxable person (e.g. an individual) the VAT incurred in such acquisition would have been remitted entirely to the State by the supplier, since the purchaser would not have had the right to deduct it.
It is on the basis of these two situations that paragraph 9 of article 78-B of the VAT Code refers to the purchaser taxable person. Should the latter not be a VAT taxable person, with the VAT regularisation by the supplying entity, the State maintains the principle of neutrality, since it proceeds to the return of tax it received but which the supplier certainly did not receive.
In the case where the purchaser is a taxable person, with the regularisation of the tax by the supplier, such neutrality will only be restored if the tax is required from the purchaser, since the latter deducted the tax at the time of acquisition.
Because the purchaser taxable person will only become aware of such obligation should its creditor inform it that it will proceed to the regularisation of the tax that was imposed such requirement so that it can regularise the tax in its favour.
In this way, although the taxable person is with its activity ceased for VAT purposes, the notification made by the creditor becomes an operation that confers the status of VAT taxable person again on the purchaser, in accordance with paragraph 4 of article 78 of the VAT Code.
Given the above, we conclude that the VAT regularisation in favour of the Claimant carried out in the period 2016-04, in the amount of €34,485.05 relating to the uncollectable credit of its customer "B...", NIF ... is not in accordance with the provision in paragraph b) of paragraph 4 of article 78-A and paragraph 9 of article 78-B, so we propose its correction in favour of the State.
The Claimant was notified of the project of corrections, having exercised the right of hearing, and the conclusions set out in the draft tax inspection report were maintained, as follows:
- The Taxable Person alleges, in points 3 to 7 of the Defence, that, when the Inspection took place, it clarified that, at the date of regularisation, the notification to the purchaser would have no effect, since the latter did not have the status of taxable person, requirement required by paragraph 9 of article 78-B of the VAT Code, an opinion supported by the Arbitral Tribunal decision already cited here and by the fact that B... had permanently ceased its activity, having been declared insolvent.
As we have already substantiated in section III of this report, the declaration of insolvency does not determine the extinction of the company, with the continuity of its tax personality being verified until the registration of the definitive closure of the liquidation. A company in an insolvency situation continues to exist, as a taxable person under tax law, remaining obliged to comply with the tax obligations provided for in the tax codes. Should the closure of an establishment comprised in the insolvent estate be deliberated and such fact communicated to the Tax Authority, in accordance with paragraph 3 of article 65 of the Insolvency and Business Recovery Code, it is formally declared by the Tax Authority the official cessation of that taxable person, under the provision in paragraph 3 of article 34 of the VAT Code, without prejudice to the compliance with tax obligations in the tax periods in which the occurrence of taxable operations or in which regularisations must be carried out.
Now, the A... proceeded to the VAT regularisation in the period 2016-04 and the judicial decision to close the insolvency proceedings of B... occurred on 15-12-2016, with the consequent cancellation of the registration and extinction of the company. Until this date B... maintained legal personality (paragraph 2 of article 146 of the CSC) and, consequently, tax personality (article 15 of the LGT).
Therefore, the Claimant should have complied with what is instituted in paragraph 9 of article 78-B of the VAT Code in order to exercise the right to regularise VAT in its favour. Failing to do so, it is concluded, once more, that it did not comply with the requirements necessary for the exercise of such right.
(…) Had the Tax Authority acted differently from what was proposed, it would have prejudiced the effect of neutrality, because if in the original operations the Claimant assessed tax (VAT) due, already in B... the effect was the opposite, because it deducted such tax against what it assessed in the respective period, thus having a neutral effect in the State coffers.
Now, the VAT regularisation by the A... in question corresponds to a return of tax that the State did not receive (through the assessment/deduction process relating to the original operations) and not being able to require it from the insolvent company (since the formality of notification by the Claimant was not complied with) such neutrality effect ceases to apply, this due to its failure, because it decided on behalf of the State that such tax was not subject to collection, a competence that in no legislation was attributed to it.
Given the above, we cannot fail to maintain the proposed corrections, because the A... did not comply with an essential requirement to regularise in its favour the VAT relating to the uncollectable credit, as provided for in paragraph 9 of article 78-B of the VAT Code."
8.7. Following and on the basis of the Tax Inspection Report, the Respondent carried out the tax acts subject to the present proceedings contained in documents 1 to 21, submitted by the Claimant, which are given as fully reproduced.
8.8. In the regularisation referred to in points 8.2 and 8.3 of the evidence, the Claimant considered a VAT value for invoice no. 300698, of 10-05-2013 of € 956.02.
8.9. In invoice no. 300698, mentioned in the preceding point, only VAT was assessed in the amount of € 683.02.
8.10. The activity of the company B..., Lda, is shown in the Respondent's registration information as ceased for VAT purposes since 03-10-2013, and for IRC purposes since 16-10-2013.
With relevance to the decision in the case, within the scope of the facts alleged by the parties, there are no unproven facts.
9. The Tribunal's conviction as to the decision of the material facts, regarding which there was no disagreement between the parties, was based on the following documentary evidence in the case file and not challenged by either party:
- Facts in numbers 8.1, 8.2, 8.3 and 8.6 of the evidence: tax inspection report.
- Fact 8.4: List of uncollectable credits contained in an annex to the tax inspection report.
- Fact 8.5: Copy of judicial certificate contained in an annex to the tax inspection report.
- Fact 8.7: documents nos. 1 to 21 submitted with the request for arbitral pronouncement.
- Facts numbered 8.8 and 8.9: invoice no. 300698 issued by the Claimant to company B..., Lda, attached to the tax inspection report.
- Fact no. 8.10: document no. 27 submitted with the request for arbitral pronouncement.
III – The Applicable Law
10. As the Respondent invoked the illegality of the tax acts due to violation of law and due to insufficient substantiation, legally equated to lack of substantiation, the order of consideration thereof must be determined, with the order established in article 124 of the Code of Tax Procedure (CPPT) being applicable, as is settled, by force of article 29, paragraph 1, paragraph a) of the RJAT (Cfr. Jorge Lopes de Sousa, Commentary to the Legal Framework for Tax Arbitration, in GUIDE TO TAX ARBITRATION, Coord. Nuno Villa-Lobos and Mónica Brito Vieira, 2017, Almedina, page 205) being observed.
The defect of violation of law is the one that will lead to "more stable or effective protection of the interests harmed" in that its possible finding will prevent the renewal of the act, which does not occur with the hypothetical annulment resulting from the defect of lack of substantiation.
Accordingly, the Tribunal will first examine the question of illegality attributed to the assessment due to violation of law.
Let us thus proceed to examine it.
11. The aforementioned provision of article 78-A, paragraph 4, paragraph b), at the date of regularisation, was as follows:
"4 - Taxable persons may further deduct the tax relating to credits considered uncollectable in the following situations, provided the relevant event occurs at a time prior to that referred to in paragraph 2:
a) (…)
b) In insolvency proceedings, when the same is decreed of a limited nature, after the judgment on the verification and classification of credits provided for in the Insolvency and Business Recovery Code becomes final or, where applicable, the homologation of the plan subject to the deliberation provided for in article 156 of the same Code; (Wording given by Law no. 82-B/2014, of 31 December)"
It does not result from the allegations of the parties, nor from the established material facts, that any of the three hypotheses upon which paragraph b), paragraph 4, of article 78-A conditions the right to regularisation have been verified, although it is true that their non-occurrence also does not result with certainty. Thus, unquestionably, it is in light of the substantiation of the tax act in issue that the same should be examined.
Now, the ground invoked by the Respondent to deny the Claimant's right to regularisation was, apart from the specific ground concerning invoice no. 300698 of 10-05-2013, only the alleged violation of paragraph 9, of article 78-B of the VAT Code, so that it must be examined whether its violation is verified.
The provision in question has the following wording:
"In the case provided for in paragraph 4 of the previous article, the purchaser of the goods or service who is a taxable person is notified of the total or partial annulment of the tax, for purposes of rectifying the deduction initially made, and this notification shall identify the invoices, the amount of the credit and the tax to be regularised, the case or agreement in question, as well as the period in which the regularisation is carried out."
What is at issue, then, is notification to a purchaser who is a taxable person.
The Respondent argues that the company B..., Lda was a VAT taxable person at the date of regularisation. The Claimant takes the view that it was not.
Let us examine this.
The following is the wording of article 9, paragraph 1, of Council Directive 2006/112/EC of 28 November 2006 on the common system of VAT of the EU:
"A 'taxable person' means any person who independently carries out in any place economic activity, whatever the purpose or results of that activity.
'Economic activity' means any activity of production, commercialisation or provision of services, including extractive, agricultural and professional activities or comparable activities. In particular, the following are regarded as economic activity: the exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuous basis."
For its part, the following is the wording of article 2, paragraph 1, paragraph a) of the VAT Code:
"1 - The following are taxable persons for the tax:
a) Natural or legal persons who independently and on a regular basis conduct activities of production, commerce or provision of services, including extractive, agricultural and liberal professional activities, as well as those who independently carry out a single taxable transaction, provided that such transaction is connected with the exercise of the aforementioned activities, wherever such exercise may occur, or when, regardless of such connection, such transaction meets the prerequisites for the actual incidence of personal income tax (IRS) or corporate income tax (IRC);"
It follows from these provisions that, in general, the status of taxable person in the tax depends on the conduct of an economic activity.
In fact, as Sérgio Vasques explains:
"The conduct of an economic activity thus constitutes the prerequisite upon which the entire subjective and objective incidence of VAT is based. No person can be said to be a taxable person who does not carry out an economic activity and when this is lacking we cannot be in the presence of transfers of goods or provision of taxable services"
However, it appears from the registration information of the Respondent that, at the date of regularisation, the economic activity of the insolvent debtor was ceased. Despite alleging in its defence, generically, that "The process of liquidation of the company inherently involves the carrying out of operations covered by the scope of VAT, namely the alienation of company assets, subject to tax by virtue of the provision in art. 1, no. 1, al. a) and art. 3 of the respective Code." in concrete terms, the Respondent did not demonstrate and has not even alleged that, despite such registration information – which it did not challenge – the insolvent company B..., Lda, actually carried out any activity or had performed any concrete operation capable of classifying it as a taxable person in the tax.
It is true that the Respondent alleges in the tax inspection report that "Regarding the specific fact it will be the notification referred to in paragraph 9 of article 78-B of the VAT Code that will configure the fact that will oblige it to acquire the status of taxable person again in the context of VAT (…), although the taxable person is with its activity ceased for VAT purposes, the notification made by the creditor becomes an operation that confers the status of VAT taxable person again on the purchaser, in accordance with paragraph 4 of article 78 of the VAT Code." However, if by means of the notification the purchaser acquired the status of taxable person again, as the Respondent asserts, that would mean that, at the time of the regularisation, which would constitute the alleged ground for the obligation to notify and thus logically precede it, the purchaser was not a VAT taxable person and, consequently, the Claimant was not bound by the obligation to notify.
Furthermore, as is to be seen, mere notification by a third party, in itself, does not configure an economic activity, nor an isolated taxable act for VAT purposes.
Mere notification, even if it had been made, would not be subsumed under the second paragraph of paragraph 1 of article 9, nor, clearly and necessarily, would it be reducible to the isolated acts mentioned in paragraph a), paragraph 1, of article 2 of the VAT Code, which presuppose, always, an activity of its own of production, commerce or provision of services, even if only connected with the habitual activity or, regardless of this connection, which meets the prerequisites for the actual incidence of personal income tax or corporate income tax. The acquisition of the status of taxable person, given paragraph a), paragraph 1, of article 2 of the VAT Code, requires an economic activity potentially generating an increase in assets which, as is evident, does not occur in the case before us.
In these circumstances, one cannot but conclude that, at the date of regularisation, the company was not a taxable person in the tax and that, therefore, the notification provided for in paragraph 9 of article 78-B of the VAT Code was not required.
We thus agree with the arbitral decision handed down in case 317/2016-T, where one can read:
"(…) the submission of a declaration of cessation of activity by a company, accepted by the Tax Authority, indicates that it has ceased to conduct any activity.
Now, as stated in the citation of Prof. Xavier de Basto, made by the Respondent itself in point 63 of its defence, "The 'taxable person', within the meaning of the directive, thus encompasses those persons who, because they conduct an economic activity, perform, and probably on a regular basis, taxable operations." (emphasis added).
Now, as stated, the submission of a declaration of cessation of activity, duly accepted by the Tax Authority, indicates that the person in question has ceased to conduct any economic activity, and has ceased to perform, precisely, taxable operations, and is not therefore a taxable person, within the meaning of either the VAT Directive or the VAT Code, this being unaffected by either the non-extinction of the company, or the maintenance of legal personality, or the existence of a tax representative, or the maintenance of (some) declarative obligations.
And, if it is true, as the Tax Authority states, that the CJEU has understood that article 4, paragraphs 1 to 3, of the Sixth Directive should be interpreted to mean that a person who has ceased a commercial activity but continues to conduct some form of activity is considered a taxable person within the meaning of that article, the fact is that, in the case, apart from the declaration of cessation of activity, and its acceptance by the Tax Authority, nothing more is ascertained, so if the Tax Authority, in order to support the correction it made, intended to sustain the obligation of the Claimant to comply with article 78/11 of the VAT Code, it should have demonstrated that, notwithstanding the cessation of activity for VAT purposes of the Claimant's customers, they continued to conduct some type of activity (such as, for example, paying rents or other charges relating to the premises used for the conduct of its activity)."
One cannot, therefore, fail to conclude, with the exception of the specific case of the VAT relating to invoice no. 300698, of 10-05-2013, that the corrections made by the Respondent suffer from the defect of violation of law.
With respect to this invoice, given that VAT was assessed in the amount of € 683.02 but tax regularised in the value of € 956.02, it is obvious that an excess regularisation of € 273 was made, which was not even subject to challenge by the Claimant (despite formally challenging the tax acts in their entirety); therefore, in this part, the tax acts sub judice do not suffer from the defect of violation of law.
12. The Claimant further imputes to the tax acts the defect of deficient substantiation, legally equated to lack of substantiation.
It must be said immediately that, manifestly, without any reason.
Let us see why.
The right to substantiation, regarding acts which affect rights or legally protected interests, has constitutional recognition in article 268, paragraph 3, of the Constitution of the Portuguese Republic, being substantiated in articles 152 and following of the Code of Administrative Procedure and in article 77 of the General Tax Law, with respect to tax acts.
In accordance with Article 77, paragraph 1, of the General Tax Law:
"The procedural decision is always substantiated by means of a brief exposition of the facts and legal grounds that motivated it, and the substantiation may consist of mere declaration of agreement with the grounds of previous opinions, information or proposals, including those which are part of the tax inspection report."
In accordance with article 153, paragraph 2, of the Code of Administrative Procedure:
"Lack of substantiation is deemed to exist where grounds are adopted which, due to obscurity, contradiction or insufficiency, do not concretely explain the motivation for the act."
The Claimant argues, in emphatic and clear terms, against the position of the Respondent contained in the tax inspection report (with the exception of the correction relating to invoice no. 300698, which, as stated above, substantially does not contest). It disagrees with the legal grounds that led to the enactment of the tax acts, but, in light of the request for arbitral pronouncement, it reveals that it has apprehended the reasons which led to the enactment of the tax acts. Which is well understood, since the position of the Respondent expressed in the tax inspection report contained in the evidence and respective draft is clear, consistent and sufficient, expressing the reasons that led to the enactment of the acts, enabling the Claimant an informed choice between acceptance and challenge and enabling the tribunal to control their conformity with the law.
Something different is the substantive validity of the substantiation. As José Carlos Vieira de Andrade writes "(…) it is not necessary to ask whether the argument contained in the declared content is or is not convincing, that is, whether it is or is not sufficient for the tribunal to accept it as capable of materially supporting the decision. That is a question that relates exclusively to the substantive validity of the act and cannot be separated from the other substantive questions (…)"
In this same sense, it can be read in the Supreme Administrative Court judgment of 28-09-2011, 0494/11, as follows:
"The fact that, possibly, the substantive value of the grounds adduced in this substantiation discourse is not sufficient to draw the conclusion that was drawn there, that is, is insufficient or incapable, from a legal point of view, to support the correction made, is a matter that does not concern the formal substantiation of the act, but rather its substantive substantiation, which may lead to the finding of the challenge on the basis of the violation of law defects which were invoked.
Indeed, one should not confuse the sufficiency of substantiation with the accuracy or substantive validity of the grounds invoked."
With respect to the part of the tax acts concerning invoice no. 300698, of 10-05-2013, not only is the substantiation clear, consistent and sufficient, but the grounds invoked are undoubtedly valid.
With the exception of the part concerning the mentioned invoice, the substantiation of the tax acts does not make it possible to materially support the assessments made. This implies, as stated above, defect of violation of law, due to substantive invalidity of the grounds invoked, but not due to deficiency of substantiation.
The defect in question is therefore not upheld.
IV – Decision
Thus, the arbitral tribunal decides to uphold in part the request for arbitral pronouncement, decreeing the partial annulment of the tax acts subject to the present proceedings, maintaining only in the legal order the part relating to the assessment of the amount of 273 €, relating to invoice no. 300698 and corresponding compensatory interest assessment, decreeing the annulment of the tax acts in the remaining part.
Value of the claim: 37,938.13 € in accordance with the provision in article 306, paragraph 2, of the Code of Civil Procedure and 97-A, paragraph 1, paragraph a), of the Code of Tax Procedure and 3, paragraph 2, of the Costs Regulation in Arbitration Proceedings.
Costs in the amount of € 1,836.00, in the proportion of 0.79 per cent by the Claimant and 99.21 per cent by the Respondent, in accordance with paragraph 4 of article 22 of the RJAT.
Let notification be made.
Lisbon, CAAD, 19.06.2019
The Arbitrator
Marcolino Pisão Pedreiro
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