Summary
Full Decision
ARBITRAL DECISION
I. Report
1. A..., S.A. (Tax Number/Company Registration Number ..., with registered office at ..., ..., ..., ..., ...-... ... ("APPLICANT"), pursuant to paragraph a) of article 2, paragraph 1, and article 10, paragraphs 1 and 2, both of Decree-Law No. 10/2011 of 20 January, filed, on 10/12/2018, a request for an arbitral pronouncement on the legality of the tax act of VAT liquidation statement No. 2018..., with reference to the tax period of January 2018.
2. The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Respondent.
2.1. The Applicant did not proceed with the appointment of an arbitrator, whereby, in accordance with the provisions of paragraph 1 of article 6 and paragraphs a) and b) of paragraph 1 of article 11 of the RJAT, the President of the Deontological Council of CAAD designated the present undersigned as arbitrator of the singular arbitral tribunal, which communicated acceptance of the assignment within the applicable deadline.
2.2. The parties were duly notified of such designation and did not manifest any intention to refuse the arbitrator's designation, in accordance with the combined provisions of article 11, paragraph 1, paragraphs a) and b), of the RJAT, and articles 6 and 7 of the Deontological Code.
2.3. Thus, in accordance with the provisions of paragraph c) of paragraph 1 of article 11 of the RJAT, the present Arbitral Tribunal was constituted on 25 February 2019.
3. To substantiate the request for arbitral pronouncement, the Applicant alleges, in summary, the following:
a) The present Applicant intends that the illegality of the tax act of VAT liquidation statement No. 2018..., with reference to the tax period of January 2018 (Doc. 1), be declared, and that it be annulled with the due legal consequences resulting from such annulment, including its respective integration into the amount to be reimbursed to it, increased by the corresponding compensatory interest, because such tax act is based on illegal VAT correction in the amount of €29,900, carried out within the scope of a Tax Authority inspection action.
b) In this specific case, it is necessary to determine whether the definitive assignment of credits under analysis constitutes, or does not constitute, an operation subject to VAT – i.e., whether it constitutes a transfer of goods or supply of services subject to this tax.
c) The definitive assignment of credits has been classified as an operation not subject to VAT, not constituting a supply of services for the purposes of this tax, according to the interpretation given to the legal figure in question by the jurisprudence of the CJEU and by the administrative doctrine of the Tax Authority itself. In this regard, the CJEU has already ruled on the non-subjection of credit sales to VAT in the Judgment GFKL Financial Services AG, of 27 October 2011, in Case C-93/10.
d) The CJEU concluded that "an operator who acquires, at its own risk, doubtful credits, at a price below their nominal value, does not effect a supply of services for consideration, within the meaning of the said article 2, point 1, and does not carry out an economic activity covered by the scope of this directive, when the difference between the nominal value of the said credits and their acquisition price reflects the economic value of the credits in question at the time of their assignment".
e) Moreover, this is equally the understanding expressed by the VAT Committee constituted within the Directorate-General for Taxation and Customs Union, the directorate-general of the European Commission competent in matters of taxation of the European Union, in "Working Paper no. 917", concerning the "VAT treatment of transactions involving non-performing loans (NPLs)", issued on 9 February 2017 (Doc. 7).
f) Taking into account the understanding expressed by the Tax Authority in responses to binding information requests concerning processes no. 12692, of 7 March 2018, and no. 12798, of 5 February 2018, it is unequivocal that a definitive assignment of credits in which the assignee acquires, at its own risk and without right of recourse, credits from the assignor, at a price below the total nominal value of the same assigned credits, constitutes an economic operation not subject to VAT, and can never be considered a supply of services taxed under this tax.
g) Notwithstanding its own understanding expressed in the Binding Rulings, one of which was invoked in the right of hearing exercised by the Applicant, the Tax Authority, surprisingly, alleged, to justify the corrections made through the VAT liquidation statement in dispute, that "the operation of transmission of credit rights underlying invoice no. SMI/3576 and its respective contract configures a supply of services because the rights being transmitted by A... to B..., S.A., result from credits relating to operational vehicle rental contracts, which constitutes the economic activity developed by A..., whereby the transmission of these credits constitutes an operation deriving from the development of that same activity" (Doc. 2).
h) The Tax Authority invokes "Judgment C-93/10 (First National Bank of Chicago) of the CJEU, in which there was an assignment of credits in definitive form by a bank to a company, at a given value agreed below the nominal value of the portfolio". However, the Tax Authority appears to confuse the aforementioned Judgment GFKL Financial Services AG (Case C-93/10), concerning in fact a definitive assignment of credits, with the Judgment First National Bank of Chicago, of 14 July 1998, delivered in Case C-172/96, concerning foreign exchange operations.
i) Now, it is unequivocal that the understanding of the Tax Authority is, from the outset, contradictory to the jurisprudence of the CJEU present in the Judgment GFKL Financial Services AG (Case C-93/10), to the position assumed by the VAT Committee of the European Commission, and to its own understanding in the two Binding Rulings above stated (among others). The contradiction is based on an assertion directly contrary to the decision taken by the CJEU in the aforementioned Judgment – in the Tax Inspection Report, the Tax Authority states that in this Judgment, the CJEU "understood that in the situation where an assignor, in the concrete case, the bank, assigns a credit to an assignee (the company), the assignor provides a service to the assignee" (Doc. 2). Now, the real conclusion resulting from the decision of the CJEU above cited is that the definitive assignment of credits is an operation not subject to VAT.
j) Moreover, and contrary to what is argued by the Tax Authority, the definition of a price for the assignment lower than the nominal value of the assigned credits cannot be considered a true consideration for a supply of services, as also explained in the CJEU Judgment cited and in the understanding of the Tax Authority expressed in the two Binding Rulings above identified.
k) Even if the existence of a supply of services in the operation sub judice were to be considered, the provider of the service would be the acquirer/assignee of the assigned credits, since it is they who acquires credits of doubtful collection at a price below the nominal value thereof from the assignor, in exchange for the payment of a certain price to the assignor, which justifies, in part, the references of the CJEU regarding the position of the acquirer in the Judgment GFKL Financial Services AG.
l) However, the CJEU is clear [when it states] that the definitive assignment of credits is not an economic operation per se, since there are no reciprocal supplies between the assignor and the assignee – "the assignee of credits receives no consideration from the assignor" – therefore, there cannot truly be a supply of services for consideration.
m) As stated by the CJEU, "the difference between the nominal value of the assigned credits and the acquisition price of those credits does not constitute the consideration for such a service, but the reflection of the economic value of the said credits at the time of their assignment, which is dependent on their doubtful nature and on a risk of non-performance by the debtors". I.e., when in the definitive assignment of credits the price corresponds to the economic value of the respective credits, even if this economic value does not correspond (as would be expected) to the merely nominal value thereof, there is no true onerous nature in the operation in question and, consequently, there is no supply of services. Conversely, if the price is below the real economic value attributed to the credits, then, according to the CJEU, it is necessary to assess whether the difference between the nominal value and the price constitutes a consideration/remuneration "intended to directly reward a service supplied by the acquirer of the assigned credits". But, should there be a taxable operation, which is not conceived in the case sub judice, the same would always be supplied by the acquirer of the credits, and never by the Applicant.
n) Following the jurisprudence of the CJEU and the understanding of the Tax Authority itself above stated, the Applicant, and rightly so, did not proceed with any VAT liquidation in the issuance of an invoice relating to the price to be paid by the Assignee for the assignment of credits (€130,000). In fact, the contract entered into between the Applicant and the Assignee provides for an assignment of credits in definitive form in which the assignee acquires, at its own risk ("without recourse") and without right of recourse, credits from the assignor, at a price below the total nominal value of the same assigned credits, which constitutes an operation not taxed under VAT.
o) In view of the foregoing, the correction in the amount of €29,900, notified and justified in the Tax Inspection Report as resulting from an alleged failure to liquidate VAT in the operation of definitive assignment of credits sub judice, is based on errors in assumptions of fact and law, such correction being illegal as this operation is effectively not subject to VAT and, consequently, in these terms, the VAT liquidation statement sub judice should be annulled, as it implements the illegal correction above stated, with all legal effects.
p) Notwithstanding the foregoing, and insofar as it is not clear to the Arbitral Tribunal, despite the community jurisprudence already produced on the matter, the scope of paragraph c) of paragraph 1 of article 2 and of paragraph 1 of article 24, both of the VAT Directive, or of any other provision of the VAT Directive that may interfere with the proper resolution of this case, this Arbitral Tribunal should then promote the referral for a preliminary ruling of the questions it deems to raise to the CJEU.
q) If the VAT liquidation statement is annulled by the esteemed Arbitral Tribunal, the Tax Authority should be ordered to proceed with the reimbursement of the entire amount requested by the Applicant, including the amount of €29,900 subject to correction and not included in the amount of tax credit/reimbursement granted by the Tax Authority through the tax act sub judice. Without prejudice to the foregoing, merely as a subsidiary title, and should the Arbitral Tribunal consider itself materially incompetent to assess the request for condemnation to reimburse the amount of VAT above identified, the Applicant requests the condemnation of the Tax Authority to the restitution of the amount of VAT corrected in its VAT running account with reference to the tax period of January 2018.
r) Being well-founded the present request, the Applicant equally requests that the respective compensatory interest be paid for the delay in the receipt of the amount of €29,900 corresponding to the amount not granted by the Tax Authority in light of the reimbursement requested by the Applicant, in accordance with the provisions of articles 43 and 100 of the LGT.
3.1. The Applicant concludes by requesting: a) the annulment of the tax act of VAT liquidation statement that is its object, because contrary to law, as it suffers from error in the assumptions of fact and law; b) the condemnation of the Tax Authority to grant the reimbursement to the Applicant of the amount of €29,900, referring to the value of illegally corrected VAT; c) as a subsidiary title, and should the Arbitral Tribunal consider itself materially incompetent to assess the request for condemnation to reimburse the amount of VAT above identified, the Applicant requests the condemnation of the Tax Authority to the restitution of the illegally corrected VAT amount of €29,900 in its VAT running account; d) the condemnation of the Tax Authority to the payment of compensatory interest, at the legal rate, until the full reimbursement of the amount owed.
4. The Tax Authority and Customs Authority (hereinafter briefly designated as "Respondent" or "Tax Authority") filed a reply, invoking, in summary, the following:
a) At issue in the present proceedings is the request for declaration of illegality of VAT liquidation no. 2018..., referring to the period of January 2018, further requesting that the Tax Authority be ordered to grant the reimbursement or, alternatively, to consider that amount in the running account and, as well, to the payment of compensatory interest.
b) In the request formulated ultimately it is requested, in addition to the annulment of the VAT liquidation act, the condemnation of the Tax Authority to grant the reimbursement of the corrected VAT amount or, subsidiarily, to include that amount in the Applicant's running account. Since the arbitral process provided for in the RJAT is a contentious means of annulment, which aims to declare the illegality of acts of the types indicated in its article 2, the request, as formulated in subparagraph b), implies the incompetence of the Tribunal. Consequently, this tribunal is barred from competence to order the Tax Authority to grant any type of reimbursement, and should merely limit itself to a declaration of (non)conformity of the liquidation in question with the applicable legal norms, this request being connected with the matter of execution of judgments.
c) The Applicant attributes to the liquidation the defect of violation of law, considering, summarily, that the Tax Authority misinterpreted the law, contrary to community jurisprudence, and even in a sense contrary to binding rulings previously provided by the Tax Authority itself. However, this is not correct.
d) In the request for arbitral pronouncement (ppa) presented, the Applicant centers its defense on the submission to the present case of the jurisprudence expressed in the judgment GFKL, of 27.10.2011, Case C-93/10, of the Court of Justice of the European Union (CJEU), and in the administrative doctrine expended within the framework of processes no. 12692 and no. 12798. Now, as already refuted by the Tax Inspectors (SIT), in the reply to the right of hearing, the decision in the said CJEU judgment or in the binding rulings cited are not superimposable on the case in question, since in these neither the tribunal nor the Tax Authority proceeded with an analysis of operations of assignment of credits in the perspective of acquisition by the acquirers/assignees (and with a concrete framework distinct from that which we now have) in the sense of the supply of a service of debt collection.
e) Notwithstanding [the request made by the Supreme Court, corresponding to Case C-692/17, still being pending decision in the CJEU], it is possible to conclude that no doubts have arisen for the superior courts, within the scope of the said judgments, regarding the subjection to VAT of the operation of assignment of credits. In fact, given the breadth of the concept of supply of services and taking into account the residual character that it assumes under VAT, it is not possible to exclude the assignment of credits from the qualification, for the purposes of this tax, as a supply of services. Consequently, once the requirement of onerous nature is verified by the existence of a direct nexus between the consideration and the service supplied, in the context of the Applicant's economic activity, as was demonstrated in the Tax Inspection Report, such supply must be subject to tax.
f) Doubts do seem to exist, yes, in the superior courts, regarding the scope of the exemption of paragraph a) of article 27 of article 9 of the VAT Code, which exempts from the tax the operations of "granting and negotiation of credits, in any form, including discount and rediscount operations, as well as their administration or management carried out by those who granted them". (our emphasis). The uncertainties regarding the application of that exemption are related to the jurisprudence of the CJEU which sustains that the exemption in question covers any operations through which the transmission of a credit or credit right is effected.
g) However, as results from the recent judgment of 10.11.2018, case Volkswagen Financial Services (UK), Case C 153/17, the CJEU refers to "creditor or debtor", whereby it appears that the granting of credits to which the exemption relates necessarily derives from a loan agreement. Precisely, the ratio of the exemption of paragraph a) of article 27 of article 9 of the VAT Code (which transposed paragraph b) of paragraph 1 of article 135 of the VAT Directive), concerning the expression "granting", aims to cover the operations of granting credit provided either by banks or by any other type of supplier, in a financial perspective, in the sense of a loan service, and not in the sense of transmission of debt/debt collection service.
h) The granting of credits implies a continuing credit relationship between the parties, during a certain period of time, until the credit is paid – which is characteristic of a loan agreement. Thus, and returning to the case of the present proceedings, should there be any exemption – which is not conceded – the applicable norm would be that of article 9, paragraph 27, subparagraph a), and never that mentioned in the invoice in question, which mentioned, it is recalled, article 16, paragraph 6, subparagraph c), of the VAT Code.
i) However, in the situation at hand, it is not considered viable to argue that the Applicant grants a credit to the assignee, since there is no continuing credit relationship subsequent to the sale of the litigation portfolio. The assigned credits are litigious, are in default due to non-payment by the Applicant's customers, are concerning vehicle rental contracts, and the objective of the acquirer is to proceed with the collection of the debts, whereby it is concluded that the exemption norm is inapplicable to the case.
j) In summary, the Applicant's allegations cannot be agreed with, it appearing that the sale of the litigation portfolio, carried out within the scope of the credit assignment contract, configures an operation subject to VAT and not exempt therefrom, resulting in the correction that gave rise to the disputed liquidation statement not suffering from any illegality.
k) Without prejudice to the foregoing, should it not be clear to the Arbitral Tribunal the scope of the application of the exemption of paragraph a) of article 27 of article 9 of the VAT Code to the situation in question, agreement is given with the Applicant as to the need to promote a referral for preliminary ruling on the interpretation of paragraph b) of paragraph 1 of article 135 of the VAT Directive.
4.1. The Tax Authority concludes by requesting that the present request for arbitral pronouncement be judged unfounded, as not proven, and, consequently, the Respondent be absolved, all with the due and legal consequences.
5. No exceptions having been invoked and there being no contested matter of fact, as the questions to be decided are of law, the Arbitral Tribunal, through a ruling of 17/6/2019, dispensed with the meeting provided for in article 18 of the RJAT, which it did pursuant to the principles of autonomy in the conduct of the process and with a view to promoting celerity, simplification and informality thereof. The date of 28/6/2019 was also set for the delivery of the arbitral decision.
II. Dismissal of Preliminary Objections
6. The arbitral tribunal was regularly constituted and is materially competent, as provided for in articles 2, paragraph 1, subparagraph a), and 4, both of the RJAT.
7. The parties have legal personality and capacity, are legitimate and are represented (see articles 4 and 10, paragraph 2, of the RJAT, and articles 1 to 3 of Ordinance No. 112-A/2011, of 22 March).
8. By the foregoing, and no nullities being verified, it is incumbent to proceed, next, with the adjudication of the merits of the request.
III. Question to be Decided
9. In its petition, the Applicant intends that the illegality of the tax act of VAT liquidation statement No. 2018..., with reference to the tax period of January 2018, be declared, as it understands that such act is based on illegal VAT correction in the amount of €29,900, carried out within the scope of a Tax Authority inspection action.
IV. Merits
IV.1. Matters of Fact
10. With relevance for the assessment and decision of the merits question, the following facts are taken as established and proved:
A. The Applicant is an entity established in Portugal, whose corporate purpose includes the purchase, sale and rental of goods, equipment and motor vehicles with and without driver, the supply of fleet management services for motor vehicles, as well as the exercise of any ancillary activity or related thereto.
B. The operational rental of motor vehicles is the main activity developed by the Applicant since the beginning of its activity in 1994.
C. The Applicant is framed in the normal monthly periodicity regime under VAT.
D. Within the scope of its activity, and with reference to various operational vehicle rental contracts with different customers and for different amounts, the Applicant held credits in default due to non-payment by its customer/debtor lessees, with these same contracts having ceased due to breach.
E. On 10/1/2018, the Applicant entered into a credit assignment contract with B..., S.A., as assignee, through which the Applicant assigned to the assignee "which accepts the assignment, the credits and rights of which the first of the said companies is the holder, as of the date of signing of this contract, emerging from the contracts whose list is attached as Annex I to this contract, of which it forms an integral part" (First Clause, paragraph 1, of the said contract; see Doc. 3 attached).
F. According to the aforementioned contract, "the nominal value of the assigned credits corresponds to the value appearing in the attached list as Annex I" (First Clause, paragraph 2; see Doc. 3), which value was fixed, as of the date of execution of the contract, at €2,367,840.29 (see Annex I).
G. Pursuant to First Clause, paragraph 3, of the aforementioned contract, "the assignment agreed constitutes a definitive transmission of credits with transfer to the assignee of the credits, including their guarantees and ancillary rights where they exist".
H. Pursuant to Third Clause, paragraph 2, of the aforementioned contract, the assignment "is definitive and does not involve any promise of future restitution of the price (or part thereof) whereby the assignee does not have the right of recourse against C... when it fails to collect the credits from the debtors, their guarantors or endorsers".
I. Pursuant to First Clause, paragraph 4, of the aforementioned contract, the assignment "comprises both the right of the assignee to collect the credits that C... has on this date from the holders of the contracts, by reason of the operations carried out by the debtors, and the assumption by the assignee of the other rights that C... has by virtue of the mentioned contracts subject to assignment".
J. For the definitive assignment of credits effected by the Applicant to the assignee, a global price of €130,000 was agreed, value corresponding to 5% of the total nominal value of the portfolio of contracts to be assigned (see Second Clause, paragraph 2).
L. On 31/1/2018, the Applicant issued an invoice to the assignee (invoice no. SMI/3576), with the description "Sale of litigation portfolio (credit assignment contract)", with the value of €130,000, not liquidating VAT thereon (see Doc. 4 attached). Subsequently, the Applicant requested, in its periodic VAT return, concerning the tax period of January 2018, the full reimbursement of the amount of credit in its favor in this same period, in the amount of €713,517.15.
M. The present Applicant was subject to an inspection action, of partial scope, under VAT, the analysis having focused on the tax periods of November and December 2017 and January 2018, carried out by the Tax Inspectors (SIT) within the scope of Service Order no. OI2018....
N. The present Applicant was notified of the Draft Corrections of the Inspection Report, through Letter no. ..., of 29/6/2018, within the scope of which the Tax Authority proposed the partial approval of the reimbursement request made by the Applicant, in light of the alleged failure to liquidate VAT in the aforementioned credit assignment operation, proposing, in consequence, a tax correction in the total amount of €29,900 – this value corresponding to the amount of VAT understood to be liquidated in this operation, at the rate of 23%, levied on the price of the assignment in the amount of €130,000 (see Doc. 5 attached).
O. The present Applicant timely exercised its right of hearing regarding the corrections proposed in the aforementioned Draft, arguing that the credit assignment operation in question does not constitute an operation subject to VAT, in accordance with the understanding conveyed by the CJEU and by the Tax Authority itself concerning this type of operations (see Doc. 6 attached).
P. On 27/8/2018, the Applicant was notified of the Inspection Report, within the scope of which the Tax Authority consolidated the aforementioned previous understanding, maintaining the VAT correction in the amount of €29,900. Consequently, on 12/9/2018 the Applicant is notified of the tax act of VAT liquidation statement in question in the present proceedings (see Doc. 1 attached).
Q. As a result of the corrections made and of the aforementioned VAT liquidation statement, the amount of tax credit reported/reimbursement requested (€713,517.15) in the periodic return in question was reduced to the amount of €683,617.15.
R. The Applicant filed its request for constitution of an arbitral tribunal on 10/12/2018.
IV.2. Facts Not Proved
11. There are no other facts with relevance for assessment of the merits of the case that have not been proved.
IV.3. Justification of the Establishment of Matters of Fact
12. The Tribunal does not have to rule on all the details of the matters of fact that were alleged by the parties, with it being incumbent on it to select the facts that are of interest to the decision and to discriminate the matter that it deems proved and to declare that which it considers not proved (see article 123, paragraph 2, of the Tax Code of Tax Procedure and Process, and article 607, paragraph 3, of the Civil Code of Procedure, applicable by reference to article 29, paragraph 1, subparagraphs a) and e), of the RJAT).
13. Thus, the facts pertinent to the judgment of the case are selected and shaped in function of their legal relevance, which is established in attention to the various solutions for the object of the dispute under applicable law (see art. 596, paragraph 1, of the Civil Code of Procedure, applicable by reference to article 29, paragraph 1, subparagraph e), of the RJAT).
14. The conviction of the present Arbitral Tribunal was founded on the free assessment of the positions assumed by the Parties (in terms of fact) and on the content of the documents attached to the proceedings, not contested by the Parties, as well as on the analysis of the administrative process which was annexed by the Respondent.
IV.4. Preliminary Question: Assessment of the Request for Reimbursement of Amount Paid
15. It is justified here to note in advance that, in line with the doctrine (e.g., Carla Castelo Trindade and Jorge Lopes de Sousa) and with what was rightly stated in the Arbitral Decision of 15/1/2015, delivered in process 587/2014-T – also reproduced and followed, for example, by the Judgment of the Superior Court of Tax Justice of 28/4/2016 (proc. 09286/16) –, it should be borne in mind that, "similar to what happens with tax tribunals in judicial challenge proceedings, this Arbitral Tribunal is competent to assess requests for reimbursement of the amount paid and for payment of compensatory interest. [...]. The request for constitution of the arbitral tribunal has as its corollary the commencement in the arbitral process of discussion of the "legality of the executable debt" [...]. But, in the absence of any legal provision allowing a different conclusion, the scope of judicial challenge proceedings and of arbitral processes is restricted to questions of the legality of acts of the types referred to in article 2 which are covered by the binding made in Ordinance No. 112-A/2011, and cannot, in particular, define the terms in which annulling judgments that may be delivered should be executed. In fact, as the Tax Authority and Customs Authority rightly states, the competence to execute the judgments delivered by the arbitral tribunals functioning in CAAD falls, in the first place, to the Tax Authority and Customs Authority itself, as results from the express content of paragraph 1 of article 24 of the RJAT, in saying that "the arbitral decision on the merits of the claim from which no recourse or challenge lies binds the tax administration from the end of the deadline provided for recourse or challenge, this [administration] must..." On the other hand, should there be disagreement between the Tax Authority and Customs Authority and taxpayers on the manner of execution of judgments, it is the tax tribunals that are competent for their assessment, since competences in execution of judgments proceedings are not attributed to the arbitral tribunals functioning in CAAD and the arbitral tribunals are dissolved following the arbitral decision, as results from article 23 of the RJAT.'" (emphasis ours).
16. In these terms, to which full adherence is given, the present Tribunal declares itself competent to know of the request for reimbursement, as a consequence of the possible annulment of the tax act now in question, and to condemn, if it so be, the Administration to the payment of compensatory interest – however, and as noted, it is not incumbent on the present Tribunal, but rather on the said Administration, to determine the certain value of that reimbursement or of that payment (should it exist a decision of annulment or condemnation).
IV.5. Matters of Law
17. The Applicant intends that the illegality of the tax act of VAT liquidation statement No. 2018..., with reference to the tax period of January 2018 (Doc. 1), be declared, and that it be annulled with the due legal consequences resulting from such annulment, including its respective integration into the value to be reimbursed to it, increased by the corresponding compensatory interest, because such tax act is based on illegal VAT correction in the amount of €29,900, carried out within the scope of a Tax Authority inspection action.
18. The Applicant understands that the definitive assignment of credits has been classified as an operation not subject to VAT, not constituting a supply of services for the purposes of this tax, according to the interpretation given to the legal figure in question by the jurisprudence of the CJEU and by the administrative doctrine of the Tax Authority itself.
19. For its part, the Respondent understands that the Applicant has no reason to support its arguments, stating that "in the request for arbitral pronouncement (ppa) presented, the Applicant centers its defense on the submission to the present case of the jurisprudence expressed in the judgment GFKL, of 27.10.2011, Case C-93/10, of the Court of Justice of the European Union (CJEU), and in the administrative doctrine expended within the framework of processes no. 12692 and no. 12798. Now, as already refuted by the Tax Inspectors, in the reply to the right of hearing, the decision in the said CJEU judgment or in the binding rulings cited are not superimposable on the case in question, since in these neither the tribunal nor the Tax Authority proceeded with an analysis of operations of assignment of credits in the perspective of acquisition by the acquirers/assignees (and with a concrete framework distinct from that which we now have) in the sense of the supply of a service of debt collection."
20. It further adds, the Respondent that, in the "case of the present proceedings, should there be any exemption – which is not conceded – the applicable norm would be that of article 9, paragraph 27, subparagraph a), and never that mentioned in the invoice in question, which mentioned, it is recalled, article 16, paragraph 6, subparagraph c), of the VAT Code."
21. Let us see, then.
22. In the case of the present proceedings, the essential question at issue is the following: does the definitive assignment of credits now under analysis constitute, or does it not constitute, an operation subject to VAT (i.e., does it or does it not constitute a transfer of goods or supply of services subject to this tax)?
23. First of all, it is pertinent to analyze the content of the Judgment GFKL Financial Services AG (Case C-93/10), cited by the Applicant, and which in fact clearly illustrates the position of the CJEU jurisprudence regarding the aforementioned question.
24. In its Judgment dated 27/10/2011, the CJEU begins by stating that "a supply of services is only effected 'for consideration', within the meaning of article 2, point 1, of the Sixth Directive, and is only thus taxable, if there exists between the supplier and the beneficiary a legal relationship during which reciprocal supplies are made, the remuneration received by the supplier constituting the effective consideration for the service supplied to the beneficiary (judgment MKG-Kraftfahrzeuge-Factoring)".
25. It adds that "according to settled case law, the concept of 'supplies of services effected for consideration', within the meaning of article 2, point 1, of the Sixth Directive, presupposes the existence of a direct link between the service supplied and the consideration received (judgment of 29 July 2010, Astra Zeneca UK, C-40/09, Colect, p. I-7505, no. 27 and case law referred to)."
26. It emphasizes further that, in the cases of these proceedings, and contrary to what occurred in the Judgment MKG-Kraftfahrzeuge-Factoring (in "which, within the framework of the operation of assignment of credits in question in the proceedings that gave rise to that judgment, the assignee of credits was bound to supply factoring services to the assignor, in exchange for which it received remuneration, namely a factoring commission and a payment guarantee commission"), "the assignee of credits receives no consideration from the assignor, so that it does not carry out an economic activity within the meaning of article 4 of the Sixth Directive, nor effects a supply of services within the meaning of article 2, point 1, of this directive."
27. And it further notes that neither even the fact that there exists "a difference between the nominal value of the credits acquired and the acquisition price of those credits" alters the conclusion of the Court, since "contrary to the factoring commission and the payment guarantee commission which, in the proceedings that gave rise to the judgment MKG-Kraftfahrzeuge-Factoring, already mentioned, were received by the factor, this difference does not constitute, in the proceedings in question in the main proceedings, a remuneration intended to directly reward a service supplied by the acquirer of the assigned credits."
28. To that end, the CJEU concludes that "the difference between the nominal value of the assigned credits and the acquisition price of those credits does not constitute the consideration for such a service, but the reflection of the actual economic value of the said credits at the time of their assignment, which is dependent on their doubtful nature and on an increased risk of non-performance by the debtors."
29. This Judgment GFKL Financial Services AG (Case C-93/10) is the one that best fits the situation here under analysis. It is still worth noting that, contrary to what the Respondent alleges, in making reference, in point 23 of its reply, to the position of Advocate General Nilo Jääskinen in that process, it is the Advocate General itself who acknowledges that:
29.1. When it comes to "matter of assignment of an intangible asset", there are two relevant CJEU judgments (and either of them concerns situations that should not be confused with the case now under analysis): "In the judgment Swiss Re [Judgment of 22/10/2009, Case C 242/08], the Court of Justice declared that the assignment for consideration of a portfolio of reinsurance contracts relating to the life branch constitutes a supply of services, given that it is the assignment of an intangible asset. In the judgment First National Bank of Chicago [Judgment of 14/7/1998, Case C 172/96], the Court of Justice was to rule on operations relating to the purchase of an agreed amount in a given currency against the sale of an agreed amount in another currency and whose details (such as the type of currency, the amount and the value date) had been agreed between the parties. The Court considered that these operations were supplies of services by reason of the fact that they are assignments of intangible assets, the service consisting of the availability of the bank to conclude such operations."
29.2. Although, in his understanding, "the assignment of an intangible asset provided for in article 6, paragraph 1, of the Sixth VAT Directive [says] it concerns a situation in which the assignor (in the case in question, the Bank) assigns a credit to the assignee (GFKL) [and thus], the assignor supplies a service to the assignee [, however, the] proceedings in question concerns, nevertheless, the question of whether it can be considered that the assignee supplies a service to the assignor. [...]. [...] in my opinion, it cannot be considered that any sale of credits corresponds to the supply of a service of debt collection by the buyer. [...]. [...] something more than a simple transfer of the credits is necessary for there to be a supply of debt collection services and for the application of the judgment MKG to be invoked."
29.3. In line with what the CJEU would subsequently decide in the Judgment GFKL, also the Advocate General in that process concludes that, "to be covered by the scope of application of the Sixth VAT Directive, a service must be supplied for a consideration. [...]. For there to be a consideration within the meaning of the Sixth VAT Directive, there must be a legal relationship between the parties from which reciprocal supplies arise. In other words, the remuneration received must correspond to the effective consideration for the service. This condition is also known as the requirement of a 'direct nexus'. In the judgment MKG, the Court of Justice decided that there was a direct nexus between the activity of the factor and the amount which it received in return in the form of a payment, insofar as it applied a factoring commission and a del credere rate, for the activity it carried out. [But,] In the proceedings in question, no commission was expressly agreed between the parties. Therefore, the question arises as to what is the consideration."
29.4. No such consideration is apparent in the case analyzed in the Judgment GFKL. As the Advocate General points out in that process: "In economic terms, the Bank does not effectively grant any discount but simply accepts the price that the buyer is willing to pay for the portfolio. However, even if the Court of Justice considers that this is the consideration provided by the Bank, it is not certain that there is a direct nexus between the discount effected and the service supplied. [...]. [...] it cannot, therefore, be stated that the discount is agreed in return for the value of the services provided by GFKL to the Bank. Thus, there is no direct nexus between the service supplied and the consideration. Even if it were to be considered that the consideration corresponds to the possibility for GFKL to take advantage of the purchase of the credits, I think that there is no direct nexus. [...]. Therefore, the case in question is not covered by the scope of application of the Sixth VAT Directive, insofar as it has not been shown that there is a direct nexus between the consideration and the service."
30. In summary: A) in the Judgment MKG, the CJEU concludes that there exists a "direct nexus" between the activity of the factor and the amount which it received in return in the form of a payment (a factoring commission and a del credere rate) – however, in the case now under analysis, it is demonstrated that no commission or consideration for a service supplied (or to be supplied) was (required or) received by the Applicant as a result of the assignment of credits; B) in the Judgment GFKL, the CJEU – although analyzing the question there in question by the side of the acquirer of the assigned credits – concludes that "the assignee of credits receives no consideration from the assignor, so that it does not carry out an economic activity within the meaning of article 4 of the Sixth Directive, nor effects a supply of services within the meaning of article 2, point 1, of this directive", further noting that "a supply of services is only effected 'for consideration', within the meaning of article 2, point 1, of the Sixth Directive, and is only thus taxable, if there exists between the supplier and the beneficiary a legal relationship during which reciprocal supplies are made".
31. Knowing that, as stated above, the concept of "supplies of services effected for consideration", within the meaning of article 2, point 1, of the Sixth Directive, presupposes the existence of a "direct link" between the service supplied and the consideration received (and that such link, in the case of the present proceedings, does not exist, because to the value received no supply of any service was demonstrated to be associated), and that, even if a difference occurs between the nominal value of the credits acquired and the acquisition price of the same, such difference does not necessarily constitute "a remuneration intended to directly reward a service supplied by the acquirer of the assigned credits" (see Judgment GFKL, §24) – thus demonstrating that there does not exist, between the (alleged) supplier and beneficiary, a legal relationship during which reciprocal supplies are made, given that the (alleged) remuneration received by the supplier (whether this be understood as the price paid or "ascertained" by the mere difference between the nominal value of the credits acquired and the acquisition price of the same) cannot be seen as being consideration for a service (which, as stated, in the case of these proceedings was not demonstrated to have been carried out) supplied to the beneficiary –, it is concluded that the Applicant is correct.
32. Even bearing in mind that the replies of the Tax Authority to requests for binding information only bind it itself before the taxpayers who request such requests, nonetheless it should be noted that the understanding here expounded is not different from that which appears, for example, in the reply to the request for binding information requested within the scope of process no. 12692 (subject: Regularizations – The assignment of credits, in definitive form – Operations carried out in the assignor's domain) and which was issued by dispatch of 7/3/2018 of the Director of VAT Services: "the supply of services will only be taxable under VAT if there is a direct nexus between the service supplied and the consideration received, in accordance with the theory of reciprocal considerations (see judgment of the CJEU of 29/2/1996, Proc. C-110/94, Case INZO; judgment of the CJEU of 15/1/1998, Proc. C-37/95, Case "Ghent Coal"; judgment of the Superior Court of Tax Justice, Southern Section, Second Division, 08/01/2015, proc. 8165/14). In this specific case, the assignments of credits in question imply the transfer in definitive form and without right of recourse for the assignee, of all and any rights arising from the credits in question [precisely as occurs in the case of the present proceedings]. In the judgment of the Court of Justice, of 2011-10-27, Proc. no. C-93/10 [Judgment GFKL], [it] concludes that "(…) articles 2, point 1, and 4 of the Sixth Directive must be interpreted in the sense that an operator who acquires, at its own risk, doubtful credits, at a price below their nominal value, does not effect a supply of services for consideration, within the meaning of the said article 2, point 1, and does not carry out an economic activity covered by the scope of this directive". Thus it appears to us that the situation presented, the assignment of credits, in definitive form, is covered by the judgment cited, and therefore does not come to be considered an economic activity covered by the scope of the Directive, remaining therefore excluded from the field of the tax. [...]. For the reasons stated, it is concluded that: [...] [the] assignment of credits does not constitute an operation subject to VAT".
33. An identical understanding can also be observed in the reply to the request for binding information requested within the scope of process no. 12798 (subject: Exclusion from the field of application of VAT) and which was issued by dispatch of 5/2/2018 of the Director of VAT Services: "In this specific case, from the data provided by the present applicant, it appears to us that the contract for assignment of credits in question does not contemplate clauses in which a value is stipulated that corresponds to the consideration for a remuneration of services (see the "factoring" figure, regulated by Decree-law no. 171/95, of 18 July), since it is an assignment that implies the transfer in definitive form and without right of recourse for the assignee of all and any rights arising from the credit to which it relates, as well as its respective guarantees and accessories, should they exist. [...]. [Thus, and taking into account the content of the judgment of the Court of Justice, of 2011-10-27, Proc. no. C-93/10,] it appears to us that the situation presented, the assignment of credits, in definitive form, to a commercial company, [...] is covered by the judgment cited, whereby it does not come to be considered an economic activity covered by the scope of the Directive, remaining therefore excluded from the field of the tax (paragraph 1 of art. 1, a contrario, of the VAT Code)."
34. It is also worth noting that the Tax Authority never questioned, within the scope of the inspection action and in the Tax Inspection Report, (nor did the Respondent do so in its reply), that the price of the definitive assignment of credits now in question did not correspond to the economic or actual value of the said credits (the price was below the nominal value of those credits but such, in itself, does not prevent, as was seen above, considering that it is an operation not subject to VAT). In other words: there was never any doubt raised as to whether such price was a reflection of the economic value of the assigned credits. In fact, nothing in the present proceedings allows presuming otherwise and, thus being so, it is concluded, in light of the arguments above stated, that the operation in question does not constitute a supply of services and, as such, should not be subject to VAT.
Compensatory Interest
35. In light of the provisions of paragraph 5 of article 24 of the RJAT – in the part that states that "payment of interest is due, regardless of its nature, in accordance with the provisions of general tax law and of the Tax Code of Tax Procedure and Process" –, it has been understood that such norm permits the recognition of the right to compensatory interest in arbitral processes.
36. It is justified, by the foregoing, to analyze the request for payment of compensatory interest.
37. Compensatory interest is due when it is determined, in amicable reclamation or judicial challenge, that there has been error attributable to the services from which results payment of the tax debt in an amount superior to that legally due (see article 43, paragraph 1, of the LGT).
38. It is therefore a necessary condition for the attribution of the said interest the demonstration of the existence of error attributable to the services. To that end, see, for example, the following judgments: "The right to compensatory interest provided for in paragraph 1 of art. 43 of the LGT [...] depends on its having been demonstrated in the process that that act is affected by error regarding assumptions of fact or law attributable to the Tax Authority." (Judgment of the Supreme Court of Tax Justice of 30/5/2012, proc. 410/12); "The right to compensatory interest provided for in paragraph 1 of article 43 of the General Tax Law presupposes that in the process it be determined that in the liquidation 'there was error attributable to the services', understood as 'error regarding assumptions of fact or law attributable to the Tax Administration'" (Judgment of the Supreme Court of Tax Justice of 10/4/2013, proc. 1215/12); "The right to compensatory interest provided for in paragraph 1 of art. 43 of the LGT, derived from annulment of a liquidation act, depends on its having been demonstrated in the process that that act is affected by error – regarding assumptions of fact or law – attributable to the services, from which has resulted payment of tax debt in an amount superior to that legally due" (Judgment of the Supreme Court of Tax Justice of 28/11/2018, proc. 087/18.0BALSB).
39. Now, having occurred, as results from what was said above, error attributable to the services – which determines the annulment of the tax act of VAT liquidation statement in question and the restitution of the value paid in excess –, it is concluded, in accordance, by the well-foundedness of the request for payment of compensatory interest to the Applicant.
V. DECISION
In view of the foregoing, it is decided:
a) To judge the request for arbitral pronouncement well-founded and to annul the tax act of VAT liquidation statement No. 2018..., with reference to the tax period of January 2018.
b) To condemn the Tax Authority and Customs Authority to reimburse the Applicant of the amount paid in excess by the Applicant, to be determined in execution of judgment.
c) To judge the request well-founded also in the part concerning the recognition of the right to compensatory interest in favor of the Applicant.
VI. Value of the Proceedings
The value of the proceedings is fixed at €29,900.00 (twenty-nine thousand nine hundred euros), in accordance with the provisions of art. 32 of the Code of Tax Procedure and Process and art. 97-A of the Code of Civil Procedure, applicable by force of the provisions of article 29, paragraph 1, subparagraphs a) and b), of the RJAT, and article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).
VII. Costs
In accordance with Table I attached to the RCPAT, the costs are in the amount of €1,530.00 (one thousand five hundred and thirty euros), to be paid by the Respondent, in accordance with the provisions of articles 12, paragraph 2, and 22, paragraph 4, of the RJAT, and article 4, paragraph 5, of the RCPAT.
Let it be notified.
Lisbon, 28 June 2019.
The Arbitrator
(Miguel Patrício)
Text produced by computer, in accordance with the provisions of art. 131, paragraph 5, of the Civil Code of Procedure, applicable by reference to art. 29, paragraph 1, subparagraph e), of the RJAT.
The drafting of this decision is governed by the spelling prior to the Orthographic Agreement of 1990.
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