Summary
Full Decision
ARBITRAL DECISION
The arbitrators Dr. José Poças Falcão (arbitrator-chairman), Dr. José Sampaio e Nora and Dr. Cristina Coisinha (arbitrators-members), designated by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 18 February 2019, agree as follows:
I – Report
Bank A..., S.A., a joint-stock commercial company, with registered office in ..., ..., ...-... Lisbon, holder of the unique identification number for Legal Entities and registered in the Commercial Registry Office ... (hereinafter "Claimant"), has, under the terms of Decree-Law No. 10/2011, of 20 January, hereinafter abbreviated as "RJAT", requested the constitution of the Arbitral Tribunal.
It requests that the illegality be declared and the consequent annulment of the tax acts, relating to periods 1504 and 1505, embodied in the additional Value Added Tax ("VAT") assessments, dated 1 April 2018, with numbers ... and ..., in the amounts of € 350,902.06 and € 92,000.00, respectively, and likewise, of the decision expressly dismissing the administrative appeal presented.
The Claimant further requests the condemnation of the Tax Authority to refund the amount paid, increased by compensatory interest, in accordance with the provisions of Articles 43 and 100 of the General Tax Law ("LGT").
The Tax and Customs Authority ("AT") is cited as respondent.
The request for constitution of the arbitral tribunal was accepted by the President of CAAD on 7/12/2018 and automatically notified to the Tax and Customs Authority on 12 December 2018.
The Claimant did not appoint an arbitrator, and therefore, pursuant to the provisions of Article 6(2)(a) and Article 11(1)(b) of the RJAT, the President of the Deontological Council designated the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the designation within the prescribed period.
On 28 January 2019, the parties were notified of the appointment of the arbitrators and raised no objections.
In accordance with the provisions of Article 11(1)(c) of the RJAT, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 18 February 2019.
2. To support the request for arbitral decision, the Claimant alleges, in summary, the following:
The additional assessments under scrutiny in the present arbitral proceedings are affected by error concerning the legal premises, and thereby, by a defect of violation of law.
Indeed, the Claimant submitted two requests for waiver of VAT exemption, relating to two real properties which it leased immediately after acquisition, operations subject to successive waivers of VAT exemption, having the requests for waiver in the leasing operations been dismissed.
In accordance with the regime of waiver of VAT exemption, provided for in Decree-Law No. 21/2007, of 29 January, the request for issuance of the certificate for purposes of waiver of VAT exemption in leasing must be submitted at least ten days in advance of the operation; it happens that, in casu, the execution of the leasing contracts took place immediately after the acquisition of the real properties, making it impossible for the Claimant to submit the request for issuance in the capacity of owner of the real properties in question, ten days before the taxed operation.
Nevertheless, the Respondent submitted the requests for issuance of certificates, and these were dismissed on the ground that it was not, at the date of their submission, owner of the real properties.
The Claimant contends that the lack of such a certificate, requested in time, and where the material requirements of the waiver of exemption are met, is not capable of obstructing the exercise of that right, under penalty of violation of the principles of neutrality and legality.
The Claimant further considers that the present arbitral proceedings should be suspended and the matter referred to the Court of Justice, under the terms provided for in Article 267 of the Treaty on the Functioning of the European Union ("TFEU"), should the Arbitral Tribunal "consider the interpretation established by that European Court to be insufficient" (...) "under penalty of the dispute in question being resolved in violation of European Union Law, in particular, the principle of neutrality."
Finally, the Claimant raises the organic unconstitutionality of Law No. 21/2007, of 29 January, for violation of the principle of tax legality in the aspect of reservation of formal legislation, in accordance with Articles 165(1)(i) and 198(1)(b) of the CRP, when interpreted in the sense that it promotes different treatment of economically similar situations on the exclusive basis of non-compliance with certain formalities.
2. Notified to submit a Response and to append the administrative file, the Respondent defended itself by objection and exception, defending the maintenance of the act under review and requesting dismissal of the claim, invoking, in summary, the following:
a. By objection, it argued that the Claimant did not present a waiver certificate which would have permitted it to effect the deduction of tax, conditio sine qua non, to exercise such right, and therefore, in accordance with the provisions of Article 4(4) of Decree-Law No. 21/2007, of 29 January, it could not do so without being in possession of the same.
On this matter, the Respondent has no doubt that if the necessary formalities for the exercise of rights are not complied with, the right to deduction of tax cannot be permitted, without this constituting any violation of national or EU law.
b. The AT further invoked the exception of lapse of the right of action and, subsidiarily, the incompetence of the Arbitral Tribunal.
The Respondent argues that, inasmuch as the Claimant had not challenged, administratively or judicially, the acts dismissing the requests for waiver of exemption, judicial consideration of such acts is no longer possible due to manifest lapse of the right of action.
Consequently, should this not be upheld, the Arbitral Tribunal is incompetent to consider and assess the acts dismissing the requests for waiver of VAT exemption.
Notified of the AT's Response, under the principle of due process, the claimant, in its own pleading, on 9-4-2019, sought the dismissal of the exceptions raised regarding lapse of the right of action and, subsidiarily, incompetence of the arbitral tribunal.
By order of 08-04-2019, as no production of evidence was requested and saving the possibility of the parties wishing to present oral pleadings, the hearing referred to in Article 18 of the RJAT was dispensed with and the parties were invited to submit successive written pleadings. 30/06/2019 was set as the expected deadline for the issuance and notification of the arbitral decision.
Only the Claimant submitted pleadings, confirming the position set out in its initial request, with the Respondent remaining silent.
II – SANITATION
1. Of the Incompetence of the Arbitral Tribunal
Having raised the exception of material incompetence of the Arbitral Tribunal, it is necessary to assess it previously.
The Respondent argues that the request for arbitral decision formulated by the Claimant is not based on any illegality of the tax assessment act or of the fixing of the taxable amount, but rather falls under judicial review of the acts dismissing the requests for waiver of exemption, which is no longer possible due to manifest lapse of the right of action.
Given that such acts are separately challengeable.
Let us see.
Before the regime contained in Articles 2(1)(a) of the RJAT and 2 of the Binding Order, the determination of the material competence of the Arbitral Tribunal must be assessed in light of the object of the proceedings.
From a reading of the request for constitution of arbitral tribunal, it results unequivocally that the Claimant intends that the legality of assessment acts be reviewed – namely, the additional VAT assessments previously and duly identified – which constitute the object of the arbitral proceedings, and therefore, the material competence of the Arbitral Tribunal must be assessed by reference to such acts.
The Claimant expressly challenged the tax acts relating to periods 1504 and 1505, embodied in the additional VAT assessments, with numbers ... and ..., as well as the decision expressly dismissing the Administrative Appeal, requesting, finally, their annulment with the consequent refund of the tax paid, as well as the condemnation of the AT to pay compensatory interest.
Whereby, the acts reviewed by the Claimant, and the mediate object of the present arbitral action are the acts of additional VAT assessment, better identified in the preceding paragraph, and, subsidiarily, the declaration of illegality of the decision which dismissed the administrative appeal (RG) lodged by the claimant.
This conclusion is not obstructed by the fact that the Claimant did not contest the acts dismissing the requests for waiver of exemption, since what is only at issue in the proceedings is the legality of the acts of additional VAT assessment, precisely in the circumstance that the taxpayer does not have valid VAT exemption waiver certificates at the date of the taxed real estate operations, which is moreover expressly accepted by the claimant in the pleading in which it ruled on the exceptions raised by the AT.
In such terms, inasmuch as the present request for arbitral decision concerns solely the review of tax assessment acts performed by the Tax Administration, the Arbitral Tribunal is materially competent to consider the Claimant's claim, in accordance with Articles 2(1)(a) of the RJAT and 2 of the Binding Order, and the exception invoked by the Respondent Entity should therefore be dismissed.
This understanding is upheld, among others, in the judgment of the Supreme Administrative Court dated 13-11-2013, delivered in the course of proceedings No. 0897/13: "(…) Article 54 of the CPPT establishes the so-called principle of unitary challenge, according to which it is only possible, in principle, to challenge the final act of the procedure, and not already the interlocutory or procedural acts, because only the final act immediately affects or injures the legal sphere of the taxpayer, fixing the position of the tax administration before this and defining its rights and obligations. And from it results, further, that in tax litigation, in contrast to what currently happens in administrative litigation, the criterion for challengeability of acts is that of their immediate and actual lesivity (and not merely potential), or, in other words, depends on the production of immediate negative effects in the legal sphere of the taxpayer, by violation of its rights or legally protected interests. In this way, the interlocutory acts of the tax procedure, being merely instrumental or preparatory of the final decision, although illegal, are not, in principle, immediately injurious to the interests of the taxpayer, for his tax situation is not defined or resolved by them. In fact, as the tax assessment procedure is constituted by a series of interconnected acts aimed at achieving a final legal result, that is, the assessment of the amount of tax that the taxpayer must pay into the State Treasury, it is understood that only the final act (assessment in the strict sense) is capable of affecting, in an objective and immediate manner, the legal sphere of the taxpayer, being therefore the injurious and contentiously challengeable act.
In this same sense it has been decided in the sphere of arbitral jurisdiction, notably, in proceedings 266/2013-T and 253/2013-T.
2. Of the Exception of Lapse
The Respondent also invokes the lapse of the right of action, as regards judicial review of the acts dismissing the requests for waiver of exemption, issued in 2015 and never subject to administrative or judicial challenge.
The Respondent understands that, as such acts are separately reviewable, the absence of initiative by the Claimant in the protection of its right caused its right to lapse.
As stated above, the request for arbitral decision has as its immediate object the decision dismissing the administrative appeal and as its mediate object the additional VAT assessments.
The Respondent itself states, in Article 30 of its response, "the only issue to be assessed in the present proceedings is whether the disregard by the SIT of the deduction of the VAT in question, as well as the dismissal of the administrative appeal, by reason of the Claimant not having the waiver certificates that would permit such deduction, is illegal or not."
In turn, it is unequivocal that the Claimant's claim is the annulment of the tax assessment acts, regardless of being in possession of valid VAT exemption waiver certificates at the moment of execution of the leasing contracts.
Thus, given that the decision dismissing the administrative appeal was notified to the taxpayer on 12.09.2018, in accordance with Article 39(10) of the CPPT – cf. document No. 4 attached to the request for constitution of arbitral tribunal, and the Claimant submitted the request for constitution of arbitral tribunal on 07.12.2018, its submission is timely, and lapse of the right of action has not occurred.
3. Of the Joinder of Claims
Article 3(1) of the RJAT provides that: "Joinder of claims, even if relating to different acts and joinder of parties are admissible when the merits of the claims essentially depend on the consideration of the same factual circumstances and on the interpretation and application of the same legal principles or rules."
Thus, the joinder of claims underlying the present proceedings is admissible, in that it concerns acts of assessment of the same tax, VAT, and there is also identity between the factual matter and the merits of the claim depends on the interpretation of the same principles and legal rules, cf. Article 3(1) of the RJAT.
The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with Articles 2(1)(a), 5 and 6(1) of the RJAT.
The parties have legal personality and capacity, are legitimately interested and are legally represented, in accordance with Articles 4 and 10 of the RJAT and Article 1 of Order No. 112-A/2011 of 22 March.
The proceedings do not suffer from nullities.
There are no other preliminary issues which prevent the consideration of the merits of the action which it is necessary to consider.
Whereby, there is no obstacle to consideration of the merits of the case.
Everything considered, it is necessary to issue
IV. Decision
4.1 Factual Matters
4.1. a. Facts Established as Proven
A. The Claimant is a joint-stock commercial company with registered office and effective management in Portuguese territory, subject for VAT purposes to the monthly periodicity regime. (Article 13 of Initial Request – IR)
B. The Claimant assumes the nature of a mixed taxpayer, carrying out both operations which confer the right to deduction of VAT (operations subject to tax or exempt with right to deduction) and operations which do not confer such right (exempt without right to deduction), having calculated a deduction percentage of 10% in 2015. (Article 14 IR and Doc. No. 2)
C. In the course of its activity, the Claimant acquired the following real properties:
(i) property registered under article number ..., of the Union of parishes of ..., of the municipality and district of Leiria; and
(ii) property registered under article number ..., of the parish of ... and ..., of the municipality of Loures and district of Lisbon (cf. Article 15 of the IR, pages 52 and 54 of Doc. No. 2).
D. In the exercise of its activity, the Claimant leased the property registered under article number ..., to company B..., Lda., legal entity No. ..., and the property described under article number ... was leased to C..., Lda., legal entity No. ... (cf. Article 17 of the IR and Doc. No. 2).
E. The transfer of the property registered under article ... benefited from the waiver certificate relating to the seller, for purposes of transfer to Bank A....
F. The leases in question were effected immediately after the acquisition of the properties, having been executed in one continuous transaction. (cf. Article 18 of the IR and Doc. No. 2)
G. Before the execution of the leasing contracts, the Claimant submitted requests for issuance of a certificate for purposes of waiver. (Cf. Article 21 of the IR and Doc. No. 2)
H. The request for waiver of exemption, submitted by the Claimant, relating to the urban property ..., with reference to the contract executed between the Claimant and the lessee, B..., Lda., was dismissed on 25-06-2015. (Cf. article
I. The Claimant submitted the waiver certificate for exemption for acquisition of the property registered under article ..., which was approved, and immediately thereafter the Claimant submitted the request for waiver in leasing.
J. The request for waiver of exemption, submitted by the Claimant, relating to urban property No. ..., with reference to the contract executed between the Claimant and lessee C..., Lda., was dismissed on 25-03-2015.
K. In both cases the requests for waiver were dismissed, on the ground that the lessor, here the Claimant, was not owner of the properties at the date of submission of the requests. (cf. Article 22 of the IR and Doc. No. 2)
L. The claimant did not submit any contentious challenge to such dismissals.
M. The Claimant deducted in the respective taxation periods the VAT incurred in the acquisition of both properties, in the amounts of, respectively, € 350,902.06 and € 92,000.00. (cf. Article 16 of the IR and Doc. No. 2)
N. The Claimant did not have, at the date on which the lease was executed, any certificate of admissibility of the waiver of VAT exemption. (cf. Article 21 of the IR and Doc. No. 2)
O. The inspection services decided that "(...) there was not, on the part of the taxpayer, for the cases in question, compliance with the formalities underlying the waiver of exemption for properties acquired for purposes of leasing, in particular by not possessing the certificate for purposes of waiver of exemption in the leasing of both properties." (cf. Article 23 of the IR and Doc. No. 2)
P. The Claimant did not request regularization of the certificate for waiver of exemption, after acquisition of ownership of the properties, nor did it challenge the decisions dismissing the requests for waiver of exemption. (cf. Doc. No. 2 p. 61)
Q. The inspection services proceeded "(...) to the correction of the tax deducted in field 24 of the respective periodic declarations for the months of April and May, in the amount of € 442,902.06 (€ 350,902.06 relating to April and € 92,000.00 relating to May)" (cf. Article 24 and Doc. No. 2)
R. On 09.01.2018, the Claimant was notified of the additional VAT assessments better identified in the preamble that concretize the aforementioned correction (cf. Article 25 of the IR and Doc. No. 1).
S. Not accepting the aforementioned tax acts, on 09.05.2018 the Claimant submitted an administrative appeal. (cf. Article 26 of the IR and Doc. No. 3)
T. On 12.09.2018, the Claimant was notified of the final decision dismissing the administrative appeal (cf. Article 27 of the IR and Doc. No. 4).
U. In that decision of dismissal it is stated that: "The waiver of exemption in this type of operations aims to allow taxpayers the option to tax them, when the acquirers or lessees have their activity engaged wholly or partly in taxable operations, thereby eliminating the so-called hidden VAT. In accordance with the provisions of Article 137 of the VAT Directive, it is for Member States to determine and regulate the conditions for the exercise of this right in the internal legislation of each. (...) That is, as long as the objectives and general principles of the VAT system are respected, Member States have a broad margin of freedom in shaping the legal regime of the waiver of exemption." (cf. pages 11 and 12 of Doc. No. 4).
V. The services further state: "It follows from the current Waiver Regime that, for the exercise of the right to choose the waiver of exemption in the transfer and leasing of real estate, the taxpayers involved and the real estates or fractions which are the subject of the contract must, cumulatively, meet the objective and subjective conditions provided for therein (Article 2 and 3) and possess the respective valid waiver certificates, a mandatory formal condition for the exercise of the choice to tax real estate operations, at the date of execution of the respective contracts. This certificate, valid for six months, is intended to certify that the taxpayers involved in the underlying operation have manifested to the Tax Authority their intention to waive the VAT exemption and that they declare that the conditions legally provided for such waiver are met. Now, in light of the provisions of the following article [Article 5(1) of the Waiver Regime], there is no doubt that the VAT exemption waiver certificate must be requested and issued before the execution of the financial leasing contract. (...) In that regard, it is inconceivable that the mere request for issuance of the same should be sufficient for the intended effects to take place." (Cf. pages 16 to 18 of Doc. No. 4)
W. In disagreement with the AT's decision, the Claimant submitted on 6 December 2018 in the CAAD computer system the request for constitution of the collective Arbitral Tribunal which gave rise to the present proceedings. (arbitral proceedings)
4.3. Justification of Factual Matters Established as Proven and Not Proven
Regarding the factual matter, the Tribunal does not have to rule on everything that was alleged by the parties; rather, it has the duty to select the facts that matter for the decision and distinguish between matters established as proven and those not proven (cf. Article 123(2) of the CPPT and Article 607(3) of the CPC, applicable by virtue of Article 29(1)(a) and (e) of the RJAT).
In this way, the facts relevant to the judgment of the case are selected and framed according to their legal relevance, which is determined in consideration of the various plausible solutions of the legal question(s) (cf. former Article 511(1) of the CPC, corresponding to current Article 596, applicable by virtue of Article 29(1)(e) of the RJAT).
Thus, taking into account the positions assumed by the parties and the documentary evidence attached to the proceedings, the facts listed above were considered proven, having relevance for the decision, in which the parties also agree as to their existence.
V. Issue to be Decided
The issue at stake in the present arbitral tax proceedings consists of determining whether the additional VAT assessments under scrutiny are illegal, as well as the dismissal of the Administrative Appeal, due to the AT having disregarded the VAT deductions, by reason of the Claimant, according to its allegation, having exercised the right to waiver of VAT exemption without being in possession of this certificate, at the moment of execution of the leasing contracts.
VI. On the Law
The VAT Regime
VAT is based on a structure of collection and respective deduction, by the various participants in the chain, up to the final consumer, who bears it without being able to deduct. VAT functions, therefore, by the indirect subtractive method, in accordance with which the taxpayer deducts, from the tax assessed on its outputs, the tax assessed on its respective inputs.
As determined by the second paragraph of Article 1(2) of the VAT Directive (Directive 2006/112/EC, of 28 November), "[i]n each transaction, VAT, calculated on the price of the goods or service, is chargeable, with prior deduction of the amount of tax that has directly incurred on the cost of the various elements constituting the price."
The principle of VAT neutrality has been widely and duly analyzed by European case law and unanimously endorsed that: (…) The common VAT system aims to ensure perfect neutrality regarding the tax burden of all economic activities, whatever the purposes or results of such activities, provided that such activities are, in principle, themselves, subject to VAT (Rompelman Case, proc. C-268/83, of 14/02/1985, Klub Case, C-153/11, of 22/03/2012).
In the case of the proceedings, what is at issue is the activity of leasing of real estate, which is an operation exempt from tax, in accordance with the provisions of Article 9, number 30, of the VAT Code (CIVA).
This exemption is of an incomplete nature, that is, it does not confer the right to deduction of the VAT incurred, implying that the lessor cannot deduct the VAT incurred to carry out his leasing operations of real properties.
Which means that the exemption from VAT taxation is not always advantageous; on the contrary, it can be penalizing, as it creates the so-called "hidden" tax (non-deducted VAT) which penalizes taxpayers.
The Regime of Waiver of Exemption
To overcome the penalties that distort the functionality of the tax, the EU legislator established, in certain circumstances, and in an exceptional manner, the right to waive exemption, so that the taxpayer may assess and deduct the VAT incurred in the operations, in accordance with the standard regime.
The regime of waiver of VAT exemption in leasing operations results from the provisions of Articles 135(1)(l), 137(1)(d) and (2) and Article 168 of the VAT Directive, which the Portuguese legislator transposed to Articles 9(29) and 12(4) to (7) of the VAT Code, exercising the prerogative of granting the option to tax in the leasing operations of real estate, whose terms and conditions it autonomously regulated in the Waiver Regime, instituted by Decree-Law No. 21/2007, of 29 January.
The possibility of waiver of VAT exemption in real estate operations is enshrined in Article 137(1)(d) of the VAT Directive (former Article 13(C) of the Sixth Directive), and it is for Member States to determine and regulate the conditions for the exercise of this right in their internal legislation, and may even restrict its exercise.
This is a faculty which the EU legislator granted to Member States in derogation from the general rule provided for in Article 135(1)(l) of the VAT Directive, according to which leasing operations are exempt from VAT.
Which means that, provided the general principles of the VAT system provided for in the Sixth Directive, and currently in the VAT Directive, are respected, Member States have a broad margin of freedom in shaping the legal regime of the waiver of VAT exemption.
With the approval of Decree-Law No. 21/2007, the waiver of exemption became subject to the cumulative verification of a set of objective conditions (relating to the real properties) and subjective conditions (in relation to the taxpayers who may intervene in such operations).
With relevance for the case, the following are partially transcribed, Articles 4 and 5 of the Waiver Regime:
"Article 4
Formalities for the Waiver of Exemption
1 - The taxpayers wishing to waive the exemption must direct to the General Tax Directorate, by electronic means, a request for issuance of a certificate for purposes of waiver, which shall include the following particulars:
a) The name or company designation of the transmitting or lessor taxpayer and of the acquiring or lessee taxpayer of the real property, as well as their respective tax identification numbers;
b) Identification of the real property;
c) Whether it is an operation of transfer of the right of ownership of the real property or a leasing operation of the same;
d) The activity to be carried out in the real property;
e) The value of the sale of the real property or the monthly value of the rent;
f) The declaration that all conditions for the waiver of exemption, provided for in the VAT Code and in the present regime, are met.
2 - The General Tax Directorate, upon receipt of the request for issuance of the certificate, must, by electronic means, inform the acquiring or lessee taxpayer of the real property, for purposes of confirmation by this party, by the same means, of the particulars concerning it.
3 - Notwithstanding the provisions of the preceding number, when the information made available in the request does not correspond to the particulars in the possession of the central services of the General Tax Directorate, the decision to issue the certificate is taken by the head of the tax service of the area of the registered office, permanent establishment or, in its absence, of the domicile of the transmitter or lessor, after evaluation of the conformity of that information.
4 - The certificate for purposes of waiver is issued within 10 days from the date of the confirmation referred to in No. 2.
5 - The certificate issued is valid for six months and has exclusively the effect of certifying that the taxpayers involved in the operation have manifested to the General Tax Directorate the intention to waive the VAT exemption in that operation and that they declared that the legally provided conditions for the waiver are met.
Article 5
Moment at Which the Waiver of Exemption Takes Effect
1 - The waiver of exemption only takes effect at the moment the contract of sale or leasing of the real property is executed, provided that the taxpayer is in possession of a valid waiver certificate and the conditions for the waiver of exemption established in the present regime continue to be met at that moment.
2 - Should the conditions for the waiver of exemption cease to be met before the execution of the contract referred to in the preceding number, or should the validity period of the waiver certificate have elapsed without such contract having been executed, the taxpayer who requested the issuance of the same must communicate, by electronic means, this fact to the tax administration.
3 - The exercise of the waiver of exemption without the conditions referred to in No. 1 being met does not produce effects." (italics in original)
It results from the analysis of the legal text that the national legislator made the taxation of leasing operations depend on:
i. The prior exercise of an express option by the lessor taxpayer; and
ii. The compliance with objective, subjective and formal requirements.
Now, there is an inseparable relationship between the conditions provided for in Numbers 4 to 6 of Article 12 of the CIVA, for the waiver of exemption and the formalities of the prior declarative procedure intended for the issuance of the waiver certificate, provided for in Article 4 of the Waiver Regime.
Therefore, the exercise of waiver of exemption without the respective conditions provided for in the Waiver Regime being met, or without the lessor being in possession of a valid waiver certificate, for the concrete operation does not produce tax legal effects.
It is today jurisprudentially and doctrinally acknowledged that "(…) the waiver certificate for VAT exemption is a constitutive act of right in tax matters. (…)"
In this sense, the judgment of the Supreme Administrative Court (STA), of 25-11-2009, delivered in the course of proceedings 0486/09, in whose summary the following may be read:
(…)
II - The succession in the lease contract does not dispense the taxpayer from complying with the formalities necessary for it, in accordance with tax law, to legitimately comply with what it became obligated to do towards the lessee;
IV - Not having done so, however, at the moment which would have permitted it to ensure the full exercise of the right to deduction of VAT which it incurred upon acquisition of the real property with waiver of VAT exemption, but only at a later moment, this omissive conduct is exclusively attributable to it, for it does not appear that the national legislator, in conditioning the waiver of exemption and in requiring administrative certification of such waiver, exceeded the "broad margin" of maneuver it had within Article 13(C) of the Sixth Directive (cf. the Judgment of the CJEC of 9 September 2004, proceedings C-269/03, Kirchberg case, Reports P. I-8067).(…)
Having reached this point, it is important to assess whether, in the case of leases of real properties effected immediately after the acquisition of the properties, having been executed in one continuous transaction, and it being impossible for the Claimant to comply with the formalities underlying the waiver of exemption for properties acquired for leasing, the same could have obtained regularization of the waiver certificate for exemption.
To this end, it is necessary to cite Circular Letter 30099, of 09-02-2007, whose notes were exhaustively transcribed, both for the Tax Inspection Report (RIT), attached by the Claimant under document No. 2, and in the Response submitted by the AT.
In the aforementioned letter, in the notes to Article 2 of Decree-Law No. 21/2007, the following may be read:
(…)
1. The waiver in the transfer or leasing of real properties whose registration in the property register or request for registration is not in the name of the transferor or lessor is not permitted.
(…)
7. In the case of contracts executed simultaneously (e.g. acquisition followed by a lease) the registration in the property register in the name of its owner (or the respective request for registration) need only be verified in relation to the taxpayer who carries out the transfer of the real property in the 1st of the contracts, without prejudice to the waiver only being able to be effected when the ownership title is confirmed in relation to the lessor in the 2nd contract. (…)"(underlining added)
As to the exercise of deduction, legislated in Articles 19 to 26 of the CIVA, and in Article 8 of Decree-Law 21/2007, Circular Letter 30099 clarifies the following:
(…) The right to deduction arises at the moment of execution of the lease or transfer contract and may be exercised, in accordance with the rules defined in Articles 19 to 25 of the CIVA, without prejudice to the period established in No. 2 of Article 91 of the CIVA, that is, 4 years, in particular, as regards the transferor or lessor, concerning the VAT incurred in the acquisition or construction of real properties.
However, in the case of transferors or lessors whose activity consists, habitually, in the construction of real properties for sale or leasing, and provided that the construction of the real property has demonstrably exceeded the period of 4 years, for purposes of No. 2 of Article 91 and as regards the VAT incurred in the construction of real properties where there is a waiver, the aforementioned period is increased to double (8 years).
In both situations, the deduction may be effected, notwithstanding the documents supporting the right to deduction having already been subject to accounting entry, the restriction provided for in No. 6 of Article 71 not applying to them.
In the case of the transfer of real properties, where the obligation to assess the tax rests with the acquirer, this may, in accordance with No. 4 of Article 8 of the Waiver Regime, exercise the right to deduction of the tax assessed by its respective acquisition. (…)
Being well established that the compliance with the formalities underlying the waiver of exemption for properties acquired for purposes of leasing are constitutive of that right, the Claimant, when faced with the dismissal of the waiver requests, could and should have reacted in order to obtain the waiver certificate after confirmation of ownership of the properties.
In casu, in both situations – of dismissal by the AT of the waiver of exemption – the Claimant did not react, challenging it, nor did it take steps to obtain a valid certificate, at a later moment, once the objective and subjective requirements necessary to obtain it were met.
And, in accordance with the decision of the Arbitral Tribunal in proceedings 176/2018-T, whose substance we endorse: "The exercise of the waiver of VAT exemption without the respective constitutive conditions provided for in the Waiver Regime being met", or without the lessor being in possession of a valid certificate for the concrete operation (…) simply does not produce effects. (…)
Preliminary Rulings
The Claimant invokes that the case law of the Court of Justice of the European Union ("CJEU"), has ruled to the effect that the principle of neutrality prevails over the need for strict compliance with legally provided formalities, where such compliance places the general rules in jeopardy.
It is the Claimant's understanding that, if formal requirements cannot obstruct the right to VAT exemption, neither can they, a contrario sensu and a fortiori, obstruct the right to waive exemption. To support its position, the Claimant invoked extensive EU case law, which in its view applies to the case under scrutiny, requiring the Arbitral Tribunal to follow such interpretation, given that the case law of the CJEU has interpretative character with binding effect for all national courts.
However, the Claimant's argument is not well-founded, as will be demonstrated below.
First, because the case law invoked by the Claimant does not have direct application to the situation of the present arbitral proceedings, to which is added the fact that there is case law of the Portuguese Higher Courts and of the CJEU, on the matter of the waiver of VAT exemption in real estate leasing operations, whose interpretation is followed closely by this Tribunal.
As stated above, Article 137(2) of the VAT Directive grants Member States a broad discretionary power which allows them to determine the modalities of the exercise of the right of option and even to suppress it. The margin granted to the national legislator as to the scope of the right of option thus depends on criteria of convenience and opportunity applied by Member States.
Indeed, as the CJEU has decided, that faculty may be granted by Member States either in all cases, or within certain limits, or even according to certain modalities, that is, they may restrict the scope of the right of option or even suppress it.
In this sense, the case law of the CJEU recommends that EU law does not prevent a Member State which has exercised the faculty of granting to its taxpayers the right to choose to tax the leasing of real estate from making the application of the tax conditional on prior authorization of the option, when the authorization procedure aims to verify that the legal conditions are met and is intended, in particular, to prevent cases of fraud or abuse (cf. Judgment of the CJEU, of 9 September 2004, Objekt Kirchberg, C-269/03) and, further, that legislative amendments introduced within a national legal order, even with the objective of eliminating the right to waive VAT exemption in the leasing of real estate, do not violate the principles of neutrality and proportionality (cf. Judgment of the CJ, of 3 December 1998, BelgoCodex, C-381/97).
Likewise, in the sense of the conformity of the requirement for the issuance of a waiver certificate within the broad margin of maneuver available to the national legislator, ruled further the Judgment of the STA, proceedings No. 486/09, of 25 November 2009.
The requirement of prior declaration to the AT, as a condition of access to the regime of waiver of exemption, is compatible with EU law, as the CJEU has already ruled in the Kirchberg Case (C-269/03, of 9/09/2004) regarding a provision of Luxembourg law, which imposes the observance of certain requirements to access such regime.
It was written in that judgment that: " (…) it is thus verified that such approval procedure is not intended to prejudice the right to deduction, but allows, on the contrary, that this right be fully exercised, provided that certain requirements are met, in particular, the submission of an option declaration and obtaining approval within certain periods.
The fact that the approval procedure is not retroactive does not make it disproportionate. On the contrary, such a procedure may be considered useful in order to encourage lessors to submit their option declaration in advance. Indeed, it cannot be excluded that an approval procedure with a retroactive character would be liable to produce the opposite effect, leading lessors to submit their option declaration late and that it is, consequently, less apt to ensure the correct application of the exercise of the right of option and to achieve the objective of legal certainty referred to in No. 25 of the present judgment. (…)".
That is, it does not violate EU law the establishment of formal conditions for the exercise of the waiver of exemption in real estate leasing operations, which includes the requirement for prior submission of a declaration form on the basis of which the AT will analyze the legal premises and, subsequently, issue a certificate.
Thus, it also does not violate the right to deduction, nor the principle of neutrality, the non-authorization by the AT, of the deduction of VAT incurred by the taxpayer, when the latter did not previously obtain the certificate as provided for in Decree-Law No. 21/2007, of 29 January.
Absence of Doubt on Interpretation of European Law
The issues to be decided not only do not raise any doubts on the interpretation of European law (VAT Directive), but fit within the case law of the CJEU on the right to waive the tax in the real estate operations in question.
That is, according to the CJEU's interpretation, Member States have a broad margin of freedom in shaping the legal regime of the waiver of VAT exemption in operations concerning real estate, in particular in establishing requirements for obtaining certification.
A margin which the Portuguese State did not exceed in providing for a certification procedure for the issuance of a waiver certificate.
In such terms, for all the foregoing, the present request for arbitral decision is judged to be without merit, with the consequent maintenance in the legal order of the act of dismissal of the administrative appeal and the acts of additional VAT assessments with numbers ... and ..., relating to periods 1504M and 1505M.
Refund of Amount Paid and Compensatory Interest
Being judged that the request for declaration of nullity of the additional VAT assessments challenged, object of the arbitral decision, lacks merit, the request for refund of the amount paid and the right to compensatory interest are also without merit.
VII. Prejudicial Issues
Having denied merit to the request, the analysis of the issue of the organic unconstitutionality of Decree-Law No. 21/2007, of 29 January, raised by the Claimant, for violation of the principle of tax legality in the aspect of reservation of formal legislation, is rendered moot, as regards the Claimant's interpretation that the Waiver of Exemption Regime promotes different treatment of economically similar situations on the exclusive basis of non-compliance with certain formality.
Finally, it must be stated that the relevant issues submitted for consideration by this tribunal have been considered and assessed, and those issues have not been dealt with whose decision is rendered moot by the solution given to other issues (Cf. Article 608 of the CPC, applicable by reference from Article 29(1)(e) of the RJAT).
VIII. Decision
In these terms, in accordance with the foregoing, it is decided:
a) To judge without merit the requests for declaration of nullity of the additional VAT assessments challenged, numbers ... and ...;
b) To judge without merit the request for refund of the tax paid, as well as the request for payment of compensatory interest in accordance with Article 43 of the LGT.
XIX. Value of the Proceedings
The value of the proceedings is set at € 442,902.06 in accordance with Article 97-A(1)(a) of the Code of Tax Procedure and Process, applicable by force of Article 29(1)(a) and (b) of the RJAT and Article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings.
X. Costs
The arbitration fee is set at € 7,038.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Claimant, as the request was entirely without merit, in accordance with Articles 12(2) and 22(4), both of the RJAT, and Article 4(4) of the aforementioned Regulation.
Record and notify.
Lisbon, 4 July 2019
The Collective Arbitral Tribunal,
(José Poças Falcão)
(José Sampaio e Nora)
(Cristina Coisinha)
[Text prepared by computer, in accordance with Article 131(5) of the Code of Civil Procedure, applicable by reference from Article 29(1)(e) of the RJAT].
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