Process: 614/2017-T

Date: September 17, 2018

Tax Type: IVA

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 614/2017-T) addresses the requirements for VAT regularization of bad debts under Article 78(7) of the Portuguese VAT Code (CIVA). The taxpayer, a sports activities company, regularized €221,313.07 in VAT related to uncollectable debts from clients in insolvency proceedings during 2012. The Portuguese Tax Authority (AT) contested these regularizations, arguing the taxpayer failed to provide judicial certificates proving insolvency declarations and their finality (trânsito em julgado). The AT conducted an inspection that exceeded the statutory six-month deadline without notifying the taxpayer of any extension. The tribunal analyzed whether Article 78(7) CIVA explicitly requires judicial certificates as documentary proof for VAT bad debt write-offs. The decision examines the tension between strict documentary requirements and the purpose of the bad debt relief provision. Key issues include: whether the AT's interpretation imposes conditions not found in the law; whether publication in the Official Journal and postal proof of customer notification suffice; and the procedural consequences of exceeding inspection deadlines. The case is significant for establishing the evidentiary burden taxpayers must meet when claiming VAT regularization on insolvency-related bad debts, and the limits of administrative interpretation in adding requirements beyond statutory text.

Full Decision

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Joaquim Silvério Dias Mateus and António Carlos dos Santos, appointed by the Ethics Council of the Centre for Administrative Arbitration to form an Arbitral Tribunal, hereby decide as follows:

I – REPORT

On 24 November 2017, A..., Tax Identification Number …, with registered office at ..., …, …, … …, filed a request 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 Framework for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as LFATM), seeking a declaration of illegality of the following VAT assessment acts: No. 2016 … relating to period 2012/12, No. 2016 … relating to period 2013/01, No. 2016 … relating to period 2013/02, No. 2016 … relating to period 2013/03, No. 2016 … relating to period 2013/04 and No. 2016 …, as well as of compensatory interest assessments No. 2016 … and default interest assessments No. 2016 …, No. 2016 …, No. 2016 …, No. 2016 … and No. 2016 …, in the total amount of €262,300.68.

To substantiate its request, the Claimant alleges, in summary:

  • a defect consisting of violation of law by reason of the fact that the inspection procedure exceeded the six-month period, without the Claimant being notified of any extension;

  • that the Tax Authority's interpretation rests on an abrogating interpretation of the law, since there is no provision in the VAT Code requiring a judicial certificate attesting the declaration of insolvency and indicating the date of the judgment becoming final in order to proceed with VAT regularization in accordance with Article 78, No. 7 of the VAT Code.

On 27-11-2017, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.

The Claimant proceeded to appoint an arbitrator, designating His Excellency Dr. Joaquim Silvério Mateus, pursuant to Article 11/2 of the LFATM. Pursuant to No. 3 of the same article, the Tax Authority appointed as arbitrator His Excellency Prof. Doctor António Carlos dos Santos.

The arbitrators appointed by the parties were appointed and accepted their respective duties and appointed as president of this Arbitral Tribunal the present Rapporteur, who, within the applicable time limit, also accepted the appointment.

On 07-02-2018, the parties were notified of these appointments and neither manifested any intention to challenge any of them.

In accordance with the provision of subparagraph c) of No. 1 of Article 11 of the LFATM, the collective Arbitral Tribunal was constituted on 27-02-2018.

On 26-03-2018, the Tax Authority, duly notified for that purpose, submitted its response, defending itself solely by way of objection.

Under the provisions of subparagraphs c) and e) of Article 16 and No. 2 of Article 29, both of the LFATM, the holding of the meeting referred to in Article 18 of the LFATM was waived.

Having been granted a time limit for the submission of written pleadings, the parties refrained from submitting them.

A time limit of 60 days was set for the issuance of the final decision, following the submission of pleadings by the Tax Authority or the expiry of the time limit granted for that purpose, and that initial time limit was subsequently extended until the expiry of the time limit set forth in Article 21/1 of the LFATM.

The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with Articles 2, No. 1, subparagraph a), 5 and 6, No. 1, of the LFATM.

The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with Articles 4 and 10 of the LFATM and Article 1 of Ordinance No. 112-A/2011, of 22 March.

The proceedings do not suffer from any nullities.

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

All things considered, it is incumbent to issue:

II. DECISION

A. FACTS

A.1. Facts Established as Proven

  • The Claimant is, and was in 2012, registered with the Tax Office of … - …, for the exercise of the activity of "Other sports activities, n.e.c.", corresponding to CAE 93192.

  • The Claimant has been, since 01-01-1986, classified, for VAT purposes, under the normal monthly periodicity scheme (mixed with actual allocation of all assets).

  • The Claimant filed, in the fiscal year 2012, the respective monthly periodic VAT declarations.

  • In field 40 of those declarations the following values appeared:

[Table not fully legible in source]

  • During the year 2012, the Claimant regularized VAT in its favour, in the total amount of €624,374.98, distributed as follows:

    • €301,111.54 relating to the regularization of invoices in favour of the company, through the issuance of credit notes;

    • €101,950.37 relating to annual regularizations by calculation of the definitive pro-rata;

    • €221,313.07 relating to regularizations in the context of insolvency proceedings.

  • The VAT regularizations relating to credits considered uncollectible in insolvency proceedings, in the total amount of €221,313.07, were reflected in accounts 2434501, 2434502, 2434503 and 2434504, and relate to the following entities:

[Table details omitted in source]

  • On 28-12-2012, the Claimant sent to customers the statement referred to in Article 78, No. 11 of the VAT Code.

  • The Claimant was subject to an inspection procedure, of partial scope and internal nature, by means of Service Order No. OI201…, relating to the fiscal year 2012.

  • The Claimant was notified by letter No. …, of 21 September 2015, of the commencement of the internal inspection procedure.

  • The inspection procedure aimed to confirm the value entered in Field 40 of the monthly periodic VAT declarations for the year 2012.

  • On 02-12-2015, the Claimant was contacted via e-mail to provide additional clarifications.

  • On 22-08-2016, the Claimant was again contacted via e-mail to provide new clarifications.

  • In the course of the inspection action, the Claimant submitted the announcement of "publication of judgment," published in Official Journal, 2nd series, where each company for which VAT was regularized was identified as insolvent, referred to in point 6 above.

  • The Claimant presented a copy of 18 postal records of correspondence sent to customers, including those referred to in point 6 above.

  • In the document presented, the postal service stamp is illegible, namely as regards the date.

  • The Claimant further presented, in the course of the inspection procedure, evidence of having requested the competent courts for the respective certificates from the insolvency proceedings.

  • The Claimant was not notified of any extension of the time limit for conducting the inspection.

  • On 27-09-2016, the Claimant was notified of the Inspection Report Project and, if it so wished, to exercise its right of hearing, which it did on 12-10-2016.

  • The Claimant timely exercised its right of hearing.

  • In the course of the inspection procedure, the Claimant attached judicial certificates relating to companies "B…, Lda" and "C…, S.A.", obtained through the Citius Portal.

  • In the Inspection Report Project, a correction in the amount of €221,313.07 relating to VAT regularizations was proposed.

  • On 09-11-2016, the Claimant was notified of the Inspection Report in which the corrections proposed in the project report were maintained, and the Tax Authority made the following statement:

[Details omitted in source]

  • On 15-03-2017, the Claimant filed a formal objection against the VAT assessment acts and respective default interest.

  • With the Formal Objection, the Claimant attached the judicial certificates already received at that date and a new copy of the 18 postal records of correspondence sent to customers, including those referred to in point 6 above.

  • In the document presented in the context of the formal objection, the date of 28-12-2012 is discernible in the postal service stamp.

  • In the formal objection request, the Claimant expressed its willingness to personally appear at the Tax Authority's offices with the original record, should it be understood that the copies presented were not legible.

  • By 20-06-2017, the Claimant presented to the Tax Authority judicial certificates relating to the insolvency proceedings, as shown in the table below:

[Table details omitted in source]

  • The Claimant did not present any judicial certificates relating to companies D… and E….

  • Judicial certificates have a cost of approximately €20 each.

  • On 29-08-2017, the Claimant was notified of the decision to dismiss the formal objection.

A.2. Facts Established as Not Proven

Regarding the substantive issues, there are no facts that should be considered as not proven.

A.3. Justification of the Established Facts and Facts Not Proven

Regarding the facts, the Tribunal does not need to pronounce on everything alleged by the parties; rather, it has the duty to select the facts relevant to the decision and to distinguish the established facts from the unproven facts (cfr. Article 123, No. 2, of the Tax Procedure Code and Article 607, No. 3 of the Civil Procedure Code, applicable by virtue of Article 29, No. 1, subparagraphs a) and e), of the LFATM).

Thus, the facts pertinent to the judgment of the case are chosen and delineated according to their legal relevance, which is established in consideration of the various plausible solutions of the question(s) of Law (cfr. former Article 511, No. 1, of the Civil Procedure Code, corresponding to current Article 596, applicable by virtue of Article 29, No. 1, subparagraph e), of the LFATM).

Therefore, having regard to the positions assumed by the parties, in light of Article 110/7 of the Tax Procedure Code, the documentary evidence and the case file attached to the records, the facts listed above were considered proven, taking into account that, as stated in the Decision of the Southern Tax Court 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 challenged."

In particular, the facts established under points 7 and 25 took into account the document appearing at page 69 of the case file submitted by the Tax Authority.

No allegations made by the parties, presented as facts and consisting of strictly conclusive statements, not susceptible to proof and whose truthfulness must be assessed in relation to the concrete facts consolidated above, were established or rejected as proven or unproven.

B. MATTERS OF LAW

The Claimant begins by arguing that the time limit referred to in Article 36/2 of the Regulations on Tax Inspection Procedure was not observed in this case, with the inspection procedure exceeding 6 months, without the Claimant being notified of any extension, thereby resulting in violation of law, giving rise to the voidability of the procedure and, consequently, of the subsequent assessment.

The aforementioned issue has already been the subject of judicial analysis, as can be read in the Decision of the Southern Tax Court of 29-09-2016, rendered in case 09395/16, which states:

"The temporal limitation imposed by Article 36 of the Regulations on Tax Inspection Procedure for the completion of the inspection procedure (6 months), as well as the legal requirement of notification of Service Orders under Article 46 of the same statute, apply only to external inspection procedures and not to internal inspection procedures."

Given that, in the present arbitral proceedings, an internal inspection procedure is uncontroversially at issue, the aforementioned case law applies directly, to which reference is made for the reasoning, since the Claimant presents no argument that invalidates it, and therefore the aforementioned allegation of the Claimant is without merit.

As follows from point 6 of the established facts and from the table inserted therein, appearing on page 6 of the Inspection Report, the present proceedings concern VAT regularizations carried out by the Claimant, based on the uncollectibility of credits with respect to its customers identified there, with the Tax Authority considering that, with respect to all of them, the requirement of No. 11 of Article 78 of the VAT Code in force had not been met, and that the requirement of No. 7/b) of the same article had equally not been met.

The following is the text of the provisions in question:

"7 — Taxpayers may also deduct the tax relating to credits considered uncollectible: (...)

In insolvency proceedings when it is decreed. (...)

11 — In the case provided for in No. 7 and in subparagraph d) of No. 8, the purchaser of the goods or services, who is a taxpayer of the tax, is notified of the total or partial annulment of the tax, for the purpose of rectifying the deduction initially made."

With respect to compliance with the provision of No. 11 of Article 78 of the VAT Code in force, transcribed above, the Tax Authority understood that "although the taxpayer presented a copy of the correspondence sent to the insolvent parties as it alleges, it did not prove that it sent such communication for the purpose of rectifying the deduction initially made," since "With respect to the obligation to notify the purchaser of the goods and services of the annulment of the tax for the purpose of rectifying the deduction initially made, a formality established in No. 11 of Article 78 of the VAT Code, the taxpayer presented a copy of the respective postal records relating to the correspondence sent, but the date of receipt of the correspondence by the postal service was not legible."

As appears from the established facts, it is true that, in the document presented by the Claimant in the course of the procedure, the date on the postal service stamp was illegible. However, in the context of the formal objection, the Claimant presented a new copy in which the date of the said stamp is discernible (28-12-2012).

In deciding the formal objection, the Tax Authority considered that in light of what was decided regarding compliance with No. 7 of Article 78 of the VAT Code, the "consideration of the issue relating to the communication mentioned in No. 11 of Article 78 of the VAT Code" was "prejudiced."

In light of the ascertained facts, it is concluded that the correction pursuant to Article 78/11 of the VAT Code was not maintained in the formal objection decision, and that, in any event, in basing the corrections made and now contested by the Claimant on the obligation of the latter to comply with the provision of Article 78/11 of the VAT Code in force, the tax assessment act that is the subject of this arbitral action committed an error in its factual premises, and consequent legal error, since it is verified that the correspondence was received by the postal service on 28-12-2012, and should therefore be annulled to that extent.

The corrections made by the Tax Authority and here contested by the Claimant are equally based on the violation of the provision of Article 78/7/b) of the VAT Code in force, also already transcribed above.

In this regard, it was considered in the Inspection Report that "In cases of insolvency, in order for the taxpayer to be able to exercise the right to VAT regularization, it must possess a judicial certificate, as referred to in Article 38, No. 2 of the Insolvency Code, stating that the company to which it is a creditor was declared insolvent, with a judgment already final, and only in this way will it be in a position to prove that the requirements appropriate to VAT regularization are met," concluding that "the taxpayer did not comply with the formality established in No. 7 of Article 78 of the VAT Code."

In deciding the formal objection, the Tax Authority relied on the directive of the Senior Management Division of 23-01-2012, rendered in case No. 2852, with the following text: "With respect to uncollectible credits within the context of insolvency proceedings (…) in order for the taxpayer creditor to be able to exercise its right to deduction/regularization, it must be in possession of a certificate issued by the competent court that must mention: declaration of insolvency by means of judgment; the creditor having claimed credits and those having been recognized; the judgment has become final."

The formal objection decision concluded by considering, in light of the table appearing in point 27 of the facts established in this decision, that "given that the objector was not in possession of a certificate issued by the competent court with the aforementioned mentions at the time of the disputed regularizations, it must be concluded that it could not then exercise such right."

Thus, the issues to be considered in the present forum concern whether:

  • The Claimant was required to prove that the companies owing the credits whose VAT it sought to deduct had, prior to the deduction, been declared insolvent, with a judgment become final, as well as that it had claimed credits and they had been recognized;

  • Such proof must be made exclusively by means of a judicial certificate;

  • Such proof had to be in the possession of the Claimant prior to the exercise of the deduction.

Let us examine:

With respect to regularization for uncollectibility of credits, it should be considered that the right to such regularization arises upon the occurrence of its requirements, and may be exercised by its holder when it sees fit (within the four-year period), provided it proves those requirements, and one cannot confuse the occurrence of such requirements (which conditions the arising of the right itself) with their proof (which concerns merely the demonstration of the legitimacy of the exercise thereof).

In other words, one thing is the fact on which the legitimacy of the exercise of the right depends, and another is the means of proof of such fact. Thus, the right to deduction of credits considered uncollectible in insolvency proceedings shall depend, according to the Law, on the fact that the credits have become uncollectible in insolvency proceedings in which it has been decreed, and the taxpayer who wishes to effect such deduction must ensure the corresponding proof of those facts.

This occurs, unlike what happens, for example, with the right to deduction of the tax borne upstream, with respect to which the VAT Code and the VAT Directive divide the moment of the arising of the right from the moment of its exercise (cfr. Articles 22/1 to 3 of the VAT Code and Articles 167 and 178 of the Directive), since the scheme in question is not an imperative consequence of the principle of VAT neutrality, as follows from Article 90 of the VAT Directive, which provides:

"1. In the case of cancellation, termination, rescission, total or partial non-payment or reduction of the price after the operation has been carried out, the taxable amount shall be reduced accordingly, under the conditions laid down by the Member States.

  1. In the case of total or partial non-payment, Member States may derogate from the provision of paragraph 1."

From this provision of the Directive it follows that in the case of total or partial non-payment of the price (and contrary to what occurs in cases of cancellation, termination, rescission, or reduction of the price after the operation has been carried out), Member States may not reduce the taxable amount, that is, and in summary, may refuse the return of VAT relating to uncollectible credits.

That was not, however, the choice of the Portuguese legislator, but this does not prevent, but rather reinforces, that in the mechanism of VAT regularization for uncollectibility of credits, referred to in Article 78/7 of the VAT Code, VAT neutrality as presupposed by the Directive is not at issue, since if it were, it would not be permitted to Member States not to reduce or eliminate the taxable amount in cases of partial payment or non-payment of the price.

The discretion conferred by the Directive to Member States will be explained by the fact that, in the situations in question, it would be merely a matter of determining whether it is the State or the invoicer who bears the loss from the uncollectibility of the invoiced tax, since such tax, invoiced but not collected, would have been (in a normal framework) subject to deduction by (or even refund to) the non-paying debtor of the invoice, and therefore, whether the State or the invoicer, there will always, ultimately, be someone prejudiced by the uncollectibility of the credit and the respective tax.

One cannot, therefore, lose sight of the fact that VAT regularization for uncollectibility of credits is intended solely to return to the taxpayer tax that it invoiced but was unable to collect, a situation that results from a free choice in that regard made by the Portuguese State (perhaps justified by the burden that taxpayers already bear in the VAT assessment and collection mechanism), and therefore the matter at hand will be merely to ensure that the Tax Authority, with the necessary security, that the credit has become truly uncollectible, at the date when the taxpayer effected the regularization.

a)

Having reached this point, it is believed that the substantive requirement presupposed by subparagraph b) of No. 7 of Article 78 referred to is that the credits have become uncollectible in insolvency proceedings in which it has been decreed.

Indeed, with the scheme of deduction of tax relating to credits considered uncollectible in insolvency proceedings, the legislator intends to ensure that the patrimonial insufficiency of the executed party becomes demonstrated in the proper proceedings, proving the impossibility of payment of the credits of the exequent, for a reason not attributable to the latter.

Thus, it is immediately clear that the right to deduction of tax pursuant to Article 78/7/b) in question is restricted to credits uncollectible in insolvency proceedings, which means that, contrary to what the Claimant appears to consider, mere existence of credits against debtors declared insolvent is not sufficient, but it is further necessary that, within the context of the insolvency proceedings, satisfaction of the credits in question was not possible.

Thus, and there being no doubt from the legal text that it is necessary further that insolvency has been decreed, it must be concluded, with the Tax Authority, that the right to deduction in the terms now in question depends on the existence of an insolvency proceeding, with a judgment become final, in which the credits relating to the tax whose deduction the taxpayer claims have been claimed, without success.

b)

Having established the substantive requirements of the right that the Claimant claims to exercise, it must be ascertained whether the proof thereof must be imperative made by means of a judicial certificate, or whether it may be made by other means.

As is known, the judgment, by force of Law (cfr. Article 153 of the Civil Procedure Code), must necessarily take written form, being an authentic document, because elaborated by a public authority, in the exercise of its functions (cfr. Articles 363/1 and 2 and 369 of the Civil Code).

However, under Article 364 of the Civil Code, a written document, for purposes of proof, cannot be replaced by another means of proof or by another document that does not have superior probative force.

Thus, the existence of a judgment can only be proved by the original, or by a certificate (cfr. Article 383 of the Civil Code).

Nevertheless, as stated in the Decision of the Supreme Court of Justice of 16-12-1988, rendered in case 072358, it must be distinguished between the effects proper to the judgment as a judicial act and its probative effects, having stated therein that "the judgment (…) makes full proof of the facts to which Article 371 of the Civil Code (…) attributes to authentic documents, that is, of the facts which it refers to as practiced by the judge, as well as those which are attested therein on the basis of his personal perceptions," and that "Beyond this full proof, the judgment (…) further has the probative effect of the facts stated therein, and may be invoked in proceedings pending in Portuguese court as a mere means of proof of those facts, even if such proof may be contradicted by the opposing party, and whose probative value shall be freely appreciated by the judge."

Thus, it is believed that for the purpose of proving the existence of a judgment rendered in insolvency proceedings, declaring insolvency, any document that evidences its existence and meaning will suffice, and its respective probative value shall be freely appreciated by the judge.

With respect to the verification of res judicata, it was stated in the Decision of the Supreme Court of Justice of 09-07-2003, rendered in case 04A061 that:

"Res judicata forms upon a concrete decision; it is this that becomes final, not the document that certifies that res judicata has occurred.

On the other hand, a decision does not become final by reason of a document stating it - one must distinguish the reality of res judicata from what is effectively certified. It cannot, nor does the law allow it, to place the official above the judicial body nor to substitute for it."

Thus, res judicata is a legal fact that may also be proved by any means of proof, subject to free appreciation by the judge, and naturally, the most common means of proof will be the certificate issued by the respective court.

Finally, with respect to proof that the credit was claimed and obtained no satisfaction in the insolvency proceedings, taking into account the absence of any legal provision limiting the freedom of proof, such proof may be made by any means, and again, the most common and secure means of proof will be the certificate issued by the respective court where those facts occurred.

Thus, it is believed that the Tax Authority is not correct in refusing the other means of proof presented by the Claimant, beyond judicial certificates, to prove the requirements of the right to deduction it sought to exercise.

c)

With respect to the question of whether the means of proof of the requirements of the right to deduction of tax relating to uncollectible credits must be in the possession of the taxpayer at the moment of the exercise of such right, in light of what has been stated above, it is concluded that the requirement made by the Tax Authority is without foundation.

Such understanding not only has no support in the legal regime in question, nor in its legislative intent, but also goes counter to what has been the case law of the Court of Justice of the European Union on VAT, with particular emphasis on the Barlis Decision.

Thus and as set forth, what is relevant will be the verification of the substantive requirements of the right to deduction of tax relating to uncollectible credits, and the taxpayer may exercise its burden of proof at any time or forum in which such right is discussed.

Having reached this point, it is then concluded that the Claimant, in order to legitimize the exercise of the right to deduction of tax relating to uncollectible credits now in question, was burdened with the demonstration, with respect to each of them, that the collection thereof in insolvency proceedings in which it was decreed was not possible, and could effect such demonstration at any time, that is, it was not necessary that the means of proof evidencing those requirements already be in its possession when the said right was exercised.

Upon examination of the facts established as proven, it is verified that the Claimant succeeded in demonstrating the said requirements with respect to debtors B..., F…, G…, C..., and H…, in the total amount of tax of €206,284.24.

Thus, with respect to such credits, the assessments that are the subject of the present arbitral action will be affected by errors in their factual premises, and consequent legal error, and should be annulled to that extent, with the arbitral claim thus proceeding.

With respect to the remaining debtors, it is not ascertained that the Claimant's credits were claimed in the respective insolvency proceedings and there obtained payment, and as such, that they are credits "uncollectible in insolvency proceedings," and therefore the arbitral claim cannot proceed in that part.

C. DECISION

In view of the foregoing, this Arbitral Tribunal decides to render the arbitral claim partially founded and, in consequence:

  • To annul the assessments that are the subject of this arbitral action insofar as they incorporate corrections relating to the rejection of deduction of credits considered uncollectible in insolvency proceedings of the Claimant on debtors B..., F…, G…, C..., and H…, in the total amount of tax of €206,284.24, and respective compensatory and default interest;

  • To maintain the assessments that are the subject of this arbitral action in the remaining part.

D. Case Value

The case value is fixed at €262,300.68, in accordance with Article 97-A, No. 1, a), of the Tax Procedure and Process Code, applicable by virtue of subparagraphs a) and b) of No. 1 of Article 29 of the LFATM and No. 2 of Article 3 of the Regulations on Costs in Tax Arbitration Proceedings.

Notify the parties.

Lisbon

17 September 2018

The Presiding Arbitrator

(José Pedro Carvalho)

The Arbitrator Member

(Joaquim Silvério Dias Mateus)

The Arbitrator Member

(António Carlos dos Santos)

Frequently Asked Questions

Automatically Created

What are the requirements for VAT regularization of bad debts under Article 78(7) of the Portuguese VAT Code (CIVA)?
Article 78(7) of the Portuguese VAT Code allows taxpayers to regularize VAT on uncollectable debts when debtors are declared insolvent. The provision requires: (1) that the debtor has been declared insolvent; (2) proof of notification to the customer per Article 78(11); and (3) that the debt remains genuinely uncollectable. While the Tax Authority argued that judicial certificates proving insolvency and finality are mandatory, the statutory text does not explicitly require this specific form of evidence. Taxpayers must demonstrate insolvency through adequate proof, which may include Official Journal publications of insolvency judgments, but the law does not mandate a particular certificate format.
Is a judicial certificate proving the insolvency declaration and its transit in rem judicatam required to regularize VAT on uncollectable debts?
The CAAD tribunal must determine whether a judicial certificate (certidão judicial) is legally required or if alternative proof suffices. The Tax Authority interpreted Article 78(7) as implicitly requiring certificates showing insolvency declaration dates and judgment finality (trânsito em julgado). However, this interpretation raises questions about whether the AT impermissibly added requirements not in the statutory text. The tribunal considers whether Official Journal publications, combined with evidence of customer notification via registered mail, constitute sufficient proof. The taxpayer argued the AT's position amounts to an 'abrogating interpretation' that imposes documentary burdens beyond legislative intent, potentially frustrating the provision's purpose of providing relief for genuinely uncollectable debts.
What happens if the Portuguese Tax Authority (AT) exceeds the 6-month inspection deadline without notifying the taxpayer of an extension?
Portuguese tax procedure law establishes a six-month deadline for inspection procedures, which can be extended only with proper notification to the taxpayer. When the Tax Authority exceeds this deadline without notifying the taxpayer of an extension, it constitutes a procedural irregularity that may invalidate the resulting assessment acts. In this case, the inspection began in September 2015 but the report was only issued in November 2016, well beyond six months, without any documented extension notification. This procedural defect represents a violation of law (vício de violação de lei) that can independently ground annulment of the assessment acts, regardless of the merits of the substantive VAT regularization dispute.
How does the CAAD arbitral tribunal interpret the documentary requirements for VAT bad debt write-offs in insolvency cases?
The CAAD tribunal interprets documentary requirements for VAT bad debt regularization by examining the literal text of Article 78 CIVA and the purpose of the provision. The tribunal considers whether requiring specific judicial certificates goes beyond statutory language and imposes unreasonable burdens on taxpayers. The analysis focuses on whether alternative documentation—Official Journal insolvency publications, registered mail receipts proving customer notification, and accounting records—adequately demonstrates compliance with legal requirements. The tribunal evaluates whether the Tax Authority's interpretation frustrates legislative intent by creating obstacles not contemplated in the law, particularly when taxpayers demonstrate good faith efforts to obtain certificates but face delays in court systems.
Can the Tax Authority deny VAT regularization on bad debts based on the absence of a specific insolvency court certificate?
The Tax Authority cannot lawfully deny VAT regularization solely based on absence of a specific insolvency certificate format if the statutory provision does not explicitly require it. Article 78(7) CIVA must be interpreted according to its text and purpose. If alternative documentation adequately proves the insolvency declaration and notification to customers, denying the regularization would constitute an unlawful interpretation that adds requirements beyond legislative intent. The principle of legality in tax law requires that obligations and conditions be clearly established in legislation, not created through administrative interpretation. However, taxpayers must still provide sufficient evidence demonstrating that legal conditions are met—the dispute centers on what constitutes 'sufficient evidence' rather than whether evidence is required at all.