Process: 64/2014-T

Date: October 15, 2014

Tax Type: IVA

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 64/2014-T) involves a Portuguese frozen vegetables producer contesting multiple 2012 VAT assessments and interest charges following a tax inspection. The company, majority-owned by Belgian entities B and C, challenged assessments totaling significant amounts across three primary issues. First, the Tax Authority disallowed €4,410 in VAT deductions because supporting documentation failed to meet mandatory legal format requirements under Portuguese VAT law. Second, the core dispute centered on service localization under Article 6(8) CIVA - the claimant argued services provided to Belgian parent B should be reverse-charged to Belgium, exempting the Portuguese company from charging VAT. The Tax Authority rejected this position, asserting that based on the specific nature of services, they were located in Portugal and subject to Portuguese VAT. Third, the Authority assessed €22,381.53 in VAT under Article 3(3)(f) CIVA for asset disposals during the company's relocation from Leiria to Alpiarça. While the claimant claimed assets were transferred to new facilities or sold for scrap in 2005-2007, the Tax Authority found accounting disposal occurred in April 2008 without adequate justification of asset destination. After the gracious appeal was rejected, the company initiated CAAD arbitration under LFATM provisions. The tribunal, constituted with an appointed arbitrator, heard witness testimony and received written submissions. This case highlights critical compliance requirements for Portuguese companies with EU shareholders: maintaining proper documentation for VAT deductions, correctly applying B2B service localization rules in cross-border intra-group transactions, and substantiating asset movements when input VAT deduction rights are at stake.

Full Decision

I - REPORT

A… with TPIN[1] ..., with headquarters on Rua E in the Industrial Zone of ..., submitted on 27/01/2014 a request for constitution of an arbitral tribunal, under the provisions of subparagraph a) of no. 1 of article 2, of subparagraph a) of no. 2 of article 5 and no. 1 of article 6, all of the LFATM[2], with a view to the declaration of illegality of the tax acts embodied in assessments nos. ...89; ...91; ...93;...95; ...97; ...01; ...03; ...05; ...06;...08; ...10; relating to VAT[3] and their corresponding interest assessments nos. ...90; ...92; ...94; ...96; ...98; ...00; ...02...04; ...07; ...09 and ...11 all from the year 2012.

2 – The request for constitution of the arbitral tribunal was made without exercising the option of appointment of an arbitrator, and was accepted by His Excellency the President of the CAA[4] and automatically notified to the TA[5] on 28/01/2014.

3 – Pursuant to and for the purposes of the provisions of no. 2 of article 6 of the LFATM, by decision of His Excellency the President of the Deontological Council, duly communicated to the parties within the legally applicable time limits, Arlindo José Francisco was appointed as arbitrator, who communicated to the Deontological Council of Administrative Arbitration the acceptance of the assignment within the legally stipulated time limit.

4 - The tribunal was constituted on 28/03/2014 in accordance with the provisions contained in subparagraph c) of no. 1 of article 11 of the LFATM, in the version introduced by article 228 of Law no. 66-B/2012, of 31 December.

5 – With its request the claimant seeks that the illegality of the aforementioned assessments be declared, their consequent annulment and the reimbursement to the claimant of the amounts paid by it with reference to the same.

6 – It invokes for this purpose the lack of proof and substantiation of the inspection report that originated them, as this violates legal norms applicable to the concrete situation.

7 – It maintains that the value of the assessments notified to the claimant does not correspond to the value resulting from the sum of the amounts identified in the inspection report, which makes the act performed illegal.

8 – On the other hand, being a Portuguese company, although its share capital is held predominantly by two Belgian companies (B and C) with which it established a main service provision contract and a special service provision contract, the claimant charged services to its shareholder (B) without having assessed VAT as it classified them under no. 8 of article 6 of the VATC[6] with the wording in force at the time, there being therefore no failure to assess VAT in service provisions.

9 – Neither does it agree with the TA's position in not accepting the justification given regarding the destination of certain assets (some transferred from the old facilities to the new ones and others sold for scrap) at the time of relocation of facilities from ... to ... and, consequently, having proceeded to assess VAT in the amount of €22,381.53 made under subparagraph f) of no. 3 of the VATC.

10 – Against these assessments the claimant submitted a gracious appeal which was totally rejected and, not accepting such decision, submitted this request for arbitral determination.

11 – For its part the TA considers there is no violation of legal norms applicable to the concrete situation and that the value which the claimant alleges was not notified to it is included in assessment ...95;

12 – The TA also does not accept that the non-assessment of VAT in the services provided to B can be classified under the subparagraphs of no. 8 of article 6 of the VATC, given the nature of the services in question.

13 - As regards the assets of the factory fixed assets of ... the TA did not accept the claimant's justification and found that the disposal of assets occurred in April 2008 and the sales for scrap and transfers would have occurred in 2005, 2006 and 2007, considering therefore that the additional assessment carried out for the period of April 2008 is legal and justified.

14 – Finally the TA considers that the assessment of April 2008 in the amount of €22,381.53 includes the amount of €4,410.00 relating to tax unduly deducted, since the document issued to support the deduction does not comply with the legal format.

II - CURE OF DEFECTS

The tribunal was regularly constituted and is competent ratione materiae, in accordance with article 2 of the LFATM.

The parties have legal personality and capacity, show themselves to be entitled and are regularly represented in accordance with articles 4 and 10, no. 2 of the LFATM and article 1 of Ordinance no. 112-A/2011, of 22 March.

On 04/06/2014, the tribunal meeting took place, in accordance with article 18 of the LFATM and, the parties having been heard, it was declared by the claimant to maintain interest in the examination of witnesses … and … and by the respondent it also maintained interest in the examination of the indicated witness.

The examination took place on 08/09/2014 and a period of 15 days was granted for submissions to run simultaneously for both parties.

In the submissions joined to the case file by the parties, in essence, they limit themselves to confirming the positions already set out in their respective procedural documents and previous interventions. The claimant, through two items (the legal classification of the issue regarding VAT; and the fundamental principles of tax procedure) seeks to theorize in more detail its point of view. The respondent supports its action on the facts verified in the inspection action and on the law in force at the time.

The case does not suffer from nullities and no issues were raised that prevent the consideration of the merits of the case, with conditions being met for a final decision to be rendered.

III - GROUNDS

1 – Questions to be resolved:

a) Whether or not tax was unduly deducted by being contained in a document without legal form;

b) Whether the services provided by the claimant to B, a Belgian company, should its location be considered in Belgium, so that the claimant would not be responsible for VAT assessment;

c) Whether or not there was a failure to assess VAT pursuant to subparagraph f) of no. 3 of article 3 of the VATC;

d) Whether the assessments carried out by the TA, here in dispute, suffer from lack of substantiation and illegalities due to violation of applicable legal norms and consequently should be annulled and the amounts unduly paid be returned to the claimant.

2 - Matter of Fact:

2.1 - The relevant matter of fact proved on the basis of the elements joined to the case file is as follows:

a) The claimant is a Portuguese company with headquarters in the Industrial Zone of ... which is engaged in the production, packaging and sale of frozen vegetables;

b) Its share capital is predominantly owned by two Belgian companies (B and C);

c) It regularly presents itself as a VAT creditor given that its transfers of goods are intra-community;

d) The company had its headquarters in Leiria, relocating it to Alpiarça when it decided to expand its facilities and increase its production;

e) A main contract for the provision of various services was presented between the claimant and the group companies (B and C) and a special contract concluded between the claimant and B;

f) Tax was deducted in the amount of 4,410.00 whose supporting document does not meet the conditions legally imposed for this purpose;

g) There were service provisions by the claimant, located in national territory, without the supporting document containing the justification for the non-assessment of VAT;

h) The destination of assets whose accounting disposal occurred in April 2008 was not justified;

i) Of the witnesses listed by the claimant only … testified, the claimant dispensing with the hearing of the remaining ones;

j) From the testimony of the aforementioned witness the following statements stand out:

  1.  "that the service provisions of A to B were made in Portugal according to instructions transmitted from Belgium and that monthly A invoiced the services to B;

  2.  the impossibility of identifying the assets that were transferred from Leiria to Alpiarça and those sold for scrap, since the persons who dealt closely with the materials did not indicate them correctly to the accounting department. And that the accounting disposal only occurred in April 2008, given that the priority established at a higher level was production"

k) The witness listed by the respondent stands out "only an assessment was made of the situation of assets that still remained with accounting value, disregarding those that were already fully depreciated".

2.2 Facts not proved with relevance to the case:

            The lack of notification of the amount of €606.48.

3 – Matter of Law

3.1 The claimant seeks, in summary, that the illegality of the assessments be declared under subparagraphs a), c) and d) of article 99 of the TPPC[7] with their consequent annulment and reimbursement of amounts unduly paid with reference to the same;

3.2 For its part the TA seeks that the lack of foundation of the request be declared as it considers there to have been undue deduction of tax, failure to assess tax in service provisions, in the allocation of company assets to purposes unrelated to the company and sale of assets for scrap;

3.3 Bearing in mind that the entire VAT mechanism is based on the obligation to issue an invoice or equivalent document for the transfer of goods or provision of services defined in articles 3 and 4 of the VATC and that invoices or equivalent documents must necessarily contain all the elements contained in no. 5 and its subparagraphs of article 36 of the VATC (at the time of the facts article 35), we will analyze the compliance or non-compliance with the applicable legal norms;

3.4 As regards VAT deducted in a document without legal form, according to the inspection report, VAT was deducted by the claimant in the amount of 4,410.00€ through a cash sale no. 56 of 17 April 2008 of services provided by company X…Ltd without such document being issued in the legal form, that is, with the elements mentioned in the then article 35 of the VATC, now article 36, with this conduct the claimant violated no. 2 and 6 of article 19 of the VATC, facts which the claimant did not contest and are deemed proved;

3.5 In fact jurisprudence on this matter is abundant and the inspection services included in the case file through their report which we dispense with enumerating;

3.6 As regards the failure to assess VAT in service provisions, according to the same report, the claimant provided services to Belgian taxpayer B NIF ..., regularly on a monthly basis during 2008, and the documents issued for these service provisions not only did not have VAT assessment nor did they contain the reason justifying the non-application of tax in these service provisions as it then required, subparagraph e) of no. 5 of article 36 of the VATC;

3.7 The aforementioned service provisions were carried out in national territory, with no conflict in factuality, but rather in the legal norms applicable to the concrete case, while the claimant understands that subparagraphs c), d) and f) of no. 8 of article 6 of the VATC in conjunction with subparagraph a) of no. 9 of this same article are applicable to it, the TA understands that they are not, because the service provisions in question "storage of products produced by B under brand D, stock management of these products, receipt of the same, receipt of customer orders from clients of B, D delivery to clients in their warehouses" are not those referred to in the aforementioned norms;

3.8 In accordance with no. 4 of article 6 of the VATC: "Service provisions are taxable when carried out by a provider who has in the national territory the seat of their activity or a permanent establishment from which the services are provided or, in its absence, their domicile";

3.9 In the written submissions the respondent now argued that A would be in such a position of subordination as that existing between an employee and a hierarchical superior and that A merely executes tasks in Portugal according to instructions materially resulting from service provisions made by the Belgian entity;

3.10 But it is certain that the service provisions for which VAT is being required result from tasks carried out in Portugal by A and for which it monthly issued the respective invoice, without VAT assessment or justifying reason for its non-assessment being contained therein as it was then required by subparagraph e) of no. 5 of article 36 of the VATC;

3.11 By this means the provisions in question are located in national territory and as such VAT assessment would be required and, for this not to happen, they would have to be among the exceptions then provided for in nos. 5 and following of article 6 of the VAT Code with the wording contemporary to the service provisions, that is in 2008, which is not the case;

3.12 From the foregoing it is to be concluded that the provisions in question were subject to tax in the verified amount of €7,233.96 and the said assessment should be maintained;

3.13 As regards the failure to assess VAT pursuant to subparagraph f) of no. 3 of article 3 of the VATC mentioned in the aforementioned report, it appears that the claimant when it proceeded to the sale of the facilities of ..., no reference is made to the movable assets of fixed assets as to their integration therein, however, their disposal occurred in April 2008, jointly with the real property;

3.14 When the claimant was asked about the destination of the disposed movable assets, it informed that some of them were transferred to ... after the completion of the new facilities and the remaining ones would have remained in ... until their sale for scrap;

3.15 However the claimant failed to provide documentary proof of such facts during the inspection whether with regard to the transferred assets or as to the assets sold for scrap and also failed to do so in the present proceedings;

3.16 The attempt at testimonial proof was also unsuccessful, in that the witness repeated what was alleged and added that there was an impossibility of identifying the assets in the manner intended by the TA, since the persons who at the time dealt with the process did not correctly indicate the identification of the assets to the accounting department and that the accounting disposal only occurred in 2008 given that the priority established at a higher level was production;

3.17 As already mentioned, the VAT mechanism requires the issuance of documents in the manner legally provided that justify the operations and, in the concrete case, the claimant failed to present probative documents of the destination given to the assets listed in the inspection report and those presented did not constitute the operations they intended to support;

3.18 Given that there were assets for whose acquisition there was full deduction of the supported tax and whose destination was not documented justified, the situation falls within the provision of the norm of subparagraph f) of no. 3 of article 3 of the VATC, there being ground for tax assessment;

3.19 With the burden of proof of the destination of the assets falling on the claimant, which it failed to discharge through legally provided documents, pursuant to the final part of article 86 of the VATC, there is a presumption of transfer of the same assets, which supports the legality of the assessments carried out and here in question which should be maintained.

3.20 As to whether the assessments carried out by the TA, here in dispute, suffer from lack of substantiation and illegalities due to violation of applicable legal norms, as already mentioned, the VAT mechanism is supported by documents which the taxpayers are mandatorily obliged to issue, invoice or equivalent document for each transfer or provision of services which must be issued within the time limits and with the formalities listed in article 36 of the VATC, its numbers and subparagraphs;

3.21 And, for all that is set out above, the tribunal understands that the TA not only substantiated correctly the assessments in question but the same comply with the legislative framework in force at the time.

3.22 As to the inspection procedure, the same was also carried out with observance of the legal norms provided, namely of the CRTP[8] and, in light of the documentation exhibited to it (see the respective report in the items of VAT deducted in a document without legal form; failure to assess VAT in service provisions; and the supporting documentation of the transfers of assets from ... to ... and of assets sold for scrap) its action was not only legal but at the same time prudent - see what was declared by the Inspector official: "only considered assets with accounting value disregarding those fully depreciated"

IV – DECISION

In view of the foregoing the tribunal declares the request unfounded, absolving the respondent from the claim, with all legal consequences.

The tribunal fixes the value of the case at €34,354.03, in accordance with the provisions contained in article 299 no. 1 of the CPC[9], article 97-A of the TPPC and article 3, no. 2 of the RCAT[10].

Costs at the charge of the claimant, under no. 4 of article 22 of the LFATM, fixing the respective amount at €1,836.00, in accordance with the provisions of Table I referred to in article 4 of the RCAT.

Notify.

Lisbon, 15 October 2014

Text prepared by computer, pursuant to article 131, no. 5 of the CPC, applicable by referral of article 29, no. 1 subparagraph e) of the LFATM, with blank spaces and revised by the tribunal.

The preparation of this decision is governed by the spelling prior to the orthographic agreement.

The sole arbitrator,

Arlindo Francisco

[1] Acronym for Tax Identification Number
[2] Acronym for Legal Framework for Arbitration in Tax Matters
[3] Acronym for Value Added Tax
[4] Acronym for Centre for Administrative Arbitration
[5] Acronym for Tax and Customs Authority
[6] Acronym for Value Added Tax Code
[7] Acronym for Tax Procedure and Process Code
[8] Acronym for Complementary Regulations of Tax Inspection Procedure
[9] Acronym for Civil Procedure Code
[10] Acronym for Regulations of Costs in Tax Arbitration Proceedings

Frequently Asked Questions

Automatically Created

What are the VAT deduction rights for Portuguese companies providing cross-border services to EU parent companies?
Portuguese companies providing cross-border services to EU parent companies have VAT deduction rights on input purchases, subject to proper documentation meeting legal format requirements. When services qualify under the reverse charge mechanism (Article 6(8) CIVA), the EU recipient is responsible for VAT, and the Portuguese supplier doesn't charge Portuguese VAT. However, deduction rights require supporting documents that comply with statutory requirements - as demonstrated in this case where €4,410 in VAT deduction was challenged because documentation failed legal format standards. The right to deduct depends both on the substantive eligibility of the expense and the formal validity of supporting documentation.
How does Article 6(8) of the Portuguese VAT Code (CIVA) determine the localization of B2B service operations?
Article 6(8) of the Portuguese VAT Code establishes the general B2B rule that services are located where the recipient is established for tax purposes, implementing the reverse charge mechanism. Under this provision, when a Portuguese company provides services to a business established in another EU Member State, those services are generally considered located in that other Member State, making the recipient responsible for VAT under their domestic rules. However, application depends on the specific nature of services provided - in this case, the Tax Authority disputed the claimant's classification, arguing the particular services didn't qualify under Article 6(8) and remained taxable in Portugal. Taxpayers must analyze service characteristics to determine correct localization.
Can the Portuguese Tax Authority (AT) challenge VAT exemptions on services provided to foreign shareholders?
Yes, the Portuguese Tax Authority can challenge VAT treatment on services provided to foreign shareholders. The AT examines whether services genuinely meet the criteria for localization under Article 6(8) CIVA and the reverse charge mechanism. In this case, despite the company's argument that services to Belgian parent B were located in Belgium, the Tax Authority rejected this classification based on analyzing the specific nature of the services provided. The burden rests on the taxpayer to demonstrate services qualify for reverse charge treatment through proper documentation and characterization. The AT can assess Portuguese VAT when the taxpayer fails to provide adequate justification that services fall within the scope of location rules favoring taxation in the recipient's Member State.
What is the CAAD arbitration procedure for contesting multiple IVA liquidation assessments?
The CAAD arbitration procedure for contesting multiple VAT assessments involves: (1) filing a request under Articles 2(1)(a), 5(2)(a), and 6(1) LFATM specifying all contested assessments; (2) optional designation of an arbitrator by the taxpayer; (3) acceptance by the CAAD President and automatic notification to the Tax Authority; (4) appointment of arbitrator by the President of the Deontological Council if not chosen by parties; (5) tribunal constitution within statutory timeframes (in this case, 28/03/2014); (6) preliminary hearing under Article 18 LFATM where parties confirm witness examination; (7) evidentiary hearing for witness testimony; (8) simultaneous 15-day submission period for both parties' written arguments; and (9) final decision on legality of assessments. In this case, 10 VAT assessments and 11 interest assessments from 2012 were contested together in a single arbitration proceeding.
How does VAT apply to asset transfers and disposals during a company relocation under Article 3(3)(f) CIVA?
Under Article 3(3)(f) CIVA, certain asset applications are deemed taxable supplies subject to VAT. During company relocation, taxpayers must justify the destination of fixed assets for which input VAT was previously deducted. Assets transferred to continuing business operations or properly documented as scrapped may avoid additional VAT assessment. However, in this case involving relocation from Leiria to Alpiarça, the Tax Authority assessed €22,381.53 in VAT because the company failed to adequately substantiate asset destination. Although the claimant alleged transfers to new facilities and scrap sales in 2005-2007, the accounting disposal occurred in April 2008, creating a temporal discrepancy. Without proper documentation proving legitimate business use or disposal, the AT treats undocumented asset disappearance as a taxable supply requiring VAT regularization of previously deducted amounts.