CAAD Case 635/2017-T: VAT Bad Debts Regularization Under Article 78 CIVA – Tax Arbitration Ruling

ARBITRATION DECISION

The arbitrators designated by the Deontological Council of the Administrative Arbitration Centre to form the Arbitration Court, constituted on 15 February 2018, Dr. Alexandra Coelho Martins (arbitrator president), Dr. Sílvia Oliveira and Dr. Magda Feliciano (arbitrators members), agree as follows:

REPORT

A..., S.A., a legal entity number..., with registered office at ..., s/n, parish of ..., municipality of ..., hereinafter designated as "Claimant", filed a request for constitution of a Collective Arbitration Court, pursuant to articles 2, no. 1, letter a) and 10, no. 1, letter a), both of the Legal Framework for Tax Arbitration ("RJAT"), approved by Decree-Law no. 10/2011, of 20 January, and articles 1 and 2 of Order no. 112-A/2011, of 22 March.

Within this context, the Claimant seeks a declaration of illegality and annulment of the dismissal order of the Gracious Complaint, dated 31 August 2017, which concerned the acts of assessment of Value Added Tax ("VAT") and compensatory interest [and default interest[1]] carried out by the Respondent ("AT"), relating to the months of May to October 2016, in the global amount of € 86,275.07. The Claimant also petitions for the annulment of these assessment acts, with the consequent restitution of the amounts paid, supplemented with indemnificatory interest, or indemnification for expenses incurred with the provision and maintenance of guarantees in the related tax enforcement proceedings.

As grounds for its claim, the Claimant alleges, in summary, the following defects:

• The notification of the dismissal order challenged is deficient in the specification of the acts of delegation and subdelegation of powers pursuant to which the Head of the Division of Tax Justice – Contentious of the Finance Directorate of ... dismissed the Gracious Complaint, whereby such notification is null in accordance with articles 151, no. 1, letter a) and 162, no. 1 of the Code of Administrative Procedure ("CPA") and 39, no. 12 of the Code of Tax Procedure and Process ("CPPT");

• Incompetence of the author of the act [dismissal order] to assess and decide the Gracious Complaint, a defect generating annulability, in accordance with articles 75, no. 1 and 99, letter b) of the CPPT;

• The tax acts in question resulted solely from analysis of the Claimant's elements within the scope of an internal inspection and, according to article 34, no. 1 of the Supplementary Regime of Tax Inspection Procedure ("RCPIT"), an external inspection procedure should have been conducted and not merely internal, as defined in article 13 of the RCPIT. Since the disputed assessment acts are consequent to an illegal inspection procedure, they suffer equally from invalidity;

• Violation of law due to errors in the factual presuppositions, in light of:

  • The invocation of requirements that only came to be provided for in law at a moment subsequent to the tax facts in question, relating to debts falling due before 31 December 2012, and the inherent violation of the transitional regime provided for in article 198, nos. 6 and 7 of Law no. 66-B/2012, of 31 December ("SOB 2013"), of article 12, no. 1 of the General Tax Law ("LGT") and of the principle of non-retroactivity of tax law enshrined in article 103, no. 3 of the Constitution of the Portuguese Republic ("CRP");

  • In this context, the amendment of article 78 of the VAT Code, by Law no. 82-B/2014, of 31 December ("SOB 2015"), which provided that VAT regularisation should only take place after the final judgment in the proceedings for verification and gradation of debts, only entered into force on 1 January 2015, whereas the debts in question fell due between January 2011 and February 2012. Moreover, the amendment in question does not have an interpretative or clarificatory character of the previous law, but rather an innovative one, whereby the imposition of such a requirement on the concrete situation cannot be considered anything other than retroactive;

  • The requirement, by the AT, of constitutive elements of the right to VAT regularisation that lack legal support, based solely on mere circular notices (no. 30161, of 8 July 2014), and consequent violation of the principles of legality and typicality in taxation (cf. articles 103, no. 2, 165, no. 1, letter i) and 266, no. 2 of the CRP, 8, no. 1 and 55 of the LGT and 3 of the Code of Administrative Procedure ("CPA"));

  • Non-compliance by the AT with its own interpretative doctrine and the provision of article 68-A, no. 2 of the LGT, which determines that guidelines not in force at the moment of the tax fact—in this case those of circular notice no. 30161, of 8 July 2014—cannot be invoked retroactively against taxpayers, violating the principles of good faith, legal certainty and protection of legitimate expectations (cf. articles 68-A of the LGT, 55 of the CPPT, 10 of the CPA and 266, no. 2 of the CRP); and

  • The circumstance that the Claimant was in a situation of tax credit in the periods in question, superior to the value of the assessed tax, whereby additional VAT assessments could not have been issued, but only the value of the tax credit diminished. From this it further follows that compensatory interest should not be due, because there was no outstanding tax payment and because a violation is not imputable, by title of fault, to the Claimant.

The request for constitution of the Arbitration Court was accepted by the President of CAAD and followed its normal processing, in particular with notification to the AT.

The Deontological Council designated as arbitrators of the Collective Arbitration Court the undersigned, who communicated acceptance of the assignment within the applicable period, pursuant to the provision of article 6, no. 2, letter a) and article 11, no. 1, letter a), both of the RJAT.

The parties, duly notified, did not manifest any intent to refuse the designations and the Collective Arbitration Court was constituted on 15 February 2018, in accordance with article 11, no. 1, letters b) and c) of the RJAT and articles 6 and 7 of the Deontological Code.

The Respondent filed a reply and attached the administrative file. It considers that the petition for arbitration pronouncement should be dismissed, with the consequent rejection of the claim, fundamentally because it understands that the application is not retroactive of the wording of article 78 of the VAT Code introduced by the SOB for 2015, which came to require, for purposes of VAT regularisation, the "final judgment in the proceedings for verification and gradation of debts". According to the AT, this modification has an interpretative nature of the previous version of the law, which referred to another phase of the proceedings in the insolvency process—the homologation of the deliberation of the creditors' assembly—an act that the CIRE did not provide for, intended to fill this "gap" in the law.

No exceptions having been raised and this Court noting that the relevant factual matter is not susceptible to witness testimony, the meeting referred to in article 18 of the RJAT was dispensed with and the examination of the Claimant's witnesses was dispensed with.

The parties were notified of the opportunity for optional submissions and the deadline for pronouncement of the decision, which was set for 30 June 2018, with notice to the Claimant to, by that date, make payment of the subsequent arbitration fee, in accordance with the provision of no. 3 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings and communicate such payment to CAAD, which it did on 8 May 2018.

The Claimant submitted submissions on 24 April 2018, maintaining in essence the arguments contained in the petition, and the Respondent did not exercise such faculty.

PRELIMINARY MATTERS

The Court was regularly constituted and is competent ratione materiae, given the configuration of the subject matter of the proceedings (cf. articles 2, no. 1, letter a) and 5 of the RJAT).

The petition for arbitration pronouncement is timely, as submitted within the period provided for in letter a) of no. 1 of article 10 of the RJAT.

The parties have legal capacity and standing, enjoy legal personality and are duly represented (cf. articles 4 and 10, no. 2 of the RJAT and article 1 of Order no. 112-A/2011, of 22 March).

The proceedings do not suffer from nullities and no preliminary issues were raised.

GROUNDS

FACTUAL MATTERS

Relevant to the decision, the following facts must be taken into account:

• The company A..., S.A., hereinafter the Claimant, has been registered in the Commercial Registry of ..., since 21 January 1977, carrying out as its principal activity hydraulic engineering (CAE 42910) and, as ancillary activities, ready-mix concrete manufacturing (CAE 23630), road and airport runway construction (CAE 42110) and extraction of sand, sand and aggregate (CAE 8121), and is classified as a VAT taxable person under the normal scheme – cf. Tax Inspection Report ("RIT"), contained in the administrative file ("PA").

• Within the scope of the activity carried out, the Claimant made various supplies of aggregates to its customer, B..., S.A., invoiced in the period between September 2010 and October 2011 – cf. RIT and document 6 attached by the Claimant.

• The invoices relating to supplies to B..., S.A. contained VAT in the amount of at least € 119,869.49 and the respective payment was to be made within 120 days, whereby they fell due in the period between January 2011 and February 2012 – cf. RIT and document 6 attached by the Claimant.

• These invoices were not paid – cf. RIT and documents 7, 9 and 10 attached by the Claimant.

• B..., S.A. was declared insolvent by judgment of 7 November 2014, from the Court of the District of Aveiro, ...– Central Inst. –... S. Commerce – J1, rendered in case no. .../14...T8OAZ, which became final on 16 December 2014 – cf. RIT and document 7 attached by the Claimant.

• It is stated in the judgment declaring insolvency that the court dispensed with "the holding of the creditors' assembly (cf. Article 36, no. 1, letter n) of the Code of Insolvency and Business Recovery), whereby the proceedings should proceed to the stage of liquidation of assets (article 158 of the Code of Insolvency and Business Recovery)" – cf. document 10 attached by the Claimant.

• On 27 June 2016, the Claimant obtained a judicial certificate, with a note of final judgment, relating to the insolvency proceedings of the company B..., S.A. referred to in the preceding point (case no. .../14...T8OAZ). This certificate further mentions that the Insolvency Administrator, within the scope of the Credit Claims Petition process appended to the proceedings, recognized to the Claimant a debt in the amount of € 824,093.01, and it does not appear from those proceedings, until that date, that the same had received any amount for total or partial payment of that debt – cf. RIT and document 7 attached by the Claimant.

• The Claimant communicated to the company B..., S.A. and likewise to the Insolvency Administrator of the latter, C..., by letters dated 28 June 2016 and sent on 30 June, that it would proceed with VAT regularisation in its favour in the amount of € 85,151.16, in the June 2016 declaration, considering as uncollectible the amount of € 470,895.70 relating to invoices issued by it [Claimant] and not paid by B..., S.A. – cf. RIT and document 8 attached by the Claimant.

• On 30 June 2016, the Official Auditor, D..., of the Official Auditors firm "E..., SROC" issued certification confirming compliance with the conditions provided for in article 78, no. 9 of the VAT Code, relating to uncollectible debts belonging to the Claimant, and the overall value thereof, in the amount of € 662,471.09, whose VAT corresponds to € 119,869.49, considering that the Claimant had previously regularised VAT in its favour in the amount of € 34,718.23, the certification concludes that there remains to be regularised the amount of remaining VAT, of € 85,151.26 – cf. RIT and document 9 attached by the Claimant.

• On 6 July 2016, the Claimant submitted the Periodic VAT Declaration relating to the monthly period of May 2016, in which it entered in field 40 of table 6 the regularisation of VAT in its favour, in the amount of € 85,216.48, and determined a tax credit to recover of € 67,223.84 – cf. RIT and document 11 attached by the Claimant.

• In the subsequent months, from June to October, the Claimant reported in the Periodic VAT Declarations submitted (field 96), tax credits to recover, in the following amounts:

  • Periodic Declaration of June 2016 - € 42,823.35
  • Periodic Declaration of July 2016 - € 27,487.04
  • Periodic Declaration of August 2016 - € 38,726.19
  • Periodic Declaration of September 2016 - € 10,033.67
  • Periodic Declaration of October 2016 - € 37,775.05

  – cf. document 11 attached by the Claimant.

• Following the VAT regularisation carried out in the Periodic Declaration of May 2016, the Tax Inspection Services of the Finance Directorate of ... notified the Claimant, by letter dated 14 September 2016 (letter no. ...), to submit the following elements, pursuant to the principle of cooperation:

  "- Copy of the judicial certificate certifying the tenor of the judgment for verification and gradation of debts and the date of its final judgment, the identification of the creditor, the recognised debt and respective amount;

  • Copy of the certification by official auditor provided for in no. 9 of article 78 of the VAT Code;

  • Evidence of communication to the purchaser of the goods or service provided for in no. 11 of article 78 of the VAT Code;

  • Extract [from] the current account of client A..., S.A. relating to the period(s) of the invoice(s) subject to the aforementioned regularisation;

  • Relation/schedule with the breakdown of the invoices, dates, net values and VAT values, subject to said regularisation [if this relation/schedule is not contained in the elements requested in letter c)];

  • Copies of the aforementioned invoices (maximum of 3 copies)"

  – cf. RIT and Annex 1.

• The Claimant proceeded to submit the requested elements on 20 September 2016 – cf. RIT and Annex 2.

• On 25 October 2016, an internal inspection procedure was initiated, of partial scope (VAT), to the period of May 2016, by Service Order OI2016..., to verify compliance with obligations regarding VAT regularisation within the scope of the insolvency process of the company B..., S.A. – cf. RIT.

• On 7 November 2016, notification was sent to the Claimant (letter no. .../...) to exercise, within 15 days, the right to be heard, regarding the Draft Corrections to the Inspection Report, which proposed correction of the VAT regularised/deducted by the Claimant in the amount of € 85,216.48, with reference to the reporting period of May 2016, for not meeting all the requirements demanded by letter b) of no. 7 and nos. 9 to 11 of article 78 of the VAT Code – cf. Draft Corrections, notification letter and postal receipt in the PA.

• On 24 November 2016, the Claimant exercised the right to be heard, in which it requests the alteration of the Draft Corrections to the effect that the VAT regularisation carried out be considered correct, as the legal presuppositions applicable at the time were met – cf. right to be heard in the PA.

• Subsequently, the Claimant was notified of the Tax Inspection Report ("RIT") which maintained the proposed corrections, with agreeing order, of 29 November 2016, from the Head of the Division of the Finance Directorate of ..., by delegation of the Director of Finance, as per letter no. ..., dated 2 December 2016, sent by the Finance Directorate of ... – cf. RIT, document 1 attached by the Claimant and PA.

• The RIT recommends correction to the VAT regularised by the Claimant, in the amount of € 85,216.48, based on the grounds partially transcribed below:

  "(…) in light of Circular Notice no. 30161/2014, dated 8 July 2014, issued by the Tax and Customs Authority – Area of Tax Management – VAT, it was established that in cases of full insolvency, the relevant moment for the start of the period for regularisation by creditors is that of the final judgment in the proceedings for verification and gradation of debts. This understanding results from the fact that no homologation of any of the possible deliberations within the framework of article 156 of the CIRE is provided for, and consequently, the second part of said letter b) needs clarification by the legislator.

  It is certain that this understanding refers to letter b) of no. 4 of article 78-A of the VAT Code, however, we admit that such understanding also applies for purposes of regularisations under article 78 of the VAT Code, because the wording of letter b) of no. 7 of article 78 is identical to the wording of letter b) of no. 4 of article 78-A.

  From 1 January 2015 this norm was amended (clarified) with the publication of Law no. 82-B/2014, of 31 December (SOB 2015), coming to include the understanding provided for in said Circular Notice no. 30161/2014, dated 2014-07-08. That is,

  "7 – Taxable persons may still deduct the tax relating to debts considered uncollectible:

  (…)

  b) In insolvency proceedings, when the same is declared of limited character, after the final judgment in the proceedings for verification and gradation of debts provided for in the Code of Insolvency and Business Recovery or, when it exists, the homologation of the plan subject to the deliberation provided for in article 156 of the same Code;

  […]

  This uncollectibility is considered verified on the date of the final judgment (of insolvency).

  […]

  Taxable persons who have debts against the insolvent party may regularise in their favour the value of VAT corresponding to the amount of billing that remained unpaid, after the final judgment in the proceedings for verification and gradation of debts (as per Circular Notice no. 30161/2014 and amendments resulting from SOB 2015), and must be in possession of the corresponding judicial certificate certifying the tenor of the judgment and the date of its final judgment, the identification of the creditor, the recognised debts and respective amounts.

  Thus, in view of the foregoing, it is found that with respect to the debt considered uncollectible as a result of the insolvency process of the company B..., S.A. (Case no. .../14...T8OAZ), whose insolvency judgment had been rendered on 6 November 2014 and became final on 16 December 2014, the relevant moment for the start of the period for regularisation of the tax by creditors is that of the final judgment in the proceedings for verification and gradation of debts, as results from Circular Notice no. 30161/2014, dated 8 July 2014 (prior to the date of the insolvency judgment), issued by the Tax and Customs Authority – Area of Tax Management – VAT. In turn, at the time of the deduction of the tax in favour of the company A..., S.A. made in the periodic VAT declaration relating to the month of May 2016, the relevant moment for the start of the period for regularisation of the tax by creditors is equally that of the final judgment in the proceedings for verification and gradation of debts, as results from the amendment (clarification) resulting from SOB 2015 in said letter b) of no. 7 of article 78 of the VAT Code.

  As results from the procedural course of that insolvency petition (Case no. .../14...T8OAZ), to date no judgment for verification and gradation of debts has been rendered (nor consequently its final judgment).

  In such terms, it would be legally prohibited to the company A..., S.A. the possibility of regularisation (deduction) of the tax in its favour in said monthly period 2016/05, as not all the legal requirements upon which depends the legality of the deduction of tax relating to debts considered uncollectible in accordance with said letter b) of no. 7 of article 78 of the VAT Code were met.

  […]

  Thus, it should proceed to the purge of the amount of € 85,216.48 initially reported in Field 40 of the Periodic Declaration of VAT submitted for the monthly period 2016/05. […]"

  – cf. RIT.

• The Claimant was notified of the VAT assessments and compensatory interest identified in the table below:

– cf. document 3 attached by the Claimant and PA.

• In disagreement with these assessments, the Claimant filed a Gracious Complaint, sent by post on 10 April 2017, to the Finance Service of ..., which was entered and processed in the Finance Directorate of ... under no. ...2017... – cf. document 4 attached by the Claimant and PA.

• The Gracious Complaint was dismissed, as per notification of the final decision contained in letter no. ..., dated 4 September 2017, from the Finance Directorate of ..., following the previous notification of the Claimant to exercise the right to be heard which was not exercised by the latter – cf. documents 1 and 2 attached by the Claimant and PA.

• The grounds for dismissal of the Gracious Complaint are identical to those in the RIT, with the addition of two further arguments: the first to the effect that the internal procedure was adequate, as it aimed at formal verification of the taxable person's declarations and not properly supervisory activity, and the second relating to compensatory interest, to the effect of maintaining the respective assessment as the respective presuppositions are met, i.e., the delay (retardation) in assessment and the taxpayer's fault, in accordance with article 35 of the LGT – cf. documents 1 and 2 attached by the Claimant and PA.

• The order dismissing the Gracious Complaint, dated 31 August 2017, was rendered by the Head of the Division of Tax Justice – Contentious, of the Finance Directorate of ... with the notation "By subdelegation of the Deputy Director of Finance of ... The Head of the Division acting as substitute" adhering to the project of reasoned decision and previously communicated to the Claimant – cf. documents 1 and 2 attached by the Claimant and PA.

• No judgment for verification and gradation of debts has been rendered, to date, in the above-mentioned insolvency proceedings (item E) which took place before the Court of the District of Aveiro, ...– Central Inst. –... S. Commerce – J1, under no. .../14... T8OAZ – cf. documents 7 and 9 attached by the Claimant and RIT.

• On 5 December 2017, the Claimant filed a request for constitution of the Arbitration Court in the CAAD computer system.

UNPROVEN FACTS AND REASONING

The relevant facts for the judgment of the case were selected and delimited according to their legal relevance, in light of the plausible solutions to the legal questions, in accordance with article 596 of the Code of Civil Procedure ("CPC"), applicable by virtue of article 29, no. 1, letter e) of the RJAT.

The Claimant did not prove that it had paid the VAT assessments and compensatory and default interest impugned in the proceedings, or that it had provided a bank guarantee to prevent potential tax enforcement proceedings.

With relevance to the decision, there are no other facts that should be considered unproven.

As regards the proven facts, the arbitrators' conviction was based on critical analysis of the documentary evidence attached to the proceedings.

ON THE LAW

2.1 Delimitation of the Questions to be Decided

The main substantive issue to be assessed and decided concerns the determination, in the concrete case, of the presuppositions of the regime for VAT regularisation provided for in article 78, no. 7, letter b) of the VAT Code, relating to debts considered uncollectible in insolvency proceedings, in the wording applicable at the time of the facts, taking into account the succession of laws in time occurring between 2012 and 2015 and the issues raised regarding the innovative (non-interpretative) nature of the legislative amendments, the violation of the transitional regime provided for in articles 198, nos. 6 and 7 of SOB 2013 and the principles of non-retroactivity of tax norms, legality, typicality and protection of legitimate expectations.

Additionally, the following defects were submitted for appreciation by this Court, of which it is necessary to decide, except insofar as their decision is prejudiced by the solution given to the foregoing:

• Nullity of the act of notification of the dismissal order of the Gracious Complaint;

• Incompetence of the author of the dismissal order of the Gracious Complaint;

• Disregard of mandatory external inspection procedure and consequent defect of violation of law of the assessment acts;

• Violation of law, regarding non-consideration of VAT credits reported monthly by the Claimant;

• Absence of attribution (by title) of fault capable of supporting the assessment of compensatory interest.

Finally, the Court must pronounce on the claim for indemnificatory interest, pursuant to article 43 of the LGT, or, alternatively, on the undue provision of guarantee and consequent indemnification for expenses incurred with the same, in accordance with article 53 of the LGT.

2.2 On the Nullity of the Notification of the Dismissal Order of the Gracious Complaint

The Claimant contends that the notification of the dismissal order of the Gracious Complaint is null, as it [notification] is deficient in the specification of the acts of delegation and subdelegation of powers pursuant to which the Head of the Division of Tax Justice – Contentious of the Finance Directorate of ... dismissed the Gracious Complaint. To this end, it invokes the provisions of articles 151, no. 1, letter a) and 162, no. 1 of the CPA and 39, no. 12 of the CPPT.

It is important to note that the rules on notification of administrative acts contained in the CPA and of tax acts contained in the CPPT are not the same, as has been opportunely noted by the case law of the Supreme Administrative Court (cf. judgment rendered in case no. 0309/14, of 28.01.2015). Thus, the application of the CPA, as subsidiary law, is not automatic and depends on a set of conditions, which presuppose, firstly, a gap in regulation (lacuna) of the CPPT which does not exist in the present situation.

In effect, this tax compendium provides in article 39, no. 12:

"12 - The act of notification shall be null in the case of failure to indicate the author of the act and, in the case of the latter having acted in the exercise of delegation or subdelegation of powers, the capacity in which it decided, its tenor and its date."

In the concrete case, the notification of the dismissal order in question contains the notation "By subdelegation of the Deputy Director of Finance of ... The Head of the Division acting as substitute" and indicates the other elements contained in the provision of the tax adjective rule, whereby the alleged "nullity" of the notification does not occur.

However, it will always be said that, even if that argument were to succeed, it could not produce the effect intended by the Claimant of illegality and annulment of the tax assessment acts of the first and second degree, i.e., of the assessments and the dismissal order, which constitute the subject matter of these proceedings, as notifications are intended to ensure the "personal, official and formal knowledge of acts" to those interested and are configured as a requirement of effectiveness or subjective opposability of impositive acts, a category into which tax acts fall[2]. This approach is upheld by the case law of the Supreme Administrative Court, referring by way of illustration to the Judgments rendered in cases nos. 0128/18, of 18 April 2018, and 309/14, of 28 January 2015.

In this way, as the specification of acts of delegation or subdelegation of powers is not a condition of validity of the notified acts, the argument of the Claimant fails, in this segment.

2.3 On the Incompetence of the Author of the Dismissal Order of the Gracious Complaint

The second allegation of the Claimant concerns the formal defect of incompetence, grounded in article 75, no. 1 of the CPPT, according to which "Save where the law provides otherwise, the entity competent to decide the gracious complaint is the director of the regional peripheral body of the area of the taxpayer's domicile or registered office, the location of the assets or the assessment or, if there is no regional peripheral body, the highest director of the service", concluding that the act [of dismissal of the Gracious Complaint] should have been taken by the Director of Finance of ...

However, the Claimant's approach does not seem to properly take into account article 75, no. 4 of the CPPT, which contemplates the faculty of delegation and subdelegation of powers, allowing another body to perform the act (whose regulation is contained in articles 44 and 46 of the CPA), nor the regime of substitution of bodies, in which the substitute body, pursuant to law, exercises as "own and exclusive competence the powers of the substituted body, suspending the application of the norm attributing competence to the latter" (cf. article 43 of the CPA).

In effect, the decision to dismiss the Gracious Complaint in question was taken pursuant to both of the mentioned regimes, of subdelegation of powers and of substitution, as is apparent from the notation placed in the signature for identification of its author: "By subdelegation of the Deputy Director of Finance of ... The Head of the Division acting as substitute". Thus, although the deciding body does not have an original competence, whether revocatory (of valid acts) or annulling (of invalid acts), it is nonetheless competent, through derived means, on the basis of legal habilitation and acts of delegation and subdelegation of powers.

It should further be noted that the alleged invalidity of the decision to dismiss the Gracious Complaint does not allow for a conclusion regarding the definition of the legal tax relationship which is the subject of the action and which, ultimately, aims at the annulment of the primary dispositive acts, the additional assessments. Thus, even if the decision to dismiss were invalid due to incompetence of its author, a position which is not upheld, this circumstance would not lead to the invalidity of the assessment acts. In view of the foregoing, the defect of incompetence raised by the Claimant fails.

2.4 On the Obligation of an External Inspection

From the analysis of article 13 of the RCPIT, it results that the distinction between internal and external procedure is based on two fundamental criteria, namely:

• The place of its performance, which may be in the AT services or (wholly or partially) in the premises of taxable persons; and

• The interaction of the AT with taxpayers, whereby in the first case (internal) the absence of external contacts is assumed, with the inspection being carried out exclusively through formal and coherence analysis of documents and, in the second (external), such contacts are inherent to the procedure.

The teleology and raison d'être of internal inspections, carried out exclusively within the AT "through formal and coherence analysis of documents", is, as much as possible, the prevention of disturbance and interference in the life and commercial activity of taxable persons, inherent to the performance of external inspection acts.

Contrary to what the Claimant appears to infer, the internal procedure does not represent a diminution of guarantees for taxable persons. This has a less formal and more expeditious character, precisely because of its non-intrusive characteristics, whereby the principle of non-repetition of the inspection procedure which occurs in the case of external inspection is not applicable to them, given the increased potential for harmfulness of the latter[3].

The principal objective is, thus, to prevent "that the same taxpayer or tax obligor be burdened with the inconveniences that external supervisory actions are likely to cause them", as recognized by Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, General Tax Law Commented and Annotated, 4th edition, Encontro da Escrita, 2012, p. 271, in consonance with the principle of proportionality expressly adopted by articles 5 and 7 of the RCPIT.

In this context, only in situations where certain verifications "of merchandise, of the production process, of accounting, of books of record or of other documents related to the activity of the entity to be inspected" are necessary is it justified to undertake an external procedure, in the manner provided for in article 34, no. 1 of the RCPIT.

Thereby, the internal inspection procedure is not only potentially less harmful than the external one, but should be favored, in light of the principle of proportionality in the strict sense, whenever it proves suitable and sufficient for the purpose to be achieved.

Thus, the Claimant is not correct in invoking a procedural defect invalidating the assessment acts which constitute the outcome of the procedure, both because there is no legal preference for external inspection as opposed to internal, and because, if a formal error in the classification of the inspection were to be found, such would not inevitably imply the invalidity of the tax acts, provided the guarantees of taxpayers which the different legal regimes applicable to the two types of inspections are intended to safeguard have not been violated.

Indeed, it is not uncommon for the AT to perform acts pursuant to an internal procedure that correspond to those of an external procedure, or, to put it another way, for a dissonance to occur between the formal classification of the inspection and reality – cf. Nuno de Oliveira Garcia and Rita Carvalho Nunes, "External Tax Inspection and the Relevance of Material Inspection Acts", in Review of Public Finance and Tax Law, Year IV, no. 1, March 2011, p. 249-268; Arbitration Judgment rendered in case no. 14/2012-T, of 29 June 2012 and Judgment of the Superior Administrative Court of the South, case no. 5303/12, of 10 July 2012.

In the circumstances of the proceedings, given the existence of a request by the AT to the taxable person, pursuant to the principle of cooperation, of various elements on which the analysis (verification and checking) of the declared elements was based, it appears that we are outside the scope of a strictly internal inspection carried out "exclusively in the services of the tax administration", although there was no physical presence in the Claimant's premises.

To be thus, we would be faced with an error of designation that does not constitute, per se, a cause of invalidity, the legal discipline corresponding to it must be applied in consonance and which in external inspection procedures posits the impossibility of its repetition (for the same scope and time period) and the necessary suspension of the period for extinction of the right to assess (cf. article 46, no. 1 of the LGT).

Thus, the defect of disregard of procedural formality for conducting an internal inspection rather than an external inspection does not succeed, although an error in the qualification of the type of inspection is noted. In truth, it appears that an external inspection occurred rather than an internal one, with, however, no compromise of the validity of the final acts of the procedure, i.e., of the assessment acts in question, as the classification irregularity did not impede, in the concrete case, the achievement of the purposes aimed at by law (of verification and verification of tax obligations with the least possible harmfulness to the sphere of taxpayers), nor generated the diminution of the guarantees of the Claimant.

2.5 Violation of Law Due to Errors in the Factual Presuppositions Relating to the Application of the VAT Regularisation Regime for Uncollectible Debts Provided for in Article 78 of the VAT Code

The uncollectible debts underlying the VAT regularisation carried out by the Claimant in the period of May 2016 relate to invoices for supplies to B..., S.A., issued in the period between September 2010 and October 2011 and falling due between January 2011 and February 2012, with the said company being declared insolvent, by final judgment, on 16 December 2014.

Within this temporal framework, article 78, no. 7, letter b) of the VAT Code, the legal basis for the VAT regularisation in the Claimant's favour, was the subject of successive amendments, the last of which being by Law no. 82-B/2014, of 31 December (SOB 2015), whose application is advocated by the AT and which constitutes grounds for the disputed assessments.

It is important, in this context, to proceed with analysis of the said legislative modifications and delimit the relevant tax fact regarding VAT regularisations for debts owed by insolvent debtors.

Regime for Debts Falling Due Before 31 December 2012: Applicability of Article 78 of the VAT Code

The first issue to be resolved concerns the classification of the Claimant's debts within the regime of VAT regularisations. At this point, considering that these debts fell due before 1 January 2013, it is indisputable that the same are governed by article 78 of the VAT Code, in consonance with the provision of the transitional rule of article 198, no. 6 of SOB 2013, according to which: "the provision of nos. 7 to 12, 16 and 17 of article 78 of the VAT Code applies only to debts falling due before 1 January 2013".

However, if the elucidation of this point allows the liminary dismissal of the application of articles 78-A to 78-D of the VAT Code, added by the said SOB 2013 and applicable to debts falling due after the entry into force of that law, in accordance with the transitional rule contained in no. 7 of its article 198[4], it cannot be affirmed that it serves as a criterion for selection of the wording of article 78 of the VAT Code applicable to the case.

Succession of Laws in Time – the Various Versions of Article 78, No. 7, Letter b) of the VAT Code

Until 31 December 2012, article 78, no. 7, letter b) of the VAT Code provided:

"Article 78

Regularisations

1 – (…)

7 – Taxable persons may still deduct the tax relating to debts considered uncollectible:

a) (…)

b) In insolvency proceedings when the same is declared."

Subsequently, with Law 66-B/2012, of 31 December (SOB 2013), which entered into force on 1 January 2013, this provision took on the following wording:

"Article 78

Regularisations

1 – (…)

7 – Taxable persons may still deduct the tax relating to debts considered uncollectible:

a) (…)

b) In insolvency proceedings, when the same is declared of limited character or after the homologation of the deliberation provided for in article 156 of the Code of Insolvency and Business Recovery, approved by Decree-Law no. 53/2004, of 18 March;"

Simultaneously, articles 78-A to 78-D of the VAT Code were added, which instituted innovative and streamlined discipline for recovery of VAT relating to debts of doubtful or uncollectible collection, providing, in particular, that VAT of debts evidenced as such in the accounts, in default for more than 24 months from the date of their falling due and certified by an official auditor could be deducted.

As noted above, in conformity with the transitional rule of article 198 of SOB 2013, the application of the preceits added to the VAT Code (articles 78-A to 78-D) was limited to debts falling due after the entry into force of that law, i.e., after 1 January 2013, and the provision of article 78, nos. 7 to 12, 16 and 17 of the same Code to debts falling due before 1 January 2013 (nos. 6 and 7 of the cited article 198), the latter category encompassing the debts discussed in the present action.

It is worth noting that the new regime applicable (solely) to debts falling due after 1 January 2013 also maintained the possibility of VAT regularisation for debts owed by (insolvent) debtors if, before the expiration of the 24-month period of default, insolvency of limited character were declared or after the "homologation of the deliberation provided for in article 156 of the Code of Insolvency and Business Recovery, approved by Decree-Law no. 53/2004, of 18 March" (article 78-A, no. 4, letter b) of the VAT Code), in conditions similar to those in force for debts falling due before 1 January 2013 and, therefore, governed by article 78, no. 7, letter b) of the same Code.

In this way, with SOB 2013, VAT regularisation in full insolvencies came to take place, either by article 78, no. 7, letter b), or by article 78-A, no. 4, letter b), both of the VAT Code, by reference to a specific moment: "after" the homologation of the deliberation provided for in article 156 of the CIRE.

It happens, however, that, as the AT itself acknowledged in Circular Notice no. 30161/2014, of 8 July 2014, the CIRE does not provide for such deliberation, whereby the statutory language contemplated a presupposition which, taken literally, would never be verified, and the AT established in that context that, without prejudice to the need for "clarification by the legislator", the relevant moment for the start of the period for regularisation by creditors, within the scope of article 78-A, no. 4, letters a) to d) of the VAT Code, would be that of the final judgment in the proceedings for verification and gradation of debts.

Finally, article 194 of Law no. 82-B/2014, of 31 December (SOB 2015) effected a new amendment to the text of article 78, no. 7, letter b) of the VAT Code, from which came to read:

"Article 78

Regularisations

1 – (…)

7 – Taxable persons may still deduct the tax relating to debts considered uncollectible:

a) (…)

b) In insolvency proceedings, when the same is declared of limited character, after the final judgment in the proceedings for verification and gradation of debts provided for in the Code of Insolvency and Business Recovery or, when it exists, the homologation of the plan subject to the deliberation provided for in article 156 of the same Code;".

The Inapplicability of the Wording of Article 78, No. 7, Letter c) of the VAT Code Introduced by SOB 2015

It being established that article 78, no. 7, letter b) of the VAT Code applies to the concrete case, the question remains of which of its three wordings must be invoked, given that each one provides different conditions and moments for VAT regularisation:

• That in force at the moment the debts fell due (before 1 January 2013), which provided as the index fact of uncollectibility the declaration of insolvency;

• That pertaining to the moment when uncollectibility was verified, whether the final judgment in the proceedings declaring insolvency, or, in the version of SOB 2013, "after" the creditors' assembly provided for in article 156 of the CIRE; or, finally,

• That in force at the date the taxable person reported VAT regularisation in its favour (May 2016) and which requires as a constitutive presupposition of the regularisation of the tax the final judgment in the proceedings for verification and gradation of debts.

It appears without hesitation that the hypothesis in letter c) above, relating to the moment when the taxable person reported the VAT regularisation, should be ruled out. This corresponds solely to the performance of a declarative obligation not susceptible to conditioning the temporal incidence and to determining the applicable law to the substantive tax relationship, to be assessed on the basis of the material presuppositions of the provision of the incidence rule.

The Respondent does not dispute the Claimant's observance of the generality of the essential requirements for VAT regularisation, in particular that the tax was assessed in debts falling due and unpaid, relating to a debtor declared insolvent by final judgment, certified by an official auditor and the subject of proper communication to the debtor, whereby the only condition which the Respondent does not consider satisfied and which underlies the disputed VAT and interest assessments is that of the final judgment in the proceedings for verification and gradation of debts.

However, this condition was only introduced with SOB 2015, being absent from the previous versions of the cited article 78, no. 7, letter b) of the VAT Code, which provide for other requirements and distinct moments of regularisation (we refer to the declaration of insolvency or the moment "after" the Creditors' Assembly of article 156 of the CIRE).

The uncollectibility of the fallen debt constitutes the fact regulated by the regime of VAT regularisations, whereby, in this matter, two possible solutions are foreseen: the applicable law in time will be that in force at the date the debts fell due, in this case, between January 2011 and February 2012; or that in force at the moment the uncollectibility of the debts was ascertained, which indubitably occurred with the final judgment in the insolvency judgment of the debtor, on 16 December 2014.

In either case, the application of SOB 2015 is definitively ruled out, a law that was only published on 31 December 2014 and that was not in force at either of the two time points corresponding to the relevant tax facts, with its entry into force occurring on 1 January 2015.

The AT itself refers in the Tax Inspection Report (p. 14) that uncollectibility is considered verified on the date of the final judgment in the insolvency proceedings, that is, even for the AT this is the determining tax fact (which occurred in 2014), at the date of which the applicable legal discipline should, then, be assessed.

It thus has no support, for multiple reasons, the understanding advocated by the AT that the Claimant did not meet the indispensable conditions for VAT regularisation as it did not possess a final judgment in the proceedings for gradation and verification of debts.

First, because such requirement was not legally provided for at the date of the facts, and in our legal system it would be necessary that it be in light of the principle of legality and typicality in taxation (cf. articles 103, no. 2 and 165, no. 1, letter i) of the CRP).

Second, because although Circular Notice no. 30161/2014, prior to the approval of SOB 2015, established, through administrative means, that the relevant moment for VAT regularisation was that of the final judgment in the proceedings for verification and gradation of debts, its objective scope was the interpretation of article 78-A of the VAT Code, without application in the situation at hand, and not of article 78 of the same Code.

However, even in the hypothesis of defending the extrapolation of this understanding to article 78 of the VAT Code (given its tenor is, in this segment, similar to that of article 78-A), we would be faced with the inadmissible creation of a presupposition of tax incidence by mere administrative regulation, again in violation of the principles of legality and typicality in taxation, a position which cannot be accepted.

Nor do we adhere to the thesis that such requirement (the said judgment for verification and gradation of debts) would be an interpretative clarification, through administrative means, of the cited norm in the version prior to SOB 2015, filling its patent and recognized deficiencies.

It is true that the VAT Code determined the possibility of VAT regularisation "after the homologation of the deliberation" provided for in article 156 of the CIRE, and such homologation was not provided for in the CIRE. Thus, the VAT legislator typified a legal condition, constitutive of a tax incidence presupposition (of VAT), whose verification was impossible.

In order to prevent VAT regularisation relating to uncollectible debts of insolvent debtors, which was certainly not the purpose intended by the legislator, from being impeded, we have no doubt that the legal text called for a teleological and systematic corrective interpretation, which would allow extraction of useful meaning and preservation of the scope of application of article 78, no. 7, letter b) of the VAT Code.

Referring the norm of the VAT Code and article 156 of the CIRE to the Creditors' Assembly of assessment of the (first) report drawn up by the Insolvency Administrator, and indicating the text of the norm that VAT regularisation should only take place after the "homologation" (after all non-existent) of the deliberation taken in that Assembly (it is also noted that there are several possible deliberations), it may with some reasonableness be considered as safeguarding that objective (of VAT not being regularised before that moment), if VAT regularisation takes place at a later phase of the insolvency process, subsequent to that of the Creditors' Assembly, as occurred in the case under consideration.

What cannot be envisioned is a valid reason why the interpretation of the phrase "after the homologation of the deliberation" of the Creditors' Assembly should be fixed at the specific moment concerning an appendix to the insolvency process—the final judgment in the proceedings for verification and gradation of debts—which is not even part of the phase or procedural course of the Creditors' Assembly (typified as the fact of reference selected by the fiscal norm at the date in force).

In the insolvency process (of full character), it is important to take into account that in addition to the homologation of the deliberations of the Creditors' Assembly of assessment of the report (in article 156 of the CIRE) not being provided for, this Assembly frequently, not to say in the majority of cases, does not take place, by decision of the judge in light of the concrete circumstances (especially associated with the perspective of insufficiency of the insolvent estate), with the inherent adequacy (and simplification) of the procedural course.

Similarly, in the insolvency process (of full character), it is quite frequent that there be no appendix for verification and gradation of debts.

Thus, by erecting as a presupposition of VAT regularisation a condition of impossible verification (such as the non-existent "homologation" of the deliberation of the Creditors' Assembly provided for in article 156 of the CIRE) or of eventual and contingent verification (the Creditors' Assembly itself or the judgment for verification and gradation of debts), the adjustment of tax in the taxable persons' favour is, in practice, prohibited. With the aggravating circumstance that this occurs in situations of highlighted uncollectibility, normally deeper than that found when Creditors' Assemblies are held and/or debts are verified and graded to regulate the concurrence of creditors, because in these cases there is still the expectation that there is some property that satisfies and exceeds the liabilities of the insolvent estate for partial payment to creditors.

Thereby, the interpretation of the Circular Notice does not have a minimum correspondence in the text of article 78, no. 7, letter b) of the VAT Code and does not serve the teleology of the regime of VAT regularisations which aims to permit the adjustment of tax to taxable persons who fail to collect their debts, when that uncollectibility is patent and proven. To impose a requirement—the judgment for verification and gradation of debts—which in cases of indisputable uncollectibility is merely eventual in the course of the insolvency process, would imply admitting that in innumerable cases it would be impossible for creditors to meet such requirement and, therefore, to recover VAT, despite the definitive uncollectibility of their debts being more than established.

To overcome the incongruities of the regime of VAT regularisations for debts owed by insolvent debtors, Afonso Arnaldo considers, in our view well, that in situations where the insolvency process ends due to insufficiency of the estate (many of them correspond to cases where the judge dispenses with the Creditors' Assembly of assessment of the report or where there is no appendix for verification and gradation of debts) there should be an equalization to the regime of insolvencies "declared of limited character", in which VAT is recoverable immediately upon declaration of insolvency (even after the SOB 2015 wording) – see "The Regime for Recovery of VAT of Debts of Doubtful or Uncollectible Collection: Critical Balance", VAT Notebooks 2017, Almedina p. 19-39.

According to this tax specialist, "One of the issues that has raised the most questions concerns whether insolvency is of full or limited character. In fact, in the judgment declaring insolvency, the judge immediately fixes the full or limited character of the qualification incident. The limited incident relates to situations where there is patrimonial insufficiency of the insolvent to satisfy the liabilities of the insolvent estate.

As such, as a general rule, the insolvency judgment is declared with full character.

It happens that taxable persons are faced with various cases where insolvency is declared with full character, yet the process is closed by insufficiency of the insolvent estate.

The question then arises of how VAT liquidated and not received by the creditor will be recovered when insolvency is declared with full character but the process is subsequently closed by insufficiency of the estate.

In fact, looking only at the provision of law, we are faced with an uncollectible debt, VAT being, therefore, recoverable in insolvency proceedings when the same is declared with limited character, after final judgment in the proceedings for verification and gradation of debts provided for in the CIRE or after homologation of the insolvency plan, when this exists.

However, in this case, despite insolvency having been declared with full character, there is a "convolution" of the same in a limited one, whereby the tax must be recoverable with the closure of the process by insufficiency of the estate.

Accordingly, we believe that the closure of the process by insufficiency of the estate should be equalized to the judgment declaring insolvency with limited character, drawing the due consequences therefrom for purposes of VAT recovery of the uncollectible debt."

The argument of the AT that SOB 2015 would be applicable to the tax relationship in discussion in these proceedings is also to be ruled out, by virtue of the new wording of article 78, no. 7, letter c) of the VAT Code having the nature of interpretative, projecting its effects to past situations.

Aside from the fact, not insignificant, that SOB 2015 does not assign an interpretative character to the new wording of the cited provision of the VAT Code, all caution is not excessive regarding interpretative laws in the domain of tax incidence rules, given the impositive nature of these and the postulates of legality, typicality and non-retroactivity (which only find parallels in Criminal Law), following the reasoning of the Judgment of the Constitutional Court, no. 267/17, of 31 May 2017, and the risk of substantially retroactive interpretative laws.

That said, and for the reasons set out above, in particular given the innovative character of the new legal presupposition—the judgment for verification and gradation of debts—devoid of any relationship with the previous normative provision relating to the Creditors' Assembly of article 156 of the CIRE, one cannot agree with the qualification of interpretative claimed by the AT[5].

The normative solution introduced by SOB 2015 is innovative and has a more burdensome content for taxable persons, as it postpones the moment of VAT regularisation, whereby it cannot be taken as the fixing of the correct meaning of the previous normative act.

In conclusion, at the date of the relevant facts, whether understood as such the falling due of debts, or their uncollectibility (assessed by the final judgment declaring the debtor's insolvency) the law in force did not provide that regularisation should take place after the final (judgment) for verification and gradation of debts, but rather with the declaration of insolvency, which became final in December 2014, or, at the limit, "after the homologation of the deliberation provided for in article 156 of the Code of Insolvency and Business Recovery".

Such presuppositions were verified in May 2016, the date with reference to which the VAT regularisation was exercised by the Claimant, because, on the one hand, at that moment the judgment declaring the debtor's insolvency had (long) become final, which dates to 16 December 2014, and, on the other hand, the procedural course of the Creditors' Assembly to which article 156 of the CIRE refers was surpassed, having been dispensed with in the judgment declaring insolvency and with the insolvency process at a subsequent phase of its course.

In summary, in May 2016, the Claimant met all the constitutive presuppositions upon which article 78, no. 7, letter b) of the VAT Code made the exercise of the right to VAT regularisation in its favour dependent, whereby it is correct, and the VAT assessment acts (and, consequently, the inherent interest) are annullable, in their entirety, due to violation of law, due to errors in legal presuppositions.

Brief Note on Conformity with Community Law

The interpretation of the VAT regularisation regime which is adopted is that which best conforms to the VAT Directive (2006/112/CE, of 28 November 2006[6]) which establishes the common (harmonized) system of this tax in the European Union.

No. 1 of article 90 of this Directive provides that "in case of total or partial non-payment or reduction of the price after the operation has been carried out, the taxable amount is reduced accordingly, under the conditions fixed by the Member States", an obligation which, however, no. 2 of the same provision provides that Member States may derogate.

Thus, in accordance with the VAT Directive, the Portuguese legislator could have chosen not to provide for a regime of VAT regularisations for uncollectible debts. That was not, however, the option chosen and upon contemplating a regime of regularisations, the Portuguese State bound itself to permit taxable persons to recover VAT of debts considered uncollectible, under the conditions determined by domestic legislation.

Such conditions, being specific to each Member State, cannot compromise the objectives and purpose of the regime, nor make, in practice, impossible or excessively difficult or burdensome the exercise of the right to recovery of VAT, which is conferred by the community legal order, under penalty of violation of the principle of effectiveness[7], in addition to the necessary coordination with the parameter of proportionality, according to which "Member States must resort to means which, while permitting effective achievement of the objective pursued by internal law, cause the least prejudice to the objectives and principles arising from community legislation" – as noted in points 46 to 49 of the Judgment of the Court of Justice, of 18 December 1997, Garage Molenheide, case C-286/94.

In this context, it is important to examine the recent case law of the Court of Justice on the cited article 90 of the VAT Directive, in particular the Judgment, of 15 May 2014, Almos, case C-337/13, of which some enlightening excerpts are transcribed:

"22. It should be recalled in this regard that article 90°, no. 1, of the VAT directive, which concerns cases of cancellation, rescission, resolution, total or partial non-payment or reduction of the price after the operation has been carried out, requires Member States to reduce the taxable amount and, consequently, the amount of VAT due by the taxable person, whenever the latter does not receive, after a transaction has been carried out, part or the whole of the consideration. This provision is the expression of a fundamental principle of the VAT directive, according to which the taxable amount consists of the consideration actually received, and which has as its corollary that the tax administration cannot charge an amount of VAT greater than what was received by the taxable person (v., in this sense, judgment Kraft Foods Polska, C-588/10, EU:C:2012:40, nos. 26 and 27).

1. However, no. 2 of the said article 90° authorises Member States to derogate from the above-mentioned rule in cases of total or partial non-payment of the price of the operation. Taxable persons cannot, therefore, rely on, under article 90°, no. 1, of the VAT directive, a right to reduction of the taxable amount of VAT in cases of non-payment of the price if the Member State in question has decided to apply the derogation provided for in no. 2 of the same article."

If the Member State did not opt for exclusion of the regime of article 90, no. 1 of the VAT Directive, the Court of Justice proceeds:

"33. In this case, article 90°, no. 1, of the VAT directive provides that, in the situations provided for therein, the taxable amount is reduced accordingly, under the conditions fixed by the Member States.

1. Although this article leaves Member States a certain margin of appreciation to fix the measures necessary to determine the value of the reduction, this circumstance does not affect the precise and unconditional character of the obligation to admit the reduction of the taxable amount in the cases provided for in the said article. This accordingly meets the conditions for producing direct effect (v., by analogy, judgment Association de médiation sociale, EU:C:2014:2, no. 33).

2. Consequently, since taxable persons may rely on article 90°, no. 1, of the VAT directive against the State before national courts to obtain the reduction of their taxable amount of VAT, the question raised by the referring court as to whether the Member State in question would be obliged to repair the prejudice suffered by the interested parties by the fact that, having failed properly to transpose the said directive, it deprived them of the right to reduction is irrelevant.

3. Secondly, as regards the question of the formalities to which the exercise of the right to reduction of the taxable amount may be subject, it is important to recall that, under article 273° of the VAT directive, Member States may provide for such obligations as they consider necessary to ensure the exact collection of VAT and to prevent fraud, provided that this power is not used to impose additional billing obligations to those fixed in chapter 3 of the same directive.

4. Taking into account that, outside the limits set by them, the provisions of articles 90°, no. 1, and 273° of the VAT directive do not specify the conditions or obligations which Member States may provide for, it is to be concluded that these provisions confer on them a margin of appreciation, in particular, as to the formalities to be fulfilled by taxable persons before the tax authorities of the said Member States, for purposes of effecting a reduction of the taxable amount (v., in this sense, judgment Kraft Foods Polska, EU:C:2012:40, no. 23).

5. It follows, however, from the case law of the Court of Justice that measures adopted to prevent fraud or tax evasion may, in principle, only derogate from the rules relating to the taxable amount of VAT to the extent strictly necessary for the pursuit of that specific objective. In fact, such measures must affect as little as possible the objectives and principles of the VAT directive and cannot, therefore, be used in a way as to jeopardize the neutrality of VAT (v., in this sense, judgments Kraft Foods Polska, EU:C:2012:40, no. 28, and Petroma Transports and others, C-271/12, EU:C:2013:297, no. 28).

6. It is, therefore, necessary that the formalities to be fulfilled by taxable