Process: 63/2015-T

Date: November 8, 2015

Tax Type: IVA

Source: Original CAAD Decision

Summary

This arbitral decision from the Portuguese Administrative Arbitration Centre (CAAD) addresses a VAT dispute concerning the proper tax rate applicable to hotel accommodation services provided to club members. A... S.A., operating the B... Club tourist accommodation establishment, challenged VAT self-assessments totaling €257,748.06 for the period from April 2012 to October 2013. The company had charged the normal VAT rate of 23% to Club members for their annual accommodation payments, while applying the reduced rate to non-member guests for identical hotel services. The taxpayer argued this differential treatment violated item 2.17 of List J of the Portuguese VAT Code, which provides for reduced VAT rates on hotel accommodation services. Additionally, the applicant invoked EU principles of fiscal neutrality, objectivity, uniform VAT taxation, and effectiveness, contending that identical services should receive identical tax treatment regardless of the client's membership status. The case followed the mediate challenge procedure: after the Tax Authority dismissed the taxpayer's mandatory complaint confirming the self-assessments, the company petitioned for arbitral review under the Legal Regime for Arbitration in Tax Matters (RJAT). A collective arbitral tribunal of three arbitrators was constituted by the CAAD's Deontological Council. The proceedings included written submissions, incorporated witness testimony from a related case, and oral arguments. The core legal question centered on whether the substance of the hotel accommodation service provided to Club members qualified for the reduced VAT rate under Portuguese law, notwithstanding the different payment structure. This decision illustrates the important intersection of national VAT provisions with EU fiscal neutrality principles in Portuguese tax arbitration.

Full Decision

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (President Arbitrator), Maria Forte Vaz and Paulo Lourenço, appointed by the Deontological Council of the Administrative Arbitration Centre to form an Arbitral Tribunal, agree:

I – REPORT

On 04 February 2015, A... S.A., NIF ..., with registered office in ..., Rua ..., ..., ...-... ..., filed a petition for constitution of an arbitral tribunal, pursuant to the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, with the wording introduced by article 228 of Law no. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking the declaration of illegality of the self-assessment acts of Value Added Tax (VAT) from April 2012 to October 2013 in the total amount of € 257,748.06.

To substantiate its request, the Applicant alleges, in summary, that the self-assessment acts impugned here are illegal by way of mediate challenge, and the (immediate) act of dismissal of the necessary complaint presented in relation to them which confirmed them, by violation of the provisions of item 2.17 of List J appended to the VAT Code in conjunction with paragraph a) of article 18(2) of the same instrument, and further, in the Applicant's understanding, illegal by violation of the EU principles of fiscal neutrality, objectivity and uniform VAT taxation rate, on one hand, and the principle of effectiveness or efficacy, on the other.

On 06-02-2015, the petition for constitution of the arbitral tribunal was accepted and automatically notified to AT (Tax Authority).

The Applicant did not proceed to appoint an arbitrator, wherefore, pursuant to the provisions of paragraph a) of article 6(2) and paragraph a) of article 11(1) of the RJAT, the President of the Deontological Council of the CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable period.

On 26-03-2015, the parties were notified of such appointments and did not manifest willingness to challenge any of them.

In accordance with the provision of paragraph c) of article 11(1) of the RJAT, the collective Arbitral Tribunal was constituted on 13-04-2015.

On 18-05-2015, the Respondent, duly notified for that purpose, filed its answer defending itself by way of exception and by way of substantive challenge.

By order of 19-05-2015, the Applicant was notified to pronounce itself on the exceptions invoked by the Respondent and regarding the maintenance of the interest in producing witness evidence.

By petitions of 29-05-2019, the Applicant pronounced itself, in writing, on the exceptions invoked by the Respondent and requested the use, in the present proceedings, of the witness examinations conducted in case no. 348-2015-T.

The Respondent being notified to pronounce itself on this petition, it had no objection, whereby, by order of 15-06-2015, the petition for use of witness evidence produced in case no. 348-2015-T was granted.

On 08-09-2015, the meeting referred to in article 18 of the RJAT took place, where oral submissions were presented by the parties, who pronounced themselves on the evidence produced, reiterating and developing their respective legal positions.

The period of 30 days was fixed for rendering of the final decision, following the submission of submissions by AT.

On 08-10-2015 an order was rendered extending the period for delivery of the decision by a further 30 days, as well as the period referred to in article 21(1) of the RJAT, by 2 months.

The Arbitral Tribunal is materially competent and is regularly constituted, pursuant to articles 2(1)(a), 5 and 6(1) of the RJAT.

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

The proceedings do not suffer from nullities.

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

All having been considered, it is appropriate to render

II. DECISION

A. MATTER OF FACT

A.1. Facts found to be proven

  1. The Applicant, at the date of the tax events at issue in the present proceedings, was a taxpayer subject to Corporate Income Tax (IRC), resident in national territory and covered by the normal VAT regime with monthly periodicity, and had as its main activity the operation of tourist accommodation with restaurant services.

  2. From the services made available by the Applicant, at that date, both members of the Club and any user, in general, could benefit, although under different conditions.

  3. Said services were provided in a four-star tourist accommodation establishment located in ..., in ..., in the ..., called B... Club.

  4. The referred establishment had 36 fully equipped and ready-to-occupy and use accommodation units, and enjoyed a daily cleaning and housekeeping service, towel replacement, bed linen and personal hygiene consumables.

  5. That same establishment had support and leisure facilities, such as reception, bar, outdoor and indoor swimming pools, sauna, gymnasium, games room, common resting areas.

  6. In the referred establishment, the Applicant provided to its clients personalized attention services, meals or other specific complementary services.

  7. The establishment of the Applicant was sought exclusively for non-residential purposes and use by all its clients was limited to short periods of time intended for rest and leisure.

  8. The Applicant provided all of its said services to the public in general, but offered more advantageous conditions to the designated members of the B... Club (Club).

  9. The Club was created by the promoters of the Applicant's establishment in the eighties, even before its construction, with the purpose of attracting and retaining clients.

  10. The status of member of the Club conferred on clients the right to use for temporary accommodation of a determined accommodation unit during a determined week of each year, at preferential prices.

  11. The status of Club member depended on an annual payment that dispensed with payment of any other consideration for accommodation, and which was tendentially lower than the price of identical accommodation charged to other clients.

  12. Should the client fail any annual payment, it would definitively lose its status as a member and would be treated as any other client, being able to occupy an available accommodation unit upon payment of the price due by any non-Club member client.

  13. The service that the Applicant provided to all of its clients - members and non-members of the Club - was identical.

  14. The Applicant charged VAT at the reduced rate on hotel accommodation services provided to clients who were not Club members.

  15. On the value of the annual payment invoiced by the Applicant to Club member clients for accommodation in the same units, it charged VAT at the normal rate.

  16. The price established by the Applicant for its Club member clients for the hotel accommodation service provided to them was, from the outset, a final price, with VAT included, in which any tax assessed, whether or not legally due, was contained and incorporated in that price and was borne at the risk of the Applicant.

  17. To the purchasers of the service - Club member clients - there was no right to any refund, since they did not pay the Applicant any amount in addition to the value of the annual charge to which they were bound.

  18. From November 2013 onwards, the Applicant proceeded to invoice the hotel accommodation service at the reduced VAT rate, including that provided to its Club member clients.

  19. In the tax periods from April 2012 to October 2013, the Applicant charged tax in the invoices it issued to its Club member clients at the rate of 23%.

  20. Between April 2012 and October 2013, as from November 2013, the Applicant did not charge its Club member clients any amount in addition to the value of the fixed annual charge that was established as consideration for the hotel accommodation service provided to them.

  21. The Applicant, timely, submitted the periodic declarations corresponding to the periods at issue, noting therein the VAT according to how it was invoiced, that is to say and with respect to Club members, at the rate of 23%, VAT which it remitted to the State.

  22. By registered letter sent on 05 June 2014, the Applicant filed a gracious complaint of the said self-assessment acts, for the following differences between the tax self-assessed (at the normal rate on tourist accommodation services) and that which it considers due (at the reduced rate):

[Table of differences - amounts omitted in original]

  1. The ascertainment of VAT charged in the periods in question was based on the invoices issued by the Applicant in the periods also in question, attached as doc. 8 by it with the gracious complaint, which is here reproduced.

  2. All of the said invoices title tourist accommodation services in the above-referred four-star tourist accommodation establishment located in ..., in ..., in the ..., called B... Club.

  3. The Applicant did not submit for the periods in question – April 2012 to October 2013 – any replacement form of the corresponding periodic declaration.

A.2. Facts found to be not proven

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

A.3. Reasoning of the proven and not proven matter of fact

With respect to the matter of fact, the Tribunal does not have to pronounce on all that was alleged by the parties, it being instead its duty to select the facts that matter for the decision and discriminate the proven from the not proven matter (cfr. art. 123(2) of the CPPT and article 607(3) of the CPC, applicable ex vi article 29(1), paragraphs a) and e), of the RJAT).

In this manner, the facts relevant to the judgment of the case are chosen and circumscribed according to their legal relevance, which is established in view of the various plausible solutions of the matter(s) of Law (cfr. former article 511(1) of the CPC, corresponding to the current article 596, applicable ex vi of article 29(1), paragraph e), of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of article 110(7) of the CPPT, the documentary evidence and the case file joined to the records, as well as the testimony given by witnesses C... and D... in case 348/2104T of the CAAD, the facts listed above were considered proven, with relevance to the decision.

B. ON THE LAW

i. on the matter of exception

a. The Respondent begins its Answer by raising the question of the incompetence of the Arbitral Jurisdiction in terms of subject matter, on the understanding, in summary, that what is at issue in the proceedings is the "condemnation of the Tax Authority to the recognition of the right to restitution of VAT which it allegedly charged and paid in excess".

Thus, concludes the party raising the exception, taking into account that "the scope of competence of arbitral tribunals constituted under the provisions of Decree-Law no. 10/2011, of 20 January (RJAT), does not contemplate the possibility of examination of petitions aimed at the recognition of rights in tax matters", there is "the existence of a dilatory exception which determines the material incompetence of the arbitral tribunal, preventing it from examining the petition".

With all due respect, there is no merit to the pretension in question.

Indeed, as can be read in the petition formulated by the Applicant, it asks (emphasis ours):

"In these terms and in other respects of Law which will be duly supplied by Your Excellencies, this arbitral action should be fully judged as well-founded and procedurally correct, and by way of consequence, with the inherent legal consequences, declared illegal and partially annulled the VAT self-assessment acts from April 2012 to October 2013 (...) and likewise the act dismissing the necessary complaint timely presented in relation to them that confirmed them".

As was written in case 348/2014-T, where an identical question was raised, and which, with due respect, is transcribed:

"It seems to us that it is clear from the literal text of the petition that what the Applicant actually intends is the declaration of illegality and partial annulment of the VAT self-assessment act of March 2012, by way of the declaration of illegality and annulment of the act that dismissed the timely and previously presented gracious complaint.

In that measure, the petition formulated by the Applicant is within the scope of the competence of arbitral tribunals constituted under the aegis of the CAAD, for it includes the examination of petitions for «declaration of illegality of acts of taxation of taxes, of self-assessment, of withholding at source and of payment on account», as follows from what is provided in paragraph a) of article 2(1) of the RJAT. (...)

The pretension of receiving the amount of tax that has been illegally charged is, therefore, a consequence of the eventual declaration of illegality, within the scope of the duty to «restore the situation that would exist if the tax act subject to the arbitral decision had not been performed», provided in paragraph b) of article 24(1) of the RJAT, whereby such pretension does not conflict with the competence of the tax tribunals functioning in the CAAD, all the more so because it presupposes the prior declaration of illegality of the self-assessment act."

Thus, being perfectly clear that the pretension of the applicant concerns the partial annulment of the self-assessments indicated by it, which is contained in para. a) of article 2(1) of the RJAT, the exception of material incompetence of the Arbitral Tribunal is not upheld.

b. Next, the Respondent invokes the "Peremptory Exception for non-existence of error in the self-assessment and consequent untimeliness of the complaint presented".

Now recognizing that "the decision of express dismissal of the gracious complaint constitutes the immediate object of the present action, being the mediate object the defects attributed to the respective VAT self-assessments", the Respondent expounds that being "error the imperative foundation for the complaint provided for in article 131 of the CPPT, the taxpayer, should it wish to avail itself of it, must always demonstrate the existence of error", whereby, it continues, "the matter complained of now impugned has no place as error in self-assessment by the non-existence of error in it, and for that reason, the complaint presented is untimely".

With all due respect always reserved, it is understood that the argumentation in question labors under an error of difficult comprehension.

Indeed, the timeliness of the complaint is assessed, logically and solely, as a function of the date on which the declaration was presented and the passage, or not, of the two-year period, counted from that date, as results clearly from the norm in question.

The existence or not of error, as the Respondent itself eventually, discursively, recognizes, is the foundation and not a prerequisite (temporal, in this case) of the complaint.

That is to say: the existence of error in the self-assessment is not a condition of the admissibility of the complaint and of the obligation to examine its merit, but is a matter that forms part of the merit itself of the same complaint (its foundation), the complaint should proceed if that error exists (if it has foundation), and should not proceed if the same does not exist (if it has no foundation).

In this manner, and resulting from the proven facts that the complaint was presented within the period referred to in article 131(1) of the CPPT, which, moreover, the AT itself recognized in the decision on the gracious complaint, the alleged exception of untimeliness of the action should be judged to not be upheld.

i. on the merits of the case

The situation at issue in the present arbitral proceedings can be described, briefly, as follows: the Applicant having charged, in the invoices it issued to the clients of its "Club", VAT at the normal rate, VAT that it declared and remitted to the State, understanding that the VAT due is that resulting from the application of the reduced rate, and taking into account, on one hand, that it did not proceed to any correction in the said invoices, and, on the other, that pursuant to the terms of the contractual relationship it established with the said clients the price fixed included VAT (which was therefore, contractually, borne by the Applicant), seeks, through the annulment of the self-assessments made, to recover the amounts that it understands were remitted in excess to the State.

Facing such a situation, the Applicant seeks, as has already been seen, that "declared illegal and partially annulled the VAT self-assessment acts from April 2012 to October 2013", and that, as a consequence thereof, to it be restituted the amounts that, from its point of view, in excess, it charged, collected and remitted to the State.

The viability of the Applicant's pretension will rest on the demonstration of two fundamental requirements, namely:

  • the illegality of the self-assessment acts; and

  • the legitimacy of the Applicant to petition for restitution, to itself, of the tax that is verified, in those, illegally charged in excess.

Let us see each of them.

Beginning with the last of the questions referred to, the same has already been the subject of in-depth examination in the context of the decisions rendered in cases 78/2014-T and 348/2014-T of the CAAD, whose reasoning, in that part, is followed and to which, for brevity, reference is made.

Thus, demonstrating, as is the case, that it was the Applicant that, economically, bore the tax, nothing will prevent that, demonstrating the illegality of the self-assessment acts impugned, the amount of tax that is ascertained to have been paid in excess be returned to it.

In this manner, and for what now matters, subscribing to, in the matter in question, what was decided in the cited cases, it is considered that there is merit to the Applicant's argument with respect to what it argues regarding the national and European rules for restitution of the indebted amount, being unnecessary any referral, as suggested by it, to the "Court of Justice of the European Union to decide, as a matter of preliminary ruling, on its compatibility with Directive 2006/112/CE, of 28 November, pursuant to article 267 of the TFEU and the rules of Union law relating to restitution of the indebted amount".

Being established, then, that, verifying the illegality of the self-assessment acts object of the present proceedings, it will be legitimate for the Applicant to petition that the amounts ascertained to have been charged in excess be returned to it, since, economically, it was she who bore the respective charge, it falls to verify whether, in fact, the said self-assessments were, or were not, effected in non-conformity with the law.

With respect to this question, it is noted from the outset that the decisions rendered in cases no. 117/2012-T, 78/2014-T and Case 348/2014-T of the CAAD, already cited above, contribute nothing to the respective resolution.

Indeed, in the two latter decisions it was understood that "the crux of the dispute stems from the position of the Respondent – adopted in the wake of the understanding followed in the decision dismissing the gracious complaint submitted by the Applicant – to the effect that the Applicant lacks legitimacy to petition the declaration of such illegality and receive the amount of tax illegally charged, because the Applicant was not harmed by the illegal VAT charging, as this was entirely passed on to the Club member clients" (case 348/2014-T), and that "it is settled that the charges whose declaration of illegality the Applicant seeks do indeed suffer from illegality, which is not even a matter of controversy", whereby "it is the lack of legitimacy of the Applicant to request such declaration and receive the amount charged illegally, derived from, in the understanding of the Tax and Customs Authority, the Applicant not being harmed by the illegal VAT charging, which was entirely passed on to its Club member clients. In a situation of this type one can see, from another perspective, the creation of a situation of unjust enrichment of the Applicant by allowing it to obtain amounts of VAT that it charged to its clients."

Already in the first of the said decisions (case 117/2012-T) what was at issue was "to decide on the VAT rate applicable to the service, paid annually by Club Members (the so-called "management charges")".

Thus, as has been seen, cases 78/2014-T and 348/2014-T only contribute to the question previously addressed.

Case 117/2012-T, on the other hand, concludes for the application of the rate of 6% to the service, paid annually by Club Members, a question which, as will be seen next, is not, also, here at issue, since the AT does not question, either in the administrative phase or in the contentious phase, the amount of the rate to apply.

It does question, rather, from the gracious phase onwards, "that the VAT remitted to the State, and here reclaimed, was charged to club members at the normal rate, for which reason, having not borne any additional VAT, neither will it have any right to restitution or deduction of any amount, since it merely delivered the tax charged to its clients and there are no known, in accordance with the information of the Inspection Services, regularizations in favor of the taxpayer, which concern corrections of the VAT rate".

It is thus verified that the AT understands, from the moment it was called upon to pronounce itself on the Applicant's pretension, that there is no illegality in the self-assessment acts impugned, inasmuch as the Applicant "merely delivered the tax charged to its clients and there are no known () regularizations in favor of the taxpayer, which concern corrections of the VAT rate".

This matter is connected, as will be seen next, not with the legitimacy of the Applicant to petition, for itself, restitution of the tax that it understands was indebted received by the State, but with the very legality of the self-assessments.

Otherwise, see: article 27(1) of the CIVA provides that "taxpayers are obliged to remit the amount of tax due, ascertained pursuant to articles 19 to 26 and 78, within the period provided for in article 41, at the legally authorized collection locations", being that the amount of tax due is ascertained, by deduction, pursuant to articles 19 et seq., to be made on the tax incidental upon the taxable operations which they effected.

For that purpose, and insofar as the case now matters, taxpayers are obliged to "Submit monthly a declaration relating to the operations effected in the exercise of their activity during the second preceding month, with the indication of the tax due or the existing credit and the elements that served as the basis for the respective calculation" (article 29(1)(c) of the CIVA).

These are the declarations which, insofar as a tax payment obligation follows from them, constitute acts of (self-)assessment, and are presently at issue.

Now, unless better advised, the VAT incidental upon the taxable operations which the taxpayer effected and which should appear in such declarations, will be the VAT that was charged in the corresponding invoices issued by the declaring taxpayer, in fulfillment of the legal obligations enshrined in articles 36(5)(d) and 37(1) of the CIVA.

This understanding will impose itself, from the outset, in light of the Common System of VAT itself (Council Directive 2006/112/CE, of 28 November 2006), which expressly provides (article 203) that "VAT is due by all persons who mention this tax in an invoice", being that, pursuant to article 226 thereof, the invoice includes, mandatorily, the applicable VAT rate.

Also – and as it could not be otherwise – the national legal order points in the same direction, providing, from the outset, article 2(1)(c) of the CIVA, that persons who are taxpayers of the tax are, "Natural or legal persons who, in an invoice or equivalent document, incorrectly mention VAT".

From this it results, clearly, it is considered, the obligation to remit to the state the VAT invoiced, even if incorrectly, be it for whatever reason, including, obviously, the application of a rate higher than due.

For that very reason, article 29(7) of the same Code provides that "An invoice or equivalent document must also be issued when the taxable value of an operation or the corresponding tax is altered for any reason, including inaccuracy", and here must be borne in mind article 219 of the Directive referred to above, which provides that "Any document or message that alters the initial invoice and makes specific and unequivocal reference to it shall be treated as an invoice".

Finally, but no less importantly, article 97(3) of the CIVA provides that "Assessments may only be annulled", following hierarchical appeal, complaint and/or challenge, "when it is proven that the tax was not included in the invoice or equivalent document issued to the purchaser pursuant to article 37".

In this manner it is demonstrated, it is considered, that the self-assessment effected by VAT taxpayers, in the declaration submitted pursuant to article 29(1)(c) of the CIVA, may only be annulled, even in the context of challenge, with respect to the ascertainment of the amount of tax incidental upon the taxable operations which they effected, if the tax in question is not contained in an invoice or equivalent document issued to the purchaser.

What, moreover, is well understood, since the mechanics of the tax in question rest on the essentiality of the invoice, whereby, from the outset, the purchasers of the Applicant's services, who hold the invoices issued by it, may, meeting the requirements which the applicable law imposes on them, deduct the tax contained in the same.

It is thus concluded that in order for it to be possible to annul the self-assessments in question, it was necessary that the invoices issued by the Applicant, in which it, admittedly, includes 23% VAT, be corrected, pursuant to legal requirements, so that it would come to be shown in the same the rate which it considers correct, that is to say, 6%, as well as the corresponding amount of tax, resulting from the application of this rate, to the taxable value of the operation.

It was necessary, therefore, that the procedure established in article 78 of the CIVA be followed, which provides, in its paragraph 1, that "The provisions of articles 36 et seq. must be observed whenever, the invoice or equivalent document having been issued, the taxable value of an operation or the respective tax comes to suffer rectification for any reason".

Not verifying such requirements (of articles 29(7), 97(3), and 78(1), all of the CIVA), there are no legal grounds for the annulment of the self-assessments in question, which are verified to have been effected in conformity with the norms that regulate them.

Nothing stands in the way of what has been concluded, the circumstance – not disputed in the case – that the operations at issue are subject to tax at the rate of 6%, and not at the rate, invoiced by the Applicant, of 23%. Indeed, therefrom results, not the illegality of the self-assessments effected by the Applicant in the declarations referred to in article 29(1)(c) of the CIVA, but of the assessments effected by the Applicant itself in the invoices it issued, in fulfillment of what is provided in article 37(1) of the CIVA, assessments whose correction was imperative on the Applicant itself, pursuant to what was exposed above.

Thus, as was decided in the Judgment of the Court of Appeal (Southern Section) of 04-07-2000, rendered in case 1525/98:

"1. The VAT debt of each taxpayer is found by deducting from the totality of the tax mentioned in the invoices issued to its clients the tax borne in the invoices for the acquisition of goods and services intended for its production, all reported to a certain period of time;

  1. If there is an alteration in the taxable value of the goods or services, the taxpayer may proceed to its rectification, which is optional if the tax mentioned in the invoice is higher, and mandatory if such tax is lower;

  2. In the case of tax mentioned in an invoice in an amount higher than due, as long as it is not rectified, the same is due, falling to the Tax Authority its additional assessment, in the case of the taxpayer not doing so;".

In this manner and for all that has been exposed, the arbitral petition formulated should be entirely rejected.

C. DECISION

In view whereof this Arbitral Tribunal decides to judge entirely without merit the arbitral petition formulated and, in consequence,

a) Absolve the Respondent of the petition; and

b) Condemn the Applicant in the costs of the proceedings.

D. Value of the proceedings

The value of the proceedings is fixed at € 257,748.06, pursuant to article 97-A(1)(a) of the Code of Tax Procedure and Process, applicable by force of paragraphs a) and b) of article 29(1) of the RJAT and paragraph 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is fixed at €4,896.00, pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Applicant, since the petition was entirely without merit, pursuant to articles 12(2) and 22(4), both of the RJAT, and article 4(4) of the cited Regulation.

Notify.

Lisbon

08 November 2015

The President Arbitrator

(José Pedro Carvalho - Reporting Arbitrator)

The Arbitrator Member

(Maria Forte Vaz)

The Arbitrator Member

(Paulo Lourenço)

[1] All notifications of this decision legally required, other than to the parties, who have personal knowledge thereof, must be accompanied by it.

[2] Available at www.caad.org.pt.

[3] "within the period of two years after submission of the declaration".

[4] All available at www.caad.pt.

[5] Also available at www.caad.org.pt.

[6] See the decision on the gracious complaint, p. 255 of the case file joined to the records.

[7] Being that, in the present case, in which invoicing is mandatory, the tax became due upon the issuance thereof, pursuant to article 29(1)(a) of the CIVA.

[8] "Without prejudice to the specific provisions laid down in this Directive, the only particulars which must appear on invoices issued in application of Articles 220 and 221 are the following: (...) 9) The applicable VAT rate;"

[9] And it must not be said that, being all purchasers individual persons, it would not be possible for them to benefit from the right to deduction, from the outset because the fact of being individual persons does not preclude that they are also taxpayers for tax purposes.

[10] Being a rectification for less of the amount of tax relating to taxable operations carried out by the Applicant, the alteration of the invoice or equivalent document should be effected within 2 years, as follows from paragraph 3 of the same article 78. The considerations expounded by the Applicant in its response to the exceptions do not stand in the way of this understanding, in which it seeks to restrict the scope of the paragraph 3 referred to to rectifications arising from material or manifest error, from the outset because when the legislator wished to do so, as happens in paragraph 6 of the same article 78, it said so clearly.

No rectification of the invoices issued having been carried out, the question of the application of paragraph 3 of article 78 does not arise, being certain that, in any case, from the eventual non-subsumption of the situation sub iudice to what is provided in article 78(3), there would not, in any manner, result the exclusion of the application of paragraph 1 of the same norm, whereby the Applicant should always – in that case without dependence on the 2-year period – comply with what is provided in article 36, noting in the invoices the correction – for less – of the amount of tax that it considers due.

Had it itself proceeded to the rectification of the invoices issued, the Applicant would also have to have, as requires paragraph 5, still of the same article, "proof that the purchaser became aware of the rectification or that it was reimbursed the tax".

In this regard, it is noted that the CJEU has already considered, in its judgment of 26 January 2012, rendered in case C‑588/10, that: "A requirement that subjects the reduction in the taxable value, as it results from an initial invoice, to the possession, by the taxpayer, of a copy of a corrected invoice sent by the purchaser of the goods or services, falls within the concept of condition referred to in article 90(1) of Council Directive 2006/112/CE of 28 November 2006, on the common system of value added tax".

[11] "The amount of the tax charged must be added to the value of the invoice or equivalent document, for purposes of its collection from the purchasers of the goods or users of the services".

[12] Available at www.dgsi.pt.

Frequently Asked Questions

Automatically Created

What are the legal grounds for challenging VAT self-assessment acts related to invoice errors in Portugal?
In Portugal, taxpayers can challenge VAT self-assessment acts through a mediate challenge procedure. First, they must file a mandatory complaint (reclamação graciosa) with the Tax Authority pursuant to article 131 of the Portuguese Tax Procedure Code. If this complaint is dismissed or rejected, the taxpayer can then request arbitration under the Legal Regime for Arbitration in Tax Matters (RJAT - Decree-Law 10/2011). Legal grounds for challenge include violations of substantive VAT law provisions, such as incorrect application of tax rates under the VAT Code and its annexed lists, procedural irregularities, and breaches of EU law principles including fiscal neutrality, proportionality, and effectiveness. In this case, the applicant challenged the self-assessments based on alleged violation of item 2.17 of List J (reduced rate for hotel accommodation) and EU fiscal neutrality principles.
How does verba 2.17 of Lista J of the Portuguese VAT Code affect the applicable reduced tax rate?
Item 2.17 of List J (Lista J) appended to the Portuguese VAT Code (CIVA) establishes that hotel and similar accommodation services qualify for the reduced VAT rate rather than the normal rate. This provision is crucial in determining the applicable tax rate for tourist accommodation establishments. The key interpretative question in disputes like Process 63/2015-T is whether the specific arrangement for providing accommodation falls within the scope of this reduced-rate provision. In this case, the taxpayer argued that accommodation services provided to Club members through annual payment arrangements constituted hotel accommodation within the meaning of item 2.17, and therefore should benefit from the reduced rate. The application of this provision must be read in conjunction with article 18(2)(a) of the VAT Code and interpreted consistently with EU VAT Directive principles to ensure uniform treatment of economically similar services.
What role does the EU principle of fiscal neutrality play in Portuguese VAT disputes before CAAD?
The EU principle of fiscal neutrality plays a fundamental role in Portuguese VAT disputes before CAAD (Centro de Arbitragem Administrativa). This principle, derived from the EU VAT Directive and ECJ jurisprudence, requires that similar goods and services bearing similar tax burdens should not be treated differently for VAT purposes. In Portuguese arbitral proceedings, taxpayers can invoke fiscal neutrality to challenge national tax provisions or their application when they result in discriminatory treatment of economically identical transactions. In Process 63/2015-T, the applicant argued that fiscal neutrality was violated because identical hotel accommodation services were taxed at different rates (23% for Club members versus reduced rate for other guests) based solely on the payment structure rather than the nature of the service provided. Portuguese arbitral tribunals must interpret domestic VAT provisions in conformity with EU principles, and can declare national tax acts illegal when they breach fiscal neutrality, even if they appear to comply with literal Portuguese law.
Can a taxpayer request arbitral tribunal review after an unsuccessful mandatory complaint against VAT self-assessments?
Yes, a taxpayer can request arbitral tribunal review after an unsuccessful mandatory complaint against VAT self-assessments through the mediate challenge procedure established in Portuguese tax law. Under article 131 of the Tax Procedure Code (Código de Procedimento e de Processo Tributário), taxpayers must first file a complaint (reclamação graciosa) with the Tax Authority challenging the self-assessment act. If this administrative complaint is dismissed or results in an unfavorable decision, the taxpayer can then petition for tax arbitration under articles 2 and 10 of the RJAT (Legal Regime for Arbitration in Tax Matters). This mediate challenge allows the taxpayer to contest both the original self-assessment act and the dismissal decision. In Process 63/2015-T, the applicant followed exactly this procedure: after the Tax Authority dismissed their complaint confirming the VAT self-assessments from April 2012 to October 2013, they successfully petitioned CAAD for constitution of an arbitral tribunal to review the legality of those acts.
What is the procedure for constituting a collective arbitral tribunal under the RJAT for IVA disputes?
The procedure for constituting a collective arbitral tribunal under the RJAT for VAT disputes involves several steps. First, the taxpayer files a petition (pedido de constituição do tribunal arbitral) with CAAD under articles 2 and 10 of the RJAT, specifying the challenged tax acts and legal grounds. The petition is automatically notified to the Tax Authority. Under article 6(2)(a) of the RJAT, if the taxpayer does not appoint an arbitrator, or upon request for a collective tribunal, the President of CAAD's Deontological Council appoints three arbitrators pursuant to article 11(1)(a). The parties are notified of these appointments and have the right to challenge any arbitrator. If no challenges are made, the tribunal is formally constituted under article 11(1)(c). In Process 63/2015-T, this occurred on April 13, 2015. The Tax Authority then files its answer, raising exceptions and substantive defenses. The tribunal may hold hearings under article 18 for witness testimony and oral arguments. Finally, a decision must be rendered within 30 days after final submissions, though this period can be extended as provided in article 21(1) of the RJAT.