CAAD 611/2017-T: VAT Deduction Rights for SGPS Holding Companies – Direct Allocation vs Pro-Rata Method

ARBITRAL DECISION

I – REPORT

On 24 November 2017, A..., SGPS, S.A., NIPC..., with registered office at Rua..., no...., ...-... ..., filed an application for constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, referred to as RJAT), seeking the declaration of illegality of the order dismissing the complaint lodged under the number ...2017... and of the acts of additional assessment of Value Added Tax and respective compensatory interest, which resulted from the inspection procedure carried out pursuant to Service Orders No. OI2015.../... /.../..., and attached as doc. 2 to the Initial Request, in the total amount of €1,065,751.04.

To substantiate its request, the Applicant alleges, in summary, that:

• There is an absence or defect in legally required substantiation;

• The factual assumptions upon which the Tax Authority based the corrections underlying the assessments are in violation of law with respect to the general principles governing the right to VAT deduction, as provided for in Articles 19, 20 and 23 of the VAT Code and Articles 4 and 9 of the VAT Directive.

On 24-11-2017, the application for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).

The Applicant did not proceed with the appointment of an arbitrator, so, pursuant to the provisions of item (a) of paragraph 2 of Article 6 and item (a) of paragraph 1 of Article 11 of RJAT, the President of the Ethics Council of CAAD appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of the office within the applicable time period.

On 16-01-2018, the parties were notified of these appointments, having expressed no intention to refuse any of them.

In accordance with the provisions of item (c) of paragraph 1 of Article 11 of RJAT, the collective Arbitral Tribunal was constituted on 06-02-2018.

On 13-03-2018, the Respondent, duly notified to that effect, filed its response defending itself through contestation.

Pursuant to the provisions of items (c) and (e) of Article 16, and paragraph 2 of Article 29, both of RJAT, the holding of the meeting referred to in Article 18 of RJAT was dispensed with, and the Applicant was given the opportunity to produce additional documentary evidence, which it did, and the necessary contradiction was subsequently observed.

Having been granted a time period for the presentation of written submissions, these were presented by the parties, pronouncing themselves on the evidence produced and reiterating and developing their respective legal positions.

A time period of 60 days was set for the rendering of a final decision, following the submission of written submissions by the Respondent, which time period was extended until the end of the time period referred to in Article 21/1 of RJAT.

By Order of 03-08-2018 the time period set forth in Article 21/1 of RJAT was extended, pursuant to paragraph 2 of that same article.

By Order of 16-10-2018 the joinder of elements of the case file that were missing was determined, and the aforementioned time period referred to in Article 21/1 of RJAT was extended for the second time.

The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with Articles 2, paragraph 1, item (a), 5 and 6, paragraph 1, of RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to Articles 4 and 10 of RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.

The case does not suffer from any nullities.

Thus, there is no obstacle to the adjudication of the case.

All things considered, it behoves us to render

II. DECISION

A. MATTER OF FACT

A.1. Facts Established as Proven

The Applicant is, and was between 2012 and 2015, a commercial company, with registered office in the national territory, which exercises, as its principal activity, the activity of management of equity interests, being registered with CAE 70100 "Activities of Head Offices", with its corporate purpose additionally including, as an accessory matter, the provision of technical services of administration and management to the companies in which it holds interests.

The Applicant is a Company Managing Equity Interests (SGPS), resulting from the partnership between Group B... and Group C... in the area of transport concessions.

The Applicant was created for the management of transport infrastructure concessions and held, in the years under analysis, investments in entities that operate in the area of roadway concessions, both in national territory and abroad.

In the scope of its activity, in addition to the holding of equity interests and the receipt of dividends and capital gains, the Applicant provides technical services of administration and management to the companies in which it holds interests.

The Applicant is, and was between 2012 and 2015, for VAT purposes, classified under the normal regime with monthly periodicity.

The Applicant's objective is the control and direct management of the business of the companies in which it holds interests and the pursuit of an economic activity of a commercial nature.

The Applicant is a management holding that assumes, simultaneously, the nature of a mixed holding.

The Applicant is present in the Boards of Administration of the entities in which it holds interests, at sessions in which the most relevant strategies and activities of those organizations are discussed, deliberated and voted upon.

There are directors common to the Applicant and to its subsidiaries, particularly to the concessionaires "D...".

These concessionaires have a Board of Administration composed of 9 members, while the Board of Administration of the Applicant is composed of 7 members, and in common there are 5 directors:

E..., president of the Boards of Administration of the Applicant and of "D..., S.A.";

F..., vice-president of the Board of Administration of the Applicant and member of the Board of Administration of "D..., S.A.";

G..., member of the Board of Administration of the Applicant and of "H..., S.A.";

I..., member of the Boards of Administration of the Applicant and of "J..., SGPS, S.A.";

K..., member of the Boards of Administration of the Applicant and of "J..., SGPS, S.A.";

The Applicant has a role in the negotiation and ratification of concession contracts concluded between the subsidiaries and the State, with any amendments thereto requiring approval at the General Meeting of Shareholders.

The Applicant holds approximately 80% of the equity in its subsidiary concessionaires.

The minutes of May 2013, concerning the beginning of negotiations for the amendment of the contracts of 6 of the 7 concessions, were signed by two members of the Board of Administration of the Applicant and by the President of the State's Renegotiation Commission.

In their capacity as directors of the Applicant, the 2 members of the Board of Administration present and who signed the aforementioned minutes did so pursuant to their powers of management and control of structural and essential matters at the level of the concessions, that is, at the level of the subsidiaries.

It was pursuant to this minutes that the negotiation processes for each of the aforementioned concessions were subsequently initiated.

In order to be remunerated for the services of support for administration and management provided to the companies in which it holds interests, the Applicant proceeded to bill for administration and management services to "L..., S.A." (hereinafter, "L...") and for amounts by way of "attendance fees".

The Applicant issued "attendance fees" with respect to the following subsidiaries:

• L..., SA;
• M..., SA;
• N....

Due to contractual limitations, there may not be billing by the Applicant to its other subsidiaries, under penalty of being considered "distributions", subject to severe limitations with respect to compliance with ratios and authorizations by financing banks, with every payment by companies to shareholders being qualifiable as a "distribution".

The Applicant, exceptionally, provided, in 2013, consulting, advisory and technical assistance services to the company O..., AS, in the amount of €350,000.00, having billed €80,500.00 of VAT, which was not a subsidiary of the Applicant.

The VAT incurred by the Applicant in the period between 2012 and 2015, which related essentially to legal services, financial advisory and consulting services, was the subject of deduction through the application of the pro rata deduction method.

The pro rata annually determined by the Applicant is based on, in the numerator, the operations carried out with respect to which it charged VAT and, in the denominator, those taxable operations added to the interest charged by virtue of financing granted to its subsidiaries, with the exception of uncharged interest.

The majority of the Applicant's supply contracts with its subsidiaries were executed on the same dates as the concession contracts were executed, that is, up to 2012.

The Applicant was the subject of an external inspection procedure, of limited scope in respect of VAT, for the fiscal years 2012 to 2015, by means of Service Orders No.s OI2015.../... /.../....

In the scope of the inspection action, the Tax Authority analyzed the invoices supporting the VAT deducted by the Applicant, having limited such analysis to invoices representing 96.25% of the total VAT, having not conducted any documentary analysis regarding the remaining 3.75%.

Of the VAT deducted whose documents were analyzed, approximately 93% of the tax corrected by the Tax Authority relates to four suppliers, with the remaining 7% relating to other suppliers.

As a consequence of the inspection action carried out, corrections were made regarding VAT for the years 2012 to 2015, with the Tax Authority invoking the following grounds:

[Content regarding detailed grounds for VAT corrections follows in original]

The total of the corrections determined in the inspection amounted to €1,004,878.11, as follows:

[Table of corrections from original]

To the amount referred to in the preceding point were added the respective compensatory interest in the amount of €60,872.93, totaling the global amount of €1,065,751.04.

The Applicant proceeded to pay the additional VAT assessments in the amount of €773,857.87, with the remainder, which amounted to €231,020.26, being the subject of offsetting carried out by the Tax Authority.

The Applicant paid default interest and compensatory interest in the amount of €60,872.93.

On 10-03-2017, the Applicant filed a complaint for review with a view to reviewing the acts of additional VAT assessment.

On 29-08-2017, the Applicant was notified of the Order dismissing the complaint for review No. ...2017....

A.2. Facts Established as Not Proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Substantiation of the Proven and Not Proven Matter of Fact

With respect to the matter of fact, the Tribunal does not need to pronounce itself on everything alleged by the parties, but rather it falls to it to select the facts that matter for the decision and to distinguish proven from not proven matters (cf. Article 123, paragraph 2, of CPPT and Article 607, paragraph 3 of CPC, applicable ex vi Article 29, paragraph 1, items (a) and (e), of RJAT).

Accordingly, the pertinent facts for the adjudication of the case are selected and delimited based on their legal relevance, which is established in light of the various plausible solutions to the legal question(s) (cf. previous Article 511, paragraph 1, of CPC, corresponding to the current Article 596, applicable ex vi Article 29, paragraph 1, item (e), of RJAT).

Thus, taking into account the positions assumed by the parties, in light of Article 110/7 of CPPT, the documentary evidence and the case file joined to the proceedings, the facts listed above were established as proven, with relevance to the decision, taking into account that, as written in the Court of Appeals of the South Court judgment of 26-06-2014, rendered in case 07148/13, "the probative value of the tax inspection report (...) may have probative force if the assertions contained therein are not contested".

There were not established as proven nor as not proven allegations made by the parties, and presented as facts, consisting of strictly conclusive affirmations, incapable of proof and whose truthfulness must be assessed in relation to the concrete matter of fact consolidated above.

B. MATTER OF LAW

On Lack of Substantiation

The Applicant begins by arguing the omission of the duty of substantiation on the part of the Tax Authority, in the corrections it made and which it contests.

To this end, the Applicant contends that "there is no apparent reason or ground in the final decision dismissing the complaint for review nor in the inspection report explaining why the Tax Authority considered that the total of said interest should be included in the denominator of the pro rata fraction for purposes of calculating the deduction percentage", and therefore "given the foregoing, in the inspection procedure that culminated with the assessment acts, as well as in the final decision dismissing the complaint for review, the Tax Authority violated the principle of the duty of substantiation".

As is well known, substantiation is a requirement of tax acts in general, being a constitutional requirement (Article 268 of the Constitution) and a legal one (Article 77 of the General Tax Law).

In brief, it can be said that it is now settled in both national doctrine and jurisprudence that required substantiation must meet the following characteristics:

• Officiousness: must always proceed from the initiative of the administration, with substantiations at request not being admissible;

• Contemporaneity: must be contemporaneous with the performance of the act, with no deferred substantiations being permitted;

• Clarity: must be comprehensible to an average recipient, avoiding polysemic or deeply technical concepts;

• Completeness: must contain all essential elements that were determinant of the decision made. This characteristic breaks down into two requirements, namely: the duty of justification (legal norms and factuality – domain of legality) and motivation (domain of discretion or opportunity, when an evaluation is necessary).

Now, if substantiation is, as referred to above, necessary and obligatory, this cannot and should not be understood in an abstract and/or absolute manner, that is, the substantiation required for a specific tax act must be that which is functionally necessary for it to not present itself to the taxpayer as a pure demonstration of arbitrariness. This will be – it is believed – the touchstone of compliance with the duty of substantiation: to what extent, before an average recipient placed in the position of the actual recipient, the tax act presents itself, from a reasonableness standpoint, as a product of pure administrative arbitrariness, because the factual and/or legal grounds on which it rests are not discernible, the act will suffer from lack of substantiation.

Article 77/1 of the General Tax Law thus provides that: "The decision of procedure is always substantiated by means of a brief exposition of the reasons of fact and law that motivated it, and substantiation may consist of mere declaration of agreement with the grounds of previous opinions, information or proposals, including those that integrate the tax inspection report."

Turning to the concrete case, the Applicant attributes the lack of substantiation it argues to the incomprehension of the reason why the total of interest on bank deposits and uncharged supplies should be included in the denominator of the pro rata fraction for purposes of calculating the deduction percentage.

Now, examining the Inspection Report, it is found that on page 20 the following appears:

[Content of relevant section from inspection report follows in original]

It appears here, therefore, the reason for the Tax Authority's action in question, so it cannot be concluded that the total inclusion of interest on bank deposits and uncharged supplies in the denominator of the pro rata fraction for purposes of calculating the deduction percentage results from pure administrative arbitrariness.

Whether the criterion externalized is correct or incorrect, and/or whether it was applied well or poorly, are already questions that emerge downstream of the Tax Authority's compliance with the duty of substantiation.

What is relevant, in this light, is that the reason be indicated why the Administration did or did not act in a certain manner, in comprehensible and coherent terms, which in this case occurs.

In view of the foregoing, this ground of the arbitral petition is without merit.

On the Exclusion of the Pro Rata Method

Next, the Applicant contests the exclusion of the application of the pro rata method for VAT deduction for the period between 2012 and 2015, which related essentially to legal services, financial advisory and consulting services, and which was recovered by the Applicant through application of the pro rata deduction method, with approximately 93% of the tax corrected by the Tax Authority relating to four suppliers (VAT deducted of €1,526,905.14), and the remaining 7% relating to other suppliers with lesser significance (VAT deducted of €121,579.33).

Prior to addressing this matter, it is appropriate to undertake a review of the community jurisprudence that has addressed this subject.

In the Judgment in Polysar (Case C-60/90), the Court, in response to the question of whether "A holding company that exercises no activities other than those related to the holding of shares in subsidiaries should be considered a taxable person within the meaning of Articles 4 and 17 of the Sixth Directive on the harmonization of the laws of the Member States relating to turnover taxes", concluded that "Article 4 of the Sixth Directive must be interpreted to the effect that a holding company whose sole purpose is the taking of shareholdings in other undertakings, without interfering, directly or indirectly, in the management of those undertakings, is not a taxable person for VAT purposes and therefore has no right to deduction under Article 17 of the Sixth Directive, without prejudice to the rights that the holding company has in its capacity as shareholder or member."

However, in that judgment, the Court reserved that "the situation is different when the holding is accompanied by direct or indirect interference in the management of the undertakings in which the holding was taken, without prejudice to the rights which the holder of the holding has in the capacity of shareholder or member."

In the Judgment in Satam/Sofitam (Case C-333/91), the Court, faced with the question of whether "Given the wording given to them, the provisions of Article 19 of the Sixth Directive must be interpreted to mean that dividends on shares received by an undertaking that is not a taxable person for VAT as to the whole of its transactions must be excluded from the denominator of the fraction used for the calculation of the pro rata of deduction, or whether, given the purpose and the economy of the deduction system established by the directive and resulting in particular from the combination of its Articles 17 and 19, the provisions of this latter article must, on the contrary, be interpreted to mean that the dividends in question must, like products exempt from VAT, be included in this denominator", determined that "The provisions of Article 19, paragraph 1, of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes must be interpreted to mean that dividends on shares received by an undertaking which is not a taxable person for VAT as regards the whole of its transactions must be excluded from the denominator of the fraction used to calculate the pro rata of deduction", since "Not constituting the consideration for any economic activity within the meaning of the Sixth Directive, the receipt of dividends does not fall within the scope of VAT. Consequently, dividends, which result from the holding of shareholdings, are alien to the system of deduction rights".

In the Judgment in Berginvest (Case C-142/99), the question was considered of whether "Dividends on shares and interest on loans must always be excluded from the denominator of the fraction used to calculate the pro rata of deduction, including in the hypothesis that the undertaking receiving them has intervened in the management of the undertakings that pay or distribute them, beyond the exercise of rights held by that undertaking in the capacity of shareholder or member?"

To this question it was responded that: "Article 19 of the Sixth Directive must be interpreted to mean that must be excluded from the denominator of the fraction serving as the basis for calculating the pro rata of deduction, on the one hand, dividends distributed by subsidiaries to a holding that is taxable as to VAT as to other activities and provides these subsidiaries with management services, and on the other, interest paid by the latter to this holding relating to loans that the latter granted them, when these loan operations do not constitute, within the meaning of Article 4, paragraph 2, of the Sixth Directive, an economic activity of the said holding."

In this context, the Court further stated "that must be considered an economic activity within the meaning of Article 4, paragraph 2, of the Sixth Directive the interference in the management of subsidiaries, insofar as it entails transactions subject to VAT under Article 2 of that directive."

In the Judgment in Wheltgrove (Case C-102/00), it responded to the question of whether "the mere fact that the undertaking concerned interferes in the management of its subsidiaries implies, as stated in paragraph 14 of the Polysar judgment, that the undertaking concerned must be qualified as a taxable person within the meaning of Article 4 of the Sixth Directive?", to the effect that "must be considered an economic activity within the meaning of Article 4, paragraph 2, of the Sixth Directive the interference in the management of subsidiaries, insofar as it entails transactions subject to VAT under Article 2 of that directive" and that "the mere interference of a holding in the management of its subsidiaries, without there being transactions subject to VAT under Article 2 of the Sixth Directive, cannot be considered an economic activity within the meaning of Article 4, paragraph 2, of the Sixth Directive."

In the Judgment in Cibo (Case 16/00), the Court addressed various questions relevant to the matter at issue.

Thus, to the question "What criterion should be considered for the definition of interference? Can it be based, in particular, both on the existence of remunerated services, as on the direction of a group by a holding, on the management of fact that excludes all independence of the subsidiary, or on any other element?", the Court reaffirmed "that the interference of a holding in the management of the undertakings in which it took shareholdings constitutes an economic activity within the meaning of Article 4, paragraph 2, of the Sixth Directive, insofar as it entails the carrying out of transactions subject to VAT under Article 2 of that directive, such as the supply, by the holding to its subsidiaries, of administrative, financial, commercial and technical services."

To the question of whether "a holding can deduct the VAT levied on expenses incurred for the various services it acquired in the context of taking a shareholding in a subsidiary", the Court responded "that expenses incurred by a holding for the various services it acquired in the context of taking a shareholding in a subsidiary form part of its general expenses, and therefore have, in principle, a direct and immediate connection with the entirety of its economic activity. Therefore, if the holding carries out both operations with right to deduction and operations without right to deduction, it follows from Article 17, paragraph 5, first subparagraph, of the Sixth Directive that only the part of VAT proportional to the amount relating to the first category of operations can be deducted."

To this end, the Court clarified that "It must be concluded that there is no direct and immediate connection between the various services acquired by a holding in the context of taking a shareholding in a subsidiary and one or more downstream operations conferring right to deduction. Indeed, the amount of VAT paid by the holding on expenses incurred for said services does not directly burden the various constituent elements of the price of its downstream operations conferring right to deduction. These expenses are not part of the costs of downstream operations using said services" and that "the costs of these services form part of the general expenses of the taxable person and are, as such, constituent elements of the price of a company's products. Therefore, these services have a direct and immediate connection with the entirety of the taxable person's economic activity".

On the question of whether "In case of interference, the receipt of dividends remains outside the scope of VAT for a reason other than economic activity, insofar as it is not the consideration for an operation of supply of goods or provision of services, or, having regard to the fact that expenses are incurred for the acquisition of shares having as direct object participation in economic activities, the receipt of dividends falls within the scope of VAT and, in this hypothesis, is exempt under paragraph 1 of item d) of Part B of Article 13 of the Sixth Directive or is taxed?", the Court responded that "that the receipt of dividends does not fall within the scope of VAT."

The Judgment rendered in the SKF case (Case C-29/08), the Court had as its subject matter the following questions:

"1) Articles 2 and 4 of the Sixth Directive [...] and Articles 2 and 9 of Directive 2006/112 [...] must be interpreted to mean that the transfer of shareholdings in a subsidiary company by a taxable person who is liable for tax as a result of the provision of services to that subsidiary constitutes a transaction subject to VAT?

1. If the answer to the first question is that the transfer constitutes a taxable transaction, is that transaction covered by the exemption enjoyed by transactions relating to shareholdings in companies, provided for in Article 13, B, item d), number 5, of the [Sixth] Directive [...] and in Article 135, paragraph 1, item f), of Directive 2006/112?

2. Regardless of the answer to the above questions, may there be a right to deduction, as general expenses, regarding expenses directly associated with the transfer?

3. Is it relevant to the answer to the above questions the fact that the transfer of shareholdings in the subsidiary is made in several phases?"

These questions merited the following responses from the Court:

"1) Articles 2, paragraph 1, and 4, paragraphs 1 and 2, of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes – Common system of value-added tax: uniform tax base, as amended by Council Directive 95/7/EC of 10 April 1995, and Articles 2, paragraph 1, and 9, paragraph 1, of Council Directive 2006/112/EC of 28 November 2006 on the common system of value-added tax, must be interpreted to mean that constitutes an economic activity covered by the scope of said directives a transfer, by a parent company, of all shares held in the capital of a subsidiary held at 100% and the remaining interest in a previously wholly-held controlled company, to which it provided services subject to value-added tax. However, insofar as the transfer of shares is assimilated to the transfer of the whole or partial universality of an undertaking, within the meaning of Article 5, paragraph 8, of the Sixth Directive 77/388, as amended by Directive 95/7, or Article 19, first paragraph, of Directive 2006/112, provided that the Member State in question has opted for the option provided for in these provisions, this operation does not constitute an economic activity subject to value-added tax.

1. A transfer of shares, such as that at issue in the main proceedings, must be exempt from value-added tax under Article 13, B, item d), number 5, of the Sixth Directive 77/388, as amended by Directive 95/7, and Article 135, paragraph 1, item f), of Directive 2006/112.

2. The right to deduct value-added tax paid upstream on services intended to carry out a transfer of shares is conferred, by virtue of Article 17, paragraphs 1 and 2, of the Sixth Directive 77/388, as amended by Directive 95/7, and Article 168 of Directive 2006/112, if there is a direct and immediate relationship between the expenses related to upstream services and the entirety of the taxable person's economic activities. It falls to the referring court to determine, having regard to all the circumstances in which the operations at issue in the main proceedings take place, whether the expenses incurred are capable of being incorporated into the price of shares sold or whether they form part solely of the constituent elements of the price of operations covered by the taxable person's economic activities.

3. The answers to the above questions are not affected by the circumstance that the transfer of shares is carried out in several successive operations."

In the judgment referred to, the Court took care to alert, regarding the answer to the second question "that, although consulting expenses relating to transfers of shareholdings are considered as an integral part of the taxable person's general expenses in cases where the transfer itself falls outside the scope of VAT, the same tax treatment should be accepted if the transfer is qualified as an exempt operation."

In the Judgment in Portugal-Telecom (Case C-496/11), the following questions were placed before the Court of Justice:

"1) Is the correct interpretation of Article 17, paragraph 2 of the Sixth Directive [...], such as to prevent the Portuguese Tax Administration from requiring the Applicant — an SGPS – to use the pro rata deduction method for the entirety of the VAT incurred in its inputs, on the grounds that its principal corporate purpose is the management of equity interests in other undertakings, even when those inputs (services acquired) exhibit a direct, immediate and unequivocal connection with taxed transactions — provision of services – carried out downstream, in the scope of a supplementary, legally permitted activity of provision of technical management services?

1. May an entity that has the status of an SGPS and that incurs VAT in the acquisition of goods and services that are subsequently fully re-billed, with VAT charged, to its subsidiaries, constituting this an accessory activity – provision of technical administration and management services – to the principal activity carried out – management of equity interests –, deduct the entirety of the tax incurred in those acquisitions, through application of the real allocation deduction method, provided for in paragraph 2 of Article 17 of the Sixth Directive?"

To such questions, the Court responded that "Article 17, paragraphs 2 and 5, of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value-added tax: uniform tax base, must be interpreted to mean that a holding company such as that at issue in the main proceedings, which, incidentally to its principal activity of management of the equity interests in the undertakings of which it holds the whole or part of the capital, acquires goods and services which it subsequently invoices to those undertakings, is authorized to deduct the value-added tax paid upstream, provided that the services acquired upstream exhibit a direct and immediate connection with downstream economic transactions conferring right to deduction. When said services are used by the holding company to carry out simultaneously economic transactions with right to deduction and economic transactions without right to deduction, deduction is only permitted for the part of the value-added tax that is proportional to the amount relating to the first transactions and the national Tax Administration is authorized to provide one of the deduction right determination methods listed in said Article 17, paragraph 5. When said goods and services are used simultaneously for economic activities and for non-economic activities, Article 17, paragraph 5, of the Sixth Directive 77/388 is not applicable and the deduction methods and apportionment are defined by the Member States, which, in the exercise of this power, must take into account the purpose and the economy of the Sixth Directive 77/388 and, to that end, provide a calculation method that objectively reflects the real allocation portion of upstream expenses to each of these two activities."

The Court of Justice defined, to this end, that "It falls to the referring court to determine whether all the services at issue in the main proceedings exhibit a direct and immediate connection with the downstream economic transactions giving right to deduction, or whether those services are used by the taxable person to carry out simultaneously economic transactions with right to deduction and economic transactions without right to deduction, or still whether those services are used by the taxable person, simultaneously, for economic transactions and for non-economic activities."

In the Judgment concerning the cases Larentia + Minerva and Marenave (Cases C-108/14 and C-109/14), the question was addressed, among others, of "What calculation method must be used to calculate the (proportional part of) deduction of [VAT] paid upstream by a holding company relating to service provision made to it in the context of obtaining capital to acquire shareholdings in its subsidiaries, when that holding subsequently provides (as previously planned) various service provisions subject to [VAT] to those undertakings?"

To this end, the Court reaffirmed that "The interference of a holding company in the management of the undertakings whose shareholdings it acquired constitutes an economic activity within the meaning of Article 4, paragraph 2, of the Sixth Directive, insofar as it implies the carrying out of transactions subject to VAT by virtue of Article 2 of the same directive, such as the provision of administrative, financial, commercial and technical services by the holding company to its subsidiaries."

The Court also clarified that "the costs linked to the acquisition of shareholdings in its subsidiaries incurred by a holding company that participates in the management of the same and which, to that end, exercises an economic activity, as was recalled in paragraph 21 of this judgment, must be considered allocated to the economic activity of this company and the VAT paid with respect to these costs gives right to full deduction, in application of Article 17, paragraph 2, of the Sixth Directive" and that "Only in the case where the referring court finds that the shareholdings resulting from the capital operations carried out by the holding companies at issue in the main proceedings were allocated partially to other subsidiaries in whose management the holding companies did not participate is it that, as stated in the first question of the referring court, the VAT paid on the costs of those operations can only be partially deducted. Indeed, in this case, the mere holding of its shareholdings in these subsidiaries cannot be considered an economic activity of the holding companies and there is, then, to apportion the VAT paid upstream between what relates to economic activities and what relates to non-economic activities thereof."

Further was stated by the Court that "In this context, the Member States are enabled to apply, as appropriate, either an apportionment key according to the nature of the investment, or an apportionment key according to the nature of the transaction, or yet any other suitable key, without being obliged to limit themselves to a single one of these methods (...). Thus, it falls exclusively to the national authorities, under judicial supervision, to determine the apportionment criteria between economic activities and non-economic activities that objectively reflect the real allocation portion of upstream expenses to each of the two activities, having regard to the purpose and the systematic of the Sixth Directive."

Concluding, the Court considered "that Article 17, paragraphs 2 and 5, of the Sixth Directive must be interpreted to mean that:

— The costs linked to the acquisition of shareholdings in its subsidiaries incurred by a holding company that participates in their management and which, to that end, exercises an economic activity must be considered part of its general costs and the VAT paid on these costs must, in principle, be fully deducted, unless some downstream economic transactions are exempt from VAT under the Sixth Directive, in which case the right to deduction must only operate according to the methods provided for in Article 17, paragraph 5, of the Directive;

— The costs linked to the acquisition of shareholdings in its subsidiaries incurred by a holding company that participates in the management of only some of them and which, regarding the others, does not exercise an economic activity, must only be partially considered part of its general costs, so that the VAT paid with respect to these costs can only be deducted in the proportion of those that are inherent to the economic activity, according to apportionment criteria defined by the Member States, which, in the exercise of this power, must take into account – what falls to the national courts to verify – the purpose and the systematic of the Sixth Directive and, to this end, provide a calculation method that objectively reflects the real allocation portion of upstream expenses to economic activity and to non-economic activity."

For the Applicant, "the vast majority of resources acquired in the years 2012 to 2015 is intrinsically associated with the management of its subsidiaries, whether with advisory and consulting services, or with the renegotiations of the concessions", and therefore "the deduction by pro rata proved, in fact, to be an insufficient deduction given that, properly speaking, the right to such deduction would effectively be a right to full deduction", indicating, as examples, the following invoices:

[Examples of invoices from original]

With respect to this matter, it must be clearly evidenced from the outset that the Applicant departs from a deficient understanding of the substantiation of the Inspection Report, in that it believes that "the Tax Authority understands that the Applicant does not develop an economic activity for VAT purposes", when, at no point, did the Tax Authority question the quality of the Applicant as a mixed taxable person, exercising transactions not subject, subject and exempt, and subject and non-exempt from tax.

A different question is whether the Applicant "develops predominantly a non-economic activity", or whether, as it seeks to assert herein, "its main essence is not (...) the mere holding of equity interests, but rather the management of the entities in whose capital it holds a majority stake."

With respect to this question, it is believed that the Applicant's understanding will be, manifestly, not acceptable. Indeed, the Applicant is an SGPS, enjoying the specific legal regime for this type of undertaking, which is justified in the first place, precisely because these are undertakings whose principal activity is the mere holding and management of equity interests.

And if it is true that to SGPSs, and to the Applicant as such, it is permissible, under certain conditions, to provide administration and management services to its subsidiaries, it is no less true that this should always constitute a more or less accessory aspect of its activity, which should be, precisely, that of holding and managing equity interests, aimed at obtaining dividends and capital gains.

An undertaking whose principal purpose is the provision of management and administration services to undertakings and is constituted as an SGPS would then be, from the outset, a fraud on the law, since the regime of those is not intended for the exercise, as a principal matter, of such activities, and therefore, in that case, should be constituted as an ordinary commercial undertaking, which, as is known, can also hold and manage equity interests.

Having regard to the matter of fact established, it must, in any case, be concluded that the Applicant presents itself, effectively, as an SGPS, having as its principal activity the holding and enjoyment of equity interests, and providing, incidentally, administration and management services to some of its subsidiaries, particularly to the undertakings L..., S.A. ("L..."), to whom such services are billed directly, and to the undertakings M... and N..., to whom attendance fees were billed.

The Applicant alleges that with respect to the remaining subsidiaries, it also exercises administration and management activities, which it does not bill only because such is forbidden to it by virtue of agreements and limitations imposed by financing banks.

Nevertheless, regardless of the motivations, the fact is that such eventual unbilled activities do not generate taxable operations in respect of VAT, and community jurisprudence is crystalline to the effect that such activities will be relevant "insofar as it entails transactions subject to VAT under Article 2 of that directive" and that "the mere interference of a holding in the management of its subsidiaries, without there being transactions subject to VAT under Article 2 of the Sixth Directive, cannot be considered an economic activity within the meaning of Article 4, paragraph 2, of the Sixth Directive."

Given this, and as written in the Judgment of the Supreme Administrative Court of 28-10-2015, rendered in Case 01497/12:

"I - For purposes of deduction of VAT contained in goods and services acquired by an undertaking that exercises activities conferring right to deduction and others that do not confer such right, a procedure of direct allocation must be adopted: direct allocation is made of inputs to the economic activities to which they are intended, deducting the entirety of VAT if the input is consumed in an activity that grants the right to deduction, or not deducting any portion of VAT if the activity in which that input is consumed does not grant that right.

II - Only after that phase, and with respect to inputs that persist, because used indistinctly or simultaneously (promiscuous inputs), for the exercise of activities that confer and other that do not confer the right to VAT deduction, is it that the second phase of the process should be undertaken, of the apportionment of residual tax, with application of the rules of Article 23 of CIVA, that is, with application of the methods of percentage (or pro rata) or real allocation.

III - In any case, the pro rata method may only be adopted in the impossibility of use of a more objective method (that better reflects the intensity of use of the production assets common to the two branches of activity) and provided that it does not lead to taxation distortions."

This will therefore be the legal criterion to apply, in order to assess the legality of the corrections made by the Tax Authority, and which the Applicant contests, in light of the facts proven and the substantiation of the Inspection Report.

The Applicant itself accepts the stated criterion, referring that "With respect to the topic of VAT deduction, particularly when a so-called "mixed" taxable person is at issue, the first line of reasoning should always be to identify whether there are resources directly allocated to certain transactions, that is, whether identified upstream costs are incurred that do or may come to form part of the constituent elements of the price of one or several downstream economic transactions conferring right to deduction (and, in parallel, transactions that do not confer that right). In a second line, with respect to the general costs of the activity, there is a need to identify which acquired resources qualify as general expenses, that is, general expenses of the taxable person that are reflected both in the price of economic transactions conferring right to deduction and in the price of economic transactions that do not confer such right, being the same designated by mixed costs."

Given the foregoing, and taking into account the rules on burden of proof (cf. Article 74 of the General Tax Law), it will therefore be necessary, with respect to each of the Applicant's expenses burdened with VAT, in order to assess the deductibility thereof, to verify whether it is demonstrated that its allocation to the activity subject and not exempt of the Applicant, in which case the tax will be deductible in its entirety, or whether it is demonstrated that such expenses relate to resources "used indistinctly or simultaneously (promiscuous inputs), for the exercise of activities that confer and other that do not confer the right to VAT deduction", in which case the tax will be partially deductible, in the present case, as there is no controversy on this matter, through the pro rata method.

Thus, what must be done is, on a case-by-case basis with respect to each of the invoices in question, to apply the above-stated criterion, and from this to draw the appropriate conclusions.

As results from the Inspection Report, the corrections in question were based on one or more of the following grounds:

[Detailed grounds from original document]

Let us address each one of them.

2.i Corrections to be Annulled

The invoices No. 2131036238 and 21310351780 were issued by the undertaking P..., an English law firm with a subsidiary in the Netherlands, and relate to the provision of legal services to the Applicant, related to the acquisition and management of a Dutch shareholding (Q...B.V.), having been described in the accounting of D... as administration expenses.

Also, invoice 400 from Bank R... refers to advisory services in the acquisition of a shareholding in the undertaking "Q..., BV".

From the undertaking S... S.A., the following invoices were disregarded, in addition, classified by the Tax Authority as general expenses of the Applicant:

• invoice 935 referring to services related to the preparation of a report with tax implications resulting from the transfer of equity interests to Group D...;

• invoice 3117 referring to tax assistance in the reorganization of equity interests in Mexico;

• invoice 13456 referring to tax assistance in the acquisition of a shareholding in Brazil.

Note that neither undertaking Q..., nor any Brazilian or Mexican undertaking are integrated among those with which the Applicant conducted taxable transactions, particularly relating to administration and management support.

The Tax Authority classified these invoices under item i. of the grounds listed above, considering, therefore, that what is at issue are not services that can be linked directly to the subject and non-exempt activity of the Applicant, or that can be considered as used indistinctly or simultaneously in the exercise of activities that confer and other that do not confer the right to VAT deduction.

However, as is referred to in the Judgment in Cibo, cited above, "expenses incurred by a holding with the various services it acquired in the context of taking a shareholding in a subsidiary form part of its general expenses, and therefore have, in principle, a direct and immediate connection with the entirety of its economic activity. Therefore, if the holding carries out both operations with right to deduction and operations without right to deduction, it follows from Article 17, paragraph 5, first subparagraph, of the Sixth Directive that only the part of VAT proportional to the amount relating to the first category of operations can be deducted."

Thus, the expenses in question should, in principle, be considered as general expenses, that is, relating to the entirety of the Applicant's economic activity, and not having been proven otherwise, the Tax Authority could not disregard them completely, and the correction in question should, in this respect, be annulled, with the arbitral petition proceeding to this extent.

Of the invoices issued by undertaking T..., invoice 392 relates to financial advisory, identified by the Applicant as an expense with the transfer of shareholdings.

Also, invoice 631 relates to financial advisory related to the reorganization of the Applicant's shareholdings, and was accounted for by it as an expense with the transfer of shareholdings at the international level, in accordance with a letter of 19-12-2013, presented by the Applicant, which was not questioned by the Tax Authority.

As referred to by the Court of Justice, in the Judgment in SKF cited above, "although consulting expenses relating to transfers of shareholdings are considered as an integral part of the taxable person's general expenses in cases where the transfer itself falls outside the scope of VAT, the same tax treatment should be accepted if the transfer is qualified as an exempt operation."

That is, these expenses should also, in principle, be considered as general expenses, relating to the entirety of the Applicant's economic activity, regardless of whether the downstream shareholding transfer operation falls outside the scope of VAT, or whether the same is qualified as exempt.

Nothing having been established to the effect of setting aside the said qualification as general expenses, the Tax Authority could not disregard them completely, and the correction in question should, in this respect, be annulled, with the arbitral petition proceeding to this extent.

Invoices 415, 416 and 90000416, all issued by undertaking T..., relate to "brokerage service" provisions, and invoice 636, also issued by undertaking T..., relates to "advisory service" provision, with it being established that they were recorded in the Applicant's accounting as administration expenses, which the Tax Authority did not question.

Invoice 230, issued by U..., S.A. (U...), refers to a commission for the provision of financial advisory services, having been accounted for by the Applicant as an administration expense, which the Tax Authority also did not question.

By Bank R... the following invoices were issued and accounted for by the Applicant:

• invoice 258, referring to advisory services in the scope of the reorganization of D... shareholdings at the international level;

• invoices 2061, 2820, 1644 and 5329, referring to financial advisory services, with the Applicant having identified the first two as financial expenses;

• invoice 7689, in the amount of €614,000.00, having the description "brokerage commission", with, according to the detail in a letter presented by the Applicant, dated 26-07-2012 and not questioned by the Tax Authority, this expense referring to "collection and processing of information, analysis and preparation of the respective economic-financial study for the development of D... financing". This expense was accounted for by the Applicant as a financial expense, and considered by the Tax Authority an expense allocated to the financial activity of the Applicant, related to equity interests.

Invoice 1510219728, issued by undertaking V... refers to legal Due Diligence services provided by that Spanish law firm, related to a Spanish subsidiary ("W..., AS").

Invoices 3559, 5225, 5829, 6338, 6828 and 7304, issued by undertaking X..., S.A., refer to fees for the audit of accounts of the Applicant and of financial statements of subsidiaries, expenses which were considered by the Tax Authority as being for administration, inherent to the existence of the undertaking, that is, general expenses of the Applicant's overall activity.

Invoices 1309, 1573 and 1981, issued by undertaking OO..., S.A., refer to consulting services in the scope of a project developed by D... (project...), having been considered by the Tax Authority general character expenses of the Applicant.

Invoice 8580, issued by undertaking AA..., relates to the subscription of 2 groups of 20 licenses for the use of published information (one without specification and another relating to Latin America), with this expense having been allocated by the Applicant to administration, which was not questioned by the Tax Authority, which qualified such expenses as being of the Applicant's general activity.

Invoice 1953407, from BB..., an English undertaking providing information and/or statistical data on websites/undertakings (DataSite), was considered by the Tax Authority as referring to market analysis for the acquisition of shareholdings.

Invoices 28, 72 and 812 were issued by undertaking CC..., SA., which was a subsidiary of the Applicant, providing services to the group, and which provided to the Applicant technical tax services, which were qualified by the Tax Authority as related to the general activity of D....

Invoice 3336, issued by undertaking DD..., refers to services in the scope of a judicial challenge to a tax assessment (VAT) relating to the fiscal year 2011, having also been qualified by the Tax Authority as expenses of the general activity of D....

Debit notes 6622 and 6623 issued by EE..., refer, respectively, to the assignment of staff and technical support services in a building execution project, expenses associated internally by the Applicant to Administration, which was not questioned by the Tax Authority, which considered these expenses as general for D....

Invoices 1, 123 and 6475272, issued by undertaking FF... SGPS, SA, refer to services provided in the follow-up, annual consolidation and production of the consolidated accounts report of D... in the different fiscal years (2011, 2012 and 2013), and were also qualified by the Tax Authority as expenses of the general activity of D....

By undertaking GG..., LDA consulting management services were billed through the following invoices:

• invoice 455, relating to 60% of the work referring to the capital structure of D..., with the service provider not discriminating the service provided, but having been related by the Applicant as an expense with the brand itself, which was not questioned by the Tax Authority, which considered it as not being attributable to an expense with a concrete taxable output;

• invoice 2377, relating to 30% of the value of work owing with the award. The Applicant allocated this expense to the Administration cost center, with the Tax Authority considering the same as related to the general activity of the undertaking;

• invoice 33106219, relating to the provision of tax advisory services ("services regarding transfer pricing"), and having been qualified by the Tax Authority as falling within the general activities of the undertaking;

• invoice 33112936, referring to tax advisory ("services regarding transfer pricing"), having been qualified by the Tax Authority as falling within the general activities of the undertaking.

All these invoices should be considered, in light of the criteria formulated by the community jurisprudence analyzed above, as general expenses of the Applicant, attributable to the entirety of its economic activity, a qualification that, moreover, is given to them, in many cases, expressly in the Inspection Report.

Indeed, as written in the Judgment in Cibo, "there is no direct and immediate connection between the various services (...) and one or more downstream operations", and "the amount of VAT (...) on expenses incurred (...) does not directly burden the various constituent elements of the price of its downstream operations" and that "the costs of these services form part of the general expenses of the taxable person and are, as such, constituent elements of the price of a company's products. Therefore, these services have a direct and immediate connection with the entirety of the taxable person's economic activity".

As also explained in the Judgment of the Court of Appeals of the South of 15-01-2013, rendered in Case 01949/07:

"the said service provisions occurred exclusively in the interest of the claimant, which in the scope of its activity of management and administration of equity interests intended to obtain elements that would allow it to decide whether certain investments of the subsidiaries should be carried out or not. It was not, therefore, for the direct benefit of the latter that such services were provided. That is, the question regarding "the direct, causal, immediate nexus, between the upstream transactions (the provision of services by third parties) - inputs - and their downstream effects (in the legal sphere of the subsidiary undertakings) - outputs", merits a negative answer, insofar as there is no direct nexus, but perhaps merely reflexive, between such transactions and the effects produced in the legal sphere of the subsidiaries.

And being thus, such transactions are not characterizable as transactions of provision of technical administration and management services to the subsidiaries. At most they may come to influence the investment strategy of the subsidiaries and the decisions to be taken in that domain, on one hand based on the specific weight of the claimant in the capital of each of them and on the other hand based on the technical services of administration and management that it provides to them. Said in a more prosaic manner, they may have influence on decision-making regarding investments of the subsidiaries, but do not determine those decisions by themselves.

They do not therefore exhibit a direct and immediate connection with the entirety of the claimant's activity, which covers two areas: (i) management of equity interests and (ii) provision of technical administration and management services to the subsidiaries. Indeed, they only produce direct results in the first area, that is, in the principal activity, although they may generate reflexive effects in the second.

In this context and as observed by the Court of Justice in the Midland Bank judgment, Article 17, paragraphs 2, 3 and 5, of the Sixth Directive "must be interpreted to mean that, in principle, the existence of a direct and immediate relationship between a given upstream transaction and one or more downstream transactions with right to deduction is necessary for the right to deduct upstream value-added tax to be recognized to the taxable person and to determine the extent of that right", with it being incumbent "on the national court to apply the criterion of direct and immediate relationship to the facts of each case before it. A taxable person who carries out simultaneously transactions with right to deduction and transactions without right to deduction may deduct the value-added tax that fell on the goods or services acquired by it, provided that these have a direct and immediate relationship with the downstream transactions giving right to deduction, and without proceeding differently depending on whether Articles 17, paragraphs 2, 3 or 5 of the Sixth Directive are applied", However, the Court adds, "this taxable person cannot fully deduct the value-added tax that fell on upstream services when these have been used not for the carrying out of a transaction with right to deduction, but rather in the context of activities that are only its consequence, unless the taxable person demonstrates, through objective elements, that the expenses related to the acquisition of these services form part of the cost of the various constituent elements of the price of the downstream transaction."

In this context, the claimant has no right to deduct VAT under Article 17, paragraph 2, of the Sixth Directive and Article 23, paragraph 2, of CIVA, but rather under paragraph 5 of that same article, as the Court of Justice recalled in paragraph 46 of the referring judgment: "When said services are used to carry out simultaneously transactions with right to deduction and transactions without right to deduction, deduction is only permitted for the part of VAT that is proportional to the amount relating to the first transactions and the Member States are authorized to provide one of the deduction right determination methods listed in Article 17, paragraph 5, of the Sixth Directive."

Which moreover follows from the operative part of the judgment.

Article 17, paragraph 2, of the Sixth Directive establishes a regime of VAT deduction proportional to the amount of transactions with right to deduction, relating to goods or services used by the taxable person for transactions with right and without right to deduction. In this case the right to deduction is calculated by the pro rata method, determined in conformity with Article 19 of that Directive."

Thus, it is considered, in the line of the jurisprudence exposed, to be also in these cases, general expenses, a qualification that, moreover, is not expressly contested by the Tax Authority, and is expressly accepted by it, in many cases.

What the Tax Authority did, as was already addressed above, was to restrict the general activity of the Applicant to the activity of management of equity interests, which has no correspondence to the factual matter established, insofar as, as was also seen, the Applicant dedicates itself, not only, as a principal matter, to that activity, but also, as an accessory matter, and in accordance with the law, to the activity of administration and support for the management of some of its subsidiaries, and therefore this activity must necessarily be included in the entirety of the Applicant's economic activity.

Also in arbitral proceedings, the Respondent, on this matter, admitting that general expenses of the Applicant may be at issue, merely states that "they are not constituent elements of the price of its products (that confer the right to deduction), that is, of services that it provides to its subsidiaries", since "such inputs have no reflection in the price of the services that it may provide to its subsidiaries, as the contracts it concluded do not permit it, that is, to reflect the price of those services in the price of the services that (...) it provides to its subsidiaries".

Now, as results from the matter of fact established, the said assertion has no adherence to reality, since, although it is true that with respect to some of its subsidiaries the Applicant does not conduct VAT transactions, being, in some of those cases, even contractually forbidden from doing so, it is no less true that it has been demonstrated that with respect to the subsidiaries L..., S.A. ("L..."), to whom services are directly billed, and to the undertakings M..., SA, and N... BV, to whom attendance fees are billed, the Applicant conducts taxable transactions.

Therefore – first and foremost by virtue of the principle of VAT neutrality, as affirmed and developed in the community jurisprudence cited – it can never be a question of the total exclusion of the right to deduction of tax supported in general expenses, but only of the measure of such right, a matter to be defined in determining the pro-rata.

Thus, nothing having been established to the effect of setting aside the said qualification of the expenses in question as general expenses of the Applicant, capable of founding the right to partial deduction of the tax supported therein, the Tax Authority, in the face of national and community law, and the jurisprudence analyzed, could not disregard them completely, and the correction in question should, equally in this respect, be annulled, with the arbitral petition proceeding to this extent.

Assessment Notice 434 from Z... relates to the reimbursement of expenses related to the issuance of bonds of the undertaking "HH...B.V.".

Invoice 16111 from undertaking S... S.A. relates to tax assistance related to a swap transaction.

The Tax Authority did not accept as deductible the VAT contained in said documentation, on the grounds, in summary, that it relates to inputs related to exempt economic activity (interest), concluding that the tax included in such inputs would also not be deductible.

However, this qualification will not be acceptable. Indeed, being at issue the issuance of bonds and the execution of swap contracts, what is at issue is not a situation where interest is accrued, but rather financing, bond-based and through operations with derivatives.

As written in the Judgment in Larentia + Minerva and Marenave, "in the case where the referring court finds that the shareholdings resulting from the capital operations carried out by the holding companies (...) were allocated partially to other subsidiaries in whose management the holding companies did not participate (...) the VAT paid on the costs of those operations (...) can only be partially deducted".

It is certain that the operation to which Assessment Notice 434 relates is a financing operation of a subsidiary of the Applicant (and not of the Applicant itself), and that that subsidiary does not integrate the list of those in which the existence of taxable operations was found, corresponding to the Applicant's interference in the respective management, which could raise the question of being an operation directly related to the activity of management of shareholdings exercised by the Applicant.

However, this was not the ground on which the Tax Authority based the correction in question, and it is this that this Tribunal must adhere to when assessing the legality of the Tax Authority's intervention, since, as written in the Judgment of the Supreme Administrative Court of 23-09-2015, rendered in Case 0134/11, "It is exclusively in light of the substantiation expressed by the Tax Authority when carrying out the additional VAT assessment that the legality of that tax act must be assessed."

Thus, the concrete correction in question is burdened with error in the factual assumptions, and consequent error in law, and should therefore be annulled.

2.ii Corrections to be Maintained

As documents supporting imputed tax, the Applicant presented the Notices 1010313 (p. 62v of Annex 7 to the Inspection Report) 1010317 (p. 62 of Annex 7 to the Inspection Report), 1010323 (p. 61v of Annex 7 to the Inspection Report), 1010325 (p. 61 of Annex 7 to the Inspection Report) 1010350 (p. 63v of Annex 7 to the Inspection Report), 1010352 (p. 64 of Annex 7 to the Inspection Report), all from C..., the Assessment Notes No. 10609631782 (p. 44v of Annex 7 to the Inspection Report), No. 10592527950 (p. 43 of Annex 7 to the Inspection Report), and the Statements 2012/06 (pp. 46v to 47v of Annex 7 to the Inspection Report) and 2013/04 (pp. 57v to 58 of Annex 7 to the Inspection Report), from U..., which concern tax supported with banking commissions for the transfer of dividends paid by undertakings II..., JJ..., and KK..., SA.

The Tax Authority classified these documents under item i. of the grounds listed above, considering, therefore, that what is at issue are not services that can be linked directly to the subject and non-exempt activity of the Applicant, or that can be considered as used indistinctly or simultaneously in the exercise of activities that confer and other that do not confer the right to VAT deduction.

Examining the facts established as proven, it must be concluded that there is nothing to censure in the correction made by the Tax Authority in this respect.

Indeed, the description of the documentation presented by the Applicant itself points toward these being services related to the operations of holding and management of equity interests, particularly with the receipt of dividends arising from those, carried out by the Applicant, with nothing emerging from the factual matter proven that permits concluding that:

• the services in question are distinct or exceed those described in the documentation in question;

• the commissions in question have any relationship direct with the activity of support for the management and administration of its subsidiaries, by the Applicant;

• such commissions are relatable to the general functioning of the Applicant, serving, indistinctly, the various types of services provided by it, and particularly with the taxable activity of administration and support for the management of its subsidiaries.

Thus, and in consonance with the community jurisprudence previously cited, must it be understood that "that the receipt of dividends does not fall within the scope of VAT", the same occurring with expenses associated with such operations.

The debit note issued by undertaking L..., SA relates to costs relating to a financial advisory commission provided by LL..., SA, in the restructuring of undertaking MM... held indirectly by D....

The Tax Authority classified this document under item i. of the grounds listed above, considering, therefore, that what is at issue are not services that can be linked directly to the subject and non-exempt activity of the Applicant, or that can be considered as used indistinctly or simultaneously in the exercise of activities that confer and other that do not confer the right to VAT deduction.

Examining the facts established as proven, it must be concluded, also here, that there is nothing to censure in the correction made by the Tax Authority with respect to the document now under consideration.

Indeed, its description points toward these being services exclusively related to the operations of holding and management of equity interests carried out by the Applicant, with undertaking MM... not integrating the list of those with which the Applicant conducted taxable transactions, particularly relating to administration and management support, with nothing emerging from the factual matter proven that permits concluding that:

• the services in question are distinct or exceed those described in the document in question;

• the commissions in question have any direct relationship with the activity of support for the management and administration of its subsidiaries, by the Applicant, particularly as nothing is recorded in the facts established as proven regarding possible intervention of the Applicant in undertaking MM...;

• such commissions are relatable to the general functioning of the Applicant, serving, indistinctly, the various types of services provided by it, and particularly with the taxable activity of administration and support for the management of its subsidiary MM....

Invoices 367 and 380 were not presented by the Applicant, with only debit notices from Bank R... being joined, which mention them, as referring to commissions for advisory provided, and the service in question not being identified.

From Statement 1/2012 expenses appear with commissions from Z... with respect to which the Applicant did not make available the supporting documentation (invoices), with the exception of invoice 7689, already analyzed. As to the other expenses to which the statement in question refers, the Applicant only presented correspondence from the bank.

From Statement 1/2015, various expenses also appear with commissions from Z... with respect to which the Applicant did not make available the supporting documentation (invoices).

As written, for example, in the Judgment of the Court of Appeals of the North of 29-06-2017, rendered in Case 00312/07.2BEPNF, and as is settled:

"I. From the combination of paragraph 2 of Article 19 and paragraphs 2 and 5 of Article 35 of CIVA results that only tax mentioned in invoices and equivalent documents passed in legal form