Process: 614/2018-T

Date: May 15, 2019

Tax Type: ISP

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 614/2018-T) addresses whether colored and marked diesel (GCM - Gasóleo Colorido e Marcado) sold through a fleet card loyalty program qualifies for reduced ISP (Tax on Petroleum Products) rates under Article 93(5) of the Portuguese Excise Duties Code (CIEC). The Tax Authority assessed €18,636.44 in additional ISP taxes after a customs inspection revealed that A... S.A. sold 52,733.55 liters of GCM across 300 refueling operations without issuing invoices directly to the final beneficiaries entitled to reduced rates. Instead, the company used a customer loyalty program managed by subsidiary B... S.A., which issued consolidated monthly invoices to fleet card holders. The claimant argued this arrangement satisfied legal requirements since invoices were ultimately issued to entitled beneficiaries through the fleet card system. The Tax Authority contended that Article 93(5) CIEC requires formal transfer of ownership evidenced by direct invoicing between the fuel seller and the beneficiary entity at the time of each transaction. The tribunal examined whether the intermediary invoicing structure through the loyalty program complied with the strict formal requirements for reduced ISP rates. This case highlights critical compliance issues for fuel distributors using fleet card systems and the Portuguese Tax Authority's strict interpretation of reduced rate eligibility requirements for marked diesel, emphasizing that procedural formalities in invoicing cannot be circumvented even when substantive conditions may be met.

Full Decision

ARBITRAL DECISION

I. REPORT

A..., S.A., holder of the single registration number and legal person number..., with registered office in ..., parish of ... (...), municipality of ..., District of Coimbra, came, in accordance with article 10, no. 2, of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter designated only as LFATM), to request the establishment of a singular Arbitral Tribunal, in which the Tax and Customs Authority is requested, hereinafter AT or Respondent, with a view to the declaration of illegality and consequent annulment of the tax act for assessment of Tax on Petroleum Products (TPP) no. 2018/..., identified in the case file, in the amount of €18,636.44 relating to the year 2015.

In accordance with no. 1 of article 11 of the LFATM, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the singular Arbitral Tribunal was established on 18 February 2019.

The AT replied, arguing that the claim should be judged as unfounded.

In view of the content of the matter contained in the case file, the meeting referred to in article 18 of the LFATM and the holding of final arguments were dispensed with.

The Arbitral Tribunal is regularly established and materially competent, in accordance with paragraph a) of no. 1 of article 2 of the LFATM.

The parties have legal standing and capacity, are legitimate and are represented (article 4, no. 2 of article 10 of the LFATM and article 1 of Regulatory Order no. 112/2011, of 22 March).

There are no nullities, exceptions or preliminary matters that prevent the immediate examination of the merits of the case.

II. STATEMENT OF FACTS

Based on the elements contained in the case file and in the administrative file attached to the case, with relevance to the present decision, the following facts are considered proven:

A. In the context of an inspection action (Case no. OI2017...) carried out on the company A..., S.A., with the legal person number ... by the Customs House of ..., an assessment was carried out of the regularity of the marketing of dyed and marked gas oil (DMG) by the Claimant;

B. Through the aforementioned action, it was found that a transmission of DMG had been carried out, in the period under analysis, of a quantity of 52,733.55 litres distributed over 300 refuelling operations;

C. In each of those 300 refuelling operations with DMG, the formal transfer of ownership of DMG, through the issuance of an invoice, was not carried out between the Claimant and the entities benefiting from the reduced TPP rates, as provided for in no. 5 of article 93 of the Code of Excise Duties (CED);

D. The Claimant was notified on 11.01.2018 of the draft report of the inspection action so that it could make representations at the prior hearing stage, in accordance with articles 60 of the General Tax Law and the Supplementary Rules of the Tax and Customs Inspection Procedure, which it did;

E. In the period under analysis, the invoicing of the sale of DMG by the Claimant was carried out in accordance with a customer loyalty programme managed by company B..., SA (B...);

F. B... subscribed with its customers the so-called "Protocol for the transfer and use of national customer card", under which B... "will issue the invoice corresponding to each month of refuelling, which must be paid via the Direct Debit System on the fifteenth day after the date of invoice issuance.";

G. All refuelling operations carried out by fleet card holders were invoiced by the Claimant to B...;

H. On the basis of the dispatch issued by the Director of the Customs House of ... dated 22.10.2018, the Claimant was notified to proceed with payment of the debt ascertained of €18,636.44 corresponding to €10,594.17 relating to TPP/Gas Oil, €5,853.42 relating to CSR/Gas Oil, €2,187.05 relating to compensatory interest and €1.80 relating to printed matter;

I. Having been notified on 07.11.2018 to pay the tax owed, the Claimant did not make the payment and challenged the underlying tax act by submitting the arbitration request.

The Tribunal did not consider the following facts proven:

It was not proved that the sales of dyed and marked gas oil carried out by the Claimant, which are the subject of the present arbitration proceedings, were invoiced by the Claimant to the holders of the electronic card, in the capacity of acquirers of DMG.

This tribunal formed its conviction on the basis of the documents attached to the case file.

III. LEGAL MATTERS

The main question that arises in the present case concerns whether the DMG transmitted by the Claimant may or may not benefit from the reduced TPP rates, given the legal conditions provided for in no. 5 of article 93 of the Code of Excise Duties on Consumption (CEDC) and in Regulatory Order no. 361-A/2008, of 12.05.

In this regard, the Claimant argues, in summary, the following:

1. The Final Report of the inspection mentions, under point A., number 2., paragraph a.) that "The transmission, (...), of an overall quantity of 57,733.55 litres of DMG distributed over 300 refuelling operations, in which the formal transmission of DMG was not found between the inspected entity and the beneficiary entity acquiring DMG.", and later mentions that "(...) It is important to note that the underlying rationale for such factuality resides in the existence of a customer loyalty programme (commonly known as a fleet card), within which such transmissions occurred", finally noting that "It should be clarified that, until 31-12-2015 it was the company "B..., S.A." (...) that managed such a loyalty programme, and for the remainder of the analysed period it was the inspected entity itself that managed such programme, (...)."

2. As set out above, the management of the aforementioned loyalty programme was, at the time in question, managed by company B..., which subscribed with its customers the so-called "Protocol for...", the standard contract for which was attached at the prior hearing stage as Annex II.

3. Under the aforementioned protocol, in point "4. INVOICING, 4.1 THE ISSUER – meaning the subsidiary of the claimant, B... – will issue the invoice corresponding to each month of refuelling, which must be paid via the Direct Debit System on the fifteenth day after the date of invoice issuance.".

4. Furthermore, point 7.2 of the aforementioned protocol establishes and defines that "7.2 THE ISSUER undertakes to send to the HOLDER the invoice corresponding to all acquisitions made with the National Customer Card on a monthly basis and to make available, in the customer area of the ISSUER's website, after validation of the user code and respective password initially sent by the ISSUER when sending the card, a summary of operations with information individualised relating to acquisitions made with each card.".

5. In light of the above, the procedure adopted by the Claimant and its subsidiary, arising from the celebration of the aforementioned protocol, consisted in all refuelling operations carried out by fleet card holders being invoiced by the Claimant to B..., invoicing which was based on the consumption carried out by the fleet customer of the subsidiary B..., S.A., as appears from the documentation attached at the prior hearing stage under Annex III;

6. It is also mentioned in the inspection report that gave rise to the assessment challenged here that the Claimant's allegation regarding the "(...) Identification of a difference between the quantity inventoried and the quantity inferred, in the quantity of 970.84 litres of DMG" was not upheld.

7. The procedure adopted by the Claimant and its subsidiary, arising from the celebration of a protocol, consisted in all refuelling operations carried out to fleet card holders being invoiced by the Claimant to B...;

8. The aforementioned invoicing was based on the consumption carried out by the fleet customer of the subsidiary B..., S.A., therefore the conclusion that "... the formal transmission of DMG was not found between the inspected entity and the entity beneficiary acquiring DMG." should be reformulated.

For its part, the AT alleges, in summary, the following:

1. For the analysis of the present case, the provisions of article 93 of the Code of Excise Duties are crucial, relating to the tax benefit consisting of the application of reduced TPP rates, regarding the use of petroleum products, specifically DMG in specific situations, which provides, in what matters here, as follows in no. 5: "Dyed and marked gas oil may only be acquired by holders of the electronic card established for purposes of monitoring its allocation to the destinations referred to in no. 3, and the owner or the legal person responsible for the operation of the service stations authorised for public sale shall be responsible for payment of the amount of tax resulting from the difference between the level of taxation applicable to road diesel and the rate applicable to dyed and marked gas oil, in relation to quantities they sell and which are not properly recorded in the electronic control system, as well as in relation to quantities for which the corresponding invoices are not issued with the tax identification of the card holder.";

2. Regulatory Order no. 117-A/2008, of 8 February (amended by Regulatory Order no. 762/2010, of 20 August) regulates the formalities and procedures applicable to the recognition and control of exemptions and reduced rates of tax on petroleum and energy products, currently provided for in no. 1 of article 89 and in article 93 of the Code of Excise Duties.

3. The aforementioned Regulatory Order provides as follows: "5. The tax benefits achieved through the use of dyed and marked gas oil are carried out mandatorily through the use of a microchip card, provided for in no. 5 of article 74 of the CEDC, which is issued by the Directorate-General for Agriculture and Rural Development (DGADR) and sent to the applicants by the entity competent for the recognition of the tax benefit in question"; "6. The cards referred to in the previous number are personal and non-transferable, with the respective holders being responsible for their regular use"."11. The following constitute grounds for revocation of the authorisation of the tax benefit, without prejudice to instituting proceedings for tax infraction in accordance with the provisions of the General Regime for Tax Infractions, the violation of the presuppositions of the benefit as well as non-compliance attributable to the beneficiary of the conditions required in no. 2."; "12. In the event of violation of the presuppositions of the tax benefit, the tax that is shown to be due is also assessed"; "13. For purposes of the foregoing, it is considered that there is a violation of the presuppositions of the tax benefit, in particular, in the event of: a) Use of products without prior recognition of the tax benefit; b) Use of authorised products for a purpose different from that declared; c) Use of products in unauthorised equipment."

4. For its part, Regulatory Order no. 361-A/2008, of 12 May, establishes the rules for the marketing of DMG and the respective control mechanisms, with a view to the correct allocation of the product to the destinations that benefit from exemption or application of reduced TPP rates as provided for in the Code of Excise Duties (no. 1), providing as follows: "3. Dyed and marked gas oil may only be supplied or sold to holders of properly licensed refuelling service stations that are holders of point of sale (POS) terminals"; "5. Dyed and marked gas oil may only be sold at refuelling service stations to beneficiaries of an exemption or reduction of TPP rate who are holders of microchip cards issued for that purpose by DGADR, through which all dyed and marked gas oil transactions are recorded in the computer system managed by the Interbank Services Company (SIBS); 6. The sales referred to in the previous number are mandatorily recorded in the POS terminals at the moment they occur"; "8. The registration in the computer system, through the POS terminals, of each refuelling operation carried out does not dispense with the issuance of the respective invoice or equivalent document, issued in the name of the holder of the respective microchip card";"9. The records of transactions referred to in no. 5. are sent in computer format by SIBS to DGADR, which, in addition to the national coordination functions incumbent upon it, manages the database relating to dyed and marked gas oil and is responsible for the issuance, suspension or cancellation of cards"; "11. Dyed and marked gas oil may only be supplied to the equipment provided for in no. 3 of article 74 of the CEDC, after verification, by the competent entity, of the presuppositions and conditions required in accordance with applicable legislation and the attribution to the respective beneficiaries of the card referred to in no. 5.; 12. In the event of typing errors or other anomalies verified in the use of POS terminals, these must be immediately communicated, in writing, preferably by electronic mail, to DGADR, so that the respective corrections can be made".

5. The marketing of this type of product complies with the specificities described, by virtue of the exemption or reduced tax rate of which it benefits, in accordance with article 93 of the Code of Excise Duties, for which reason it is subject to the following requirements:

- that DMG is acquired by holders of the electronic card established for purposes of monitoring its allocation to the legally provided destinations (first part of no. 5 of article 93 of the CEDC, no. 5. of Regulatory Order no. 117-A/2008 and no. 5 of Regulatory Order no. 361-A/2008);

- that DMG is sold at refuelling service stations to beneficiaries who are holders of microchip cards through which all DMG transactions are recorded in the computer system managed by SIBS (no. 5 of Regulatory Order no. 361-A/2008).

- that the sales are mandatorily recorded in the POS terminals at the moment they occur (no. 6 of Regulatory Order no. 361-A/2008).

6. In fact, the reduced TPP rates provided for in article 93 of the Code of Excise Duties constitute tax benefits (article 2, nos. 1 and 2 of the Tax Benefits Statute – TBS), therefore, in accordance with elementary principles applicable in this area (articles 7 and 12 of the TBS), the right to tax benefits depends on the fulfilment of the respective presuppositions, that is, the verification of the circumstances and conditions of fact upon which their allocation depends;

7. And article 4 of the Code of Excise Duties relating to subjective incidence, provides, in no. 2 of paragraphs e) and h), as taxable persons: "person who holds the products subject to tax or any other person involved in their holding, in the event of irregular holding", as well as natural or legal persons who introduce into consumption, sell or use products subject to tax, in the remaining situations of irregularity";

8. In the context of DMG refuelling operations, the issuance of the invoice for the sale of the product to the acquirer is crucial;

9. Since the application of the reduced TPP rate is dependent on compliance with this condition, and as it has not been observed, the presuppositions required for the tax benefit of reduction of the rate applicable to DMG consumption are not met;

10. In summary, the Claimant did not observe the essential formalities required for the marketing of DMG, therefore, as it has not complied with the conditions imposed by law, the presuppositions necessary for the achievement of the tax benefit are not verified;

11. In accordance with the provisions of no. 5 of article 93 of the Code of Excise Duties, the responsibility for payment of the amount of tax resulting from the difference between the level of taxation applicable to road diesel and the rate applicable to dyed and marked gas oil relating to the quantities of 52,733.55 litres of DMG, distributed over 300 refuelling operations, in which the formal transmission of DMG was not found between the Claimant entity and the beneficiary entity acquiring DMG, falls on the Claimant, as the entity with POS operation.

Let us see what should be understood.

- On the Interpretation of no. 5 of article 93 of the Code of Excise Duties

Article 93 of the Code of Excise Duties, under the heading "Reduced Rates" determines the taxation of DMG at the reduced rate, establishing the eligible purposes for the use of the aforementioned product, and in no. 5, in the wording given by Law no. 114/2017, of 29.12.2017, the following is provided:

"Dyed and marked gas oil may only be acquired by holders of the electronic card established for purposes of monitoring its allocation to the destinations referred to in no. 3, with the owner or the legal person responsible for the operation of the service stations authorised for public sale being held responsible for payment of the amount of tax resulting from the difference between the level of taxation applicable to road diesel and the rate applicable to dyed and marked gas oil, in relation to quantities they sell and which are not properly recorded in the electronic control system, as well as in relation to quantities for which the corresponding invoices are not issued with the tax identification of the card holder."

It follows, therefore, from the aforementioned provision that the responsibility of the owner or legal person responsible for the operation of the authorised service stations may be incurred when the sales of DMG are not properly recorded in the electronic control system, as well as in relation to quantities for which the corresponding invoices are not issued with the tax identification of the card holder.

Taking into account that article 93 of the Code of Excise Duties thus establishes a tax benefit consisting of the reduction of rates applicable to the transmission of DMG, it is important in its analysis to also consider the purposes underlying the creation of tax benefits.

In fact, already in article 2 of the Tax Benefits Statute (TBS) it is established that tax benefits are "measures of an exceptional nature instituted for the protection of relevant extra-fiscal public interests that are superior to those of the taxation they prevent."

The reduced rates applicable to DMG provided for in article 93 of the Code of Excise Duties are intended to benefit the use of DMG for specific purposes such as heating, lighting and other essentially agricultural purposes.

As taught by A. Brigas Afonso, in the Annotated Code of Excise Duties, 2nd edition, p. 171, "The new wording given to no. 5 creates special responsibilities for the owners or legal persons responsible for the operation of refuelling service stations, regarding compliance with the regulatory provisions provided for the refuelling of dyed and marked gas oil".

In accordance with no. 2 of article 14 of the Tax Benefits Statute (TBS), conditional tax benefits, such as those provided for in the current article 93 of the Code of Excise Duties, lapse due to non-compliance with the obligations imposed that is attributable to the beneficiary.

Thus, it follows from the legal review that the violation of the obligations imposed by no. 5 of article 93 of the Code of Excise Duties, namely: i) the obligation that DMG is acquired by holders of the electronic card established for purposes of monitoring its allocation, ii) the obligation that quantities sold are properly recorded in the electronic control system and iii) the obligation of invoicing with the tax identification of the card holder, hold responsible the owner or the person responsible for the operation of the service stations for payment of the amount of tax resulting from the difference.

Until the amendment of no. 5 of article 93 of the Code of Excise Duties by Law no. 82-B/2014, of 31.12.2014 (State Budget Law 2015) it could be understood that that article did not constitute a valid legal basis for the assessment of additional TPP based on the non-identification of the corresponding invoices.

In fact, the aforementioned regulation established the responsibility of the owner or legal person responsible for the operation of the authorised service stations for payment of tax in relation to quantities they sell and which are not properly recorded in the computer system underlying the electronic cards attributed.

There was therefore no valid legal basis that would justify the assessment of additional TPP in situations of non-existence of an identifiable invoice, but only for situations that were not properly recorded in the electronic cards (See Judgment of the Constitutional Court no. 176/2010, P. 400/09, of 5.05.2010).

With the wording of the State Budget Law 2015, the provision came to establish the responsibility of the owner or legal person responsible for the operation of the authorised service stations for payment of tax in relation to quantities they sell and which are not properly recorded in the electronic control system, as well as in relation to quantities for which the corresponding invoices are not issued in the name of the card holder.

It is concluded, therefore, that it was the intention of the Legislator, from the State Budget Law 2015 onwards, to condition the granting of the tax benefit provided for in article 93 of the Code of Excise Duties to the issuance by the owners or legal persons responsible for the operation of the authorised service stations of invoices relating to the transmission of DMG in the name of the card holder.

- On the specific case

It follows from the facts and documents presented in the case file that the Claimant did not invoice the sales of DMG to the beneficiaries/acquirers of DMG.

In fact, it became evident that the Claimant only invoiced the transmission of DMG to its subsidiary (B...), and therefore the legal obligations provided for in no. 5 of article 93 of the Code of Excise Duties were not met, namely, the obligation that DMG is acquired by holders of the electronic card established for purposes of monitoring its allocation to the Claimant, nor the obligation of invoicing by the Claimant with the tax identification of the card holder.

Since the subsidiary of the Claimant is a different entity from the Claimant, it is not possible to consider that the invoicing of the subsidiary to the Claimant is equivalent to the direct invoicing by the Claimant at the time of transmission of the DMG to the holders of the electronic card.

Notwithstanding the protocol established between the Claimant and its subsidiary concerning invoicing, the "indirect" invoicing of DMG transmissions by the Claimant, through its subsidiary, does not appear to be legally permissible under the regulation currently in force.

Also, taking into account the underlying rationale of the regime established, it is not possible to downplay the violation of such formal condition, since the objectives underlying the tax benefit and the specific market in question impose strict control of the transmission of the product, given that DMG is a conditionally-sold product, subject to a conditional exemption.

It is concluded, therefore, for the lack of merit of the arbitration request presented.

IV. DECISION

Accordingly, the Tribunal decides to judge the arbitration petition as unfounded, considering it not proven that the request relates to the TPP assessment act identified in the case file.

V. VALUE OF THE CASE

In accordance with the provisions of article 306, no. 2 of the Code of Civil Procedure, 97-A of the Tax and Administrative Procedure Code and article 3, no. 2 of the Arbitration Costs Regulation in Tax Proceedings, the value of the claim is fixed at €18,636.44.

VI. COSTS

In accordance with the provisions of articles 12, no. 2 of the LFATM, and article 4, no. 4 of the Costs Regulation for Tax Arbitration Proceedings, the value of the arbitration fee is fixed at €1,224, in accordance with Table I of the aforementioned Regulation, at the charge of the Claimant.

Notify the parties.

Lisbon, 15 May 2019

The Arbitrator,

Magda Feliciano

(The text of the present decision was prepared by computer, in accordance with article 131, no. 5, of the Code of Civil Procedure, applicable by reference in article 29, no. 1, paragraph e) of Decree-Law no. 10/2011, of 20 January (LFATM), and its drafting is governed by the spelling prior to the 1990 Orthographic Agreement.)

Frequently Asked Questions

Automatically Created

What are the reduced ISP tax rate requirements for colored and marked diesel (GCM) under Article 93 of the Portuguese IEC Code?
Article 93(5) of the Portuguese Excise Duties Code (CIEC) requires that colored and marked diesel (GCM) benefiting from reduced ISP rates must involve formal transfer of ownership documented by direct invoicing between the fuel seller and the beneficiary entity entitled to the reduced rate. The beneficiary must qualify under specific categories (agriculture, fisheries, combined heat and power generation) defined in Regulatory Order 361-A/2008. The invoice must be issued at the time of each refueling operation, evidencing the direct commercial relationship between supplier and entitled end-user, not through intermediary loyalty program structures.
Can ISP reduced rates be denied if invoices for colored diesel are not issued directly to the beneficiary entities?
Yes, ISP reduced rates can be denied if invoices are not issued directly to beneficiary entities. The Portuguese Tax Authority strictly interprets Article 93(5) CIEC to require formal documentation of ownership transfer through direct invoicing at each transaction. In this case, the tribunal examined whether invoicing through a fleet card loyalty program operator (B... S.A.) satisfied legal requirements when the fuel retailer (A... S.A.) issued invoices to the intermediary rather than directly to the final beneficiaries. The absence of direct invoicing between seller and entitled beneficiary constitutes grounds for denying reduced rates and assessing standard ISP rates plus compensatory interest.
What happens when the formal transfer of ownership of GCM does not comply with the invoicing rules in Article 93(5) of the IEC Code?
When formal transfer of GCM ownership does not comply with Article 93(5) CIEC invoicing rules, the Tax Authority may assess the difference between standard and reduced ISP rates on the quantities sold. The customs inspection procedure involves verifying that each refueling operation is properly documented with invoices issued directly to entitled beneficiaries. Non-compliance results in assessment of additional ISP tax calculated at standard rates, plus applicable road service contribution (CSR), compensatory interest from the date the tax should have been paid, and administrative costs. The taxpayer receives prior hearing rights before final assessment and may challenge the decision through administrative appeal or CAAD arbitral proceedings.
How does the Portuguese Tax Authority (AT) enforce ISP compliance through customs inspection procedures on petroleum products?
The Portuguese Tax Authority enforces ISP compliance through customs inspection procedures (Inspeção Aduaneira) conducted by regional Customs Houses. Inspectors examine the regularity of colored and marked diesel distribution by reviewing invoicing documentation, refueling records, inventory controls, and loyalty program contracts. For reduced-rate fuel products, inspectors verify that formal ownership transfers comply with Article 93(5) CIEC requirements, checking whether invoices were issued directly to entitled beneficiaries at each transaction. Inspection findings are documented in draft reports subject to prior hearing (audição prévia) under Article 60 LGT, allowing taxpayers to present evidence and arguments before final assessment decisions are issued by the Customs Director.
What are the grounds for challenging an ISP tax assessment on colored and marked diesel before the CAAD arbitral tribunal?
Grounds for challenging ISP assessments on colored diesel before CAAD include: (1) procedural irregularities in the inspection or assessment process; (2) substantive arguments that invoicing arrangements satisfy Article 93(5) CIEC requirements despite using intermediary structures like fleet card programs; (3) evidence that beneficiaries were entitled to reduced rates and commercial substance supports reduced-rate application; (4) arguments that Tax Authority misinterpreted legal requirements or applied them inconsistently; (5) claims that assessment calculations contain errors regarding quantities, rates, or interest; and (6) constitutional or EU law arguments regarding proportionality or legitimate expectations. The CAAD arbitral tribunal has jurisdiction under Article 2(1)(a) RJAT to review legality of ISP assessments and order annulment if statutory requirements were not properly applied.