CAAD 654/2014-T: VAT Additional Assessments Annulled for Insufficient Reasoning Under RCPIT Art. 20

ARBITRAL DECISION

I – REPORT

1. On 1 September 2014, B..., Lda., holder of Tax Identification Number ..., with registered office at ..., no. ..., ..., ..., submitted to the Administrative Arbitration Centre (CAAD) a request for the constitution of an arbitral tribunal for the declaration of illegality and consequent annulment of additional VAT assessments nos. ..., ..., ..., ..., ..., ..., ..., ... and ..., in the total amount of €10,251.57, and of the respective compensatory interest assessments nos. ..., ..., ..., ..., ..., ..., ..., ... and ..., in the total value of €1,230.65, relating to the year 2010 (months of January, March, May, July, August, September, October, November and December), in the total of €11,482.22. The Tax and Customs Authority is the respondent.

2. The applicant also requested the recognition of the right to indemnity interest and the condemnation of the Tax and Customs Authority for the costs of the proceedings.

3. On 1 September 2014, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.

4. On 3 September 2014, the Tax and Customs Authority was notified that the request for constitution of the arbitral tribunal giving rise to the present proceedings had been filed with the CAAD.

5. In the initial petition (hereinafter initial pleading or IP), the applicant requested the declaration of illegality of the additional VAT assessments and compensatory interest assessments identified above on the grounds of insufficiency and unintelligibility of the reasoning contained in the inspection report, well-founded doubt regarding the quantification of the tax facts, illegal extension of the tax inspection procedure, illegality of the corrections relating to VAT deductions made and VAT exemptions applied.

6. The applicant, considering that the application of the rules of Council Directive 2006/02/CE of 28 November 2006, relating to the common system of value added tax, is at issue, also raises the question of formulating a request for a preliminary ruling to the Court of Justice, under Article 267 of the Treaty on the Functioning of the European Union (TFEU), for the clarification of the matters it indicates (Articles 322 and 323 of the IP).

7. The applicant concludes by requesting (i) the annulment of the VAT and CI assessments challenged, with the consequent reimbursement of the taxes improperly paid, (ii) the recognition of the applicant's right to indemnity interest, to be calculated in accordance with legal terms, due to factual and legal error of the Tax Authority in the issuance of the challenged assessments and (iii) the condemnation of the respondent to payment of the costs of the present action.

8. The applicant did not proceed to the appointment of an arbitrator, wherefore, in accordance with the provisions of Article 5, paragraph 2, and Article 6, paragraph 2, letter a), and Article 11, paragraph 1, letter a), of the Arbitral Tribunal Regulations (RJAT), the President of the Deontological Council of the CAAD designated the undersigned as arbitrator of the sole arbitral tribunal, having communicated acceptance of the appointment within the applicable time period.

9. On 17 October 2014, the applicant was notified of this appointment and did not manifest any wish to refuse it.

10. By Order of 14 October 2014 (communicated to the CAAD on 16 October 2014), the Director-General of the Tax Authority partially revoked the tax acts mentioned in the IP, namely the assessments for the months of January, May, September, November and December 2010, having informed that the compensatory interest assessments would be altered accordingly.

11. In accordance with the provisions of Article 11, paragraph 1, letter c), of the RJAT, the sole arbitral tribunal was constituted on 3 November 2014.

12. The Tax and Customs Authority presented a response in which, in addition to contesting the admissibility of the requests, it clarified that, within the time period provided for in Article 13 of the RJAT, the tax acts challenged had been partially revoked, altering (i) the assessments relating to the months of May, September, November and December 2010, (ii) the assessments for January to November 2011 and (iii) all assessments for 2012.

13. The Tax and Customs Authority further stated that, following these alterations, all compensatory interest assessments would be revoked and new assessments issued, in accordance with the values resulting from the additional assessments modified in the meantime.

14. The corrections relating to 2010, at issue in the present proceedings, were thus maintained in the following terms:

(Values in euros)

The Tax Authority further stated in its response that "The assessments that replaced or will replace the revoked ones are not yet known in the terms set out" and that "However, it being understood that all of the assessments originally challenged are revoked, it remains to discuss the grounds of the corrections that were not revoked in the administrative proceedings and, therefore, will give rise to substitute assessments."

Additionally, the Tax and Customs Authority contended that the value of the action should be altered accordingly, from €11,482.22 to €9,310.88.

On 3 February 2015, the applicant presented a response, alleging that:

The administrative file was not attached to the case record with the response of the Tax and Customs Authority and remains incomplete, in that it contains an Information dated 06.10.2014 from the Tax Inspection Division of the Finance Directorate of ..., sanctioned by order of 07.10.2014 from the respective Division Head;

However, in this Information, reference is made, several times, to an alleged "information provided to the Justice and Litigation Division of the Finance Directorate of ..." – which allegedly was decisive and which presumably contains the operations whose VAT is still outstanding, as well as the factual and legal grounds for the partial revocation of the assessments, as well as the administrative procedure specifically followed – which is not included in the file;

Timely knowledge of the administrative file is essential, particularly because the Tax Authority operated a partial revocation of the assessments, while the applicant continues not to know which specific tax facts this revocation relates to, nor what the factual and legal reasons are for this same revocation - so that the proceedings and evidence become based, on a sound foundation, only on the factual matter for which the assessments have not yet been annulled.

The omission of fundamental parts of the administrative file constitutes a procedural nullity, as it is capable of influencing the decision of the case, in addition to obviously prejudicing the evidence produced and/or to be produced by the taxpayer, that is, the proper examination of the case;

Having in mind that the Tax Authority's initial corrections were based on corrections invoice by invoice, after exhaustively examining the contents of the administrative file attached to the case record, it is verified that it does not contain, anywhere, which specific operations, clients and invoices whose VAT was additionally assessed was annulled and which specific operations, clients and invoices whose VAT was additionally assessed was not annulled.

The applicant further requested that the respondent be notified to attach to the case record a copy of the aforementioned information that the Tax Inspection Division of the Finance Directorate of ... allegedly provided to the Justice and Litigation Division of the Finance Directorate of ...

The respondent attached to the case record the said Information, having further clarified that, following the revocation of part of the corrections challenged, in accordance with Article 13 of the RJAT, and in view of the assessments having been paid, the competent services did not proceed to the issuance of new assessments, but rather the reimbursement of the amounts corresponding to the corrections subject to revocation was made, with €940.69 of VAT and €61.54 relating to compensatory interest having been reimbursed.

On 1 September 2014, the meeting referred to in Article 18 of the RJAT was held, during which the witness listed by the applicant, A..., was questioned.

The applicant's representative requested the use of the testimony of witnesses M... and C..., given in case no. 655/2014-T, relating to subject matter identical to that of the present proceedings, and which had been recorded, since the witnesses were not present. The respondent's representative stated that they had no objection to what was requested. The respondent's representative further stated that they intended to attach a document to the case record, the respondent's representative having stated that they were not opposed to this and would pronounce themselves on it in the pleadings.

In March 2015, the respondent requested the attachment of document J.3 to the case record. This document would have been attached with the request for constitution of the arbitral tribunal but, due to its size, it had not been possible to carry out the respective upload, so it was not available in the CAAD's Case Management System. Given the fact that the document had been timely attached with the IP, its attachment to the case record was determined.

The parties presented pleadings, with the applicant pronouncing itself as follows:

During the pendency of the arbitral proceedings, the additional VAT and CI assessments challenged were subject to partial revocation by the Tax Authority, whereby, in the segment in which this partial revocation occurred, the present instance should be judged extinguished by supervening futility of the action.

Given that this supervening futility is attributable to the Tax Authority/respondent, it is this party that is responsible for costs (Article 536, paragraph 3 of the Code of Civil Procedure), and the value of the case should remain at €11,482.22.

The Tax Authority, in the partial revocation it operated, did not recognize the taxpayer's right to indemnity interest, equally petitioned by the applicant.

The Tax Authority's response was presented without being accompanied by the administrative file;

It results from the administrative file that the inspection and report of the Tax Inspection Division of the Finance Directorate of ..., dated 06.10.2014 (which supports the Opinion of the Finance Directorate ... – Tax Inspection Division, of 06.10.2014, and the concordant order of 07.10.2014 from the Head of that Tax Inspection Division), and which led to the determination of the values of VAT allegedly still owed (that is, not annulled by the Tax Authority) is authored precisely by the same tax inspector who made the inspection report that was the basis of the assessments challenged here – D....

That is, the same inspector who made the inspection and initial corrections made a "self-inspection" of the inspection that he himself had previously carried out, following the taxpayer's arbitral requests – which is manifestly illegal.

In effect, the administrative decision of the taxpayer's means of appeal was based on an inspection made by the very same inspector who initially made the inspection generating the additional VAT and CI assessments challenged here.

We are confronted with an obvious specific incompatibility of the inspector, in accordance with Article 20, paragraph 1, letter f) of the Supplementary Regulations for Tax Inspection Procedure, and a case of impediment, in accordance with Article 44, paragraph 1, letter g) of the Administrative Procedure Code, such that the failure to self-declare this situation constitutes a serious offense for disciplinary purposes, in accordance with Articles 45, paragraph 1 and 51, paragraph 2 of the Administrative Procedure Code.

Consequently, given that it was precisely this inspection, tainted with the vice of violation of law, that led to the partial maintenance of the VAT and CI assessments challenged here, these should be annulled also in the segment in which they were maintained – that is, in the part in which they were not administratively revoked.

For, while they are consequential acts of an illegal inspection procedure, the VAT and CI assessments challenged here, in the segment in which they were not revoked by the Tax Authority, are null, in accordance with Article 133, paragraph 2, letter i) of the Administrative Courts Procedure Code.

The inspection report suffers from insufficiency and unintelligibility of reasoning, whereby the corrections and, consequently, the assessments challenged here, suffer from the vice of lack of reasoning, by violation of the provisions of Articles 77, paragraphs 1 and 2 of the General Tax Law and 268, paragraph 3 of the Constitution of the Portuguese Republic.

The corrections in question, in function of the well-founded doubt regarding their concrete quantification, should be annulled – with the consequent annulment of the additional VAT and CI assessments challenged here;

The external inspection procedure, which was improperly extended beyond the maximum time period provided for in the law (in violation of the aforesaid Article 36, paragraphs 2 and 3 of the Supplementary Regulations for Tax Inspection Procedure), suffers from nullity or, at least, from a vice determining its annulment, and the additional assessments issued as a consequence should be annulled.

In the pleadings presented, the respondent pronounced itself for the total dismissal of the request.

II - SANITATION

The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with Articles 2, paragraph 1, letter a), 5 and 6, paragraph 1, of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with 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 any nullities.

Thus, there is no obstacle to the appraisal of the merits of the case.

Everything considered, it is necessary to pronounce

III. DECISION

A. MATTERS OF FACT

A.1. Facts Established as Proven

1. The applicant is a VAT taxable person and was subject to a tax inspection action carried out by the Finance Directorate of ..., relating to the fiscal years 2010 to 2012, by means of Service Order no. ....

2. The applicant engages in the activity of purchase and sale of CDs, DVDs, vinyl records, merchandising and other articles related to music and audiovisual, operating in the global market – national, intra-community and foreign – both at the level of purchases and at the level of sales.

3. Purchases are generally made in large quantities and from all over the world: Portugal, Europe, Asia, America and Australia.

4. Various approaches are used with clients and suppliers.

5. The applicant's clients are frequently wholesalers, where direct and personal contact is privileged, but new technologies are also used for online sales.

6. The quantities sold can be large, with shipment being made in pallets or boxes, or small and very small, with the use of boxes or small packaging like envelopes.

7. Shipment to business clients that sell online, where delivery time is crucial, is normally carried out by the companies of reference that operate in the market for logistics and international transport: ...., with these shipments being more frequent to countries outside the Community (USA, Switzerland and Australia).

8. The cost of transport is sometimes borne by the applicant, but there are also situations in which transport is the client's responsibility.

9. In sales in large quantities, which require the use of pallets, the services of ... or similar companies are normally used, and transport is made on Friday, the day when trucks leave for trips to European countries.

10. Whenever sales are made in single units, CTT is generally used.

11. The applicant was subject to an external inspection action relating to the fiscal years 2010, 2011 and 2012.

12. This inspection action began on 18 January 2013 and ended on 2 August 2013, with the company being notified, on 12 July 2013, of the extension of the procedure deadline authorized for a period of 3 months, with the expected end date of the procedure on 18 October 2013.

13. In the said inspection action it was concluded, in summary, that (i) the company improperly deducted VAT in the years 2010, 2011 and 2012, (ii) the company is not in possession of supporting elements proving that part of the goods invoiced to Community clients in the years 2010, 2011 and 2012 were shipped or transported by the seller, by the purchaser or on their behalf, from national territory to another Member State with destination to the purchaser, and (iii) the company did not possess appropriate customs documents, in this case proof of exports, referred to in paragraph 8 of Article 29 of the VAT Code, whereby all of these transfers, as they did not meet the requirements prescribed by Article 14 of the Intra-Community VAT Transactions Regime (RITI) or by Article 14 of the VAT Code, as applicable, could not benefit from the exemptions provided for therein,

14. The corrections relating to the year 2010 amount to €9,310.88, plus compensatory interest.

15. On 17 January 2014, the applicant filed an administrative complaint against the additional VAT assessments and the compensatory interest assessments issued following the completion of the inspection action referred to above.

16. As no decision was rendered in the administrative complaint proceedings within the four-month period, its tacit dismissal was presumed for purposes of filing the request for arbitral pronouncement, the present request having been filed on 1 September 2014.

17. In accordance with the information of the services, the partial revocation of the challenged tax acts was carried out within the time period stipulated in Article 13 of the RJAT, altering the assessments relating to the months of May, September, November and December 2010.

18. The value at issue in the present proceedings is thus €9,310.88, with the differential having been reimbursed to the applicant.

19. The reduction in value is based on information prepared by Tax Inspector D..., attached to the case record and whose content is deemed reproduced.

20. The administrative complaint was not decided within the 4-month period from the date of filing, and subsequently the present request for constitution of an arbitral tribunal was filed.

21. On 14 October 2014, the Director-General of the Tax and Customs Authority issued an order for partial revocation of the original assessments, with the revocation order manifesting agreement with an information of 14-10-2014, which was attached with it to the case record, information which, in turn, bases its proposal on the "information provided by the Finance Directorate of ..." without containing any independent appraisal of the applicant's claims.

22. The partial revocation order was based on Information dated 06-10-2014, issued by Tax Inspector D....

23. The Tax and Customs Authority presented a Response in the present proceedings, not accompanied by the administrative file, which was only attached later.

24. Later, the applicant presented a request and attached several documents, whose contents are deemed reproduced;

A.2. Facts Established as Not Proven

The facts alleged by the parties and not contained in the facts established as proven were not proven.

A.3. Reasoning for Established and Unproven Factual Matters

With respect to matters of fact, the Tribunal does not have to pronounce on everything that was alleged by the parties, with the duty instead falling to it to select the facts that matter for the decision and to distinguish proven from unproven matters (see Article 123, paragraph 2, of the Code of Tax Court Procedure and Article 607, paragraph 3 of the Code of Civil Procedure, applicable by reference to Article 29, paragraph 1, letters a) and e), of the RJAT).

Thus, the facts pertinent to the judgment of the case are chosen and defined according to their legal relevance, which is established in attention to the various plausible solutions of the legal question(s) (see former Article 511, paragraph 1, of the Code of Civil Procedure, corresponding to the current Article 596, applicable by reference to Article 29, paragraph 1, letter e), of the RJAT).

Thus, having regard to the positions assumed by the parties, the documentary evidence and the administrative file attached to the case record, the facts listed above were considered proven, with relevance to the decision, and were not contested by the parties.

B. ON THE LAW

Having regard to the subject matter of the dispute, as it was defined following the decision to partially revoke the additional VAT assessments by the Tax Authority, the specific questions raised within the scope of the present proceedings, and regarding which it is necessary to decide, are as follows:

i) illegality of the VAT and compensatory interest assessments in dispute in the part in which they were not revoked by the Tax Authority, given the presence of specific incompatibility, in accordance with Article 20, paragraph 1, letter f) of the Supplementary Regulations for Tax Inspection Procedure, and of impediment, in accordance with Article 44, paragraph 1, letter g) of the Administrative Procedure Code, in the administrative decision of the taxpayer's means of appeal;

ii) insufficiency and intelligibility of reasoning, due to lack of explicit statement and discrimination, as well as relation to the corrections made, of the annexes to the inspection report that are the basis of the calculation and quantification of the corrections in question, with consequent violation of the provisions of Articles 77, paragraphs 1 and 2 of the General Tax Law and 268, paragraph 3 of the Constitution of the Portuguese Republic;

iii) existence of well-founded doubt regarding the quantification of the tax facts and corrections made by the Tax Authority in the inspection report;

iv) illegal extension of the external tax inspection procedure (see the provisions of Article 36, paragraphs 2 and 3 of the Supplementary Regulations for Tax Inspection Procedure);

v) error in the factual assumptions and violation of the provisions of Article 14, letter a) of the Intra-Community VAT Transactions Regime and of the principles of justice and proportionality subject of Articles 55 of the General Tax Law, 266, paragraph 2 of the Constitution of the Portuguese Republic, 5 and 6 of the Administrative Procedure Code and 5 of the Treaty on the European Union;

vi) error in the factual assumptions and violation of the rules and principles subject of Articles 14, letter a) RITI, 6, paragraph 6, letter a) VAT Code, 29, paragraph 8 VAT Code, 6-A Administrative Procedure Code and 266, paragraph 2 Constitution of the Portuguese Republic, by alleged lack of supporting elements of the exit of goods from Portugal to other Community countries;

vii) error in the factual assumptions and erroneous interpretation and application of Articles 14, paragraph 1, letter a) and 29, paragraph 8 of the VAT Code with regard to the correction of VAT relating to exports;

viii) illegality of the compensatory interest assessment due to lack of the assumptions provided for in Articles 96, paragraph 1 VAT Code and 43 General Tax Law;

ix) right to indemnity interest in accordance with Article 43 General Tax Law.

1. Impediment in the Procedure Relating to the Revocation Act

It is necessary to decide, in terms of Law, the question relating to the vice invoked by the applicant regarding the decision issued under Article 13, paragraph 1 of the RJAT regarding the presence of specific incompatibility, in accordance with the provisions of Article 20, paragraph 1, letter g) of the Supplementary Regulations for Tax Inspection Procedure, and of impediment, in accordance with Article 44, paragraph 1, letter g) of the Administrative Procedure Code.

This question was raised by the applicant in the pleadings – timely, insofar as it concerns the supervening fact of the revocation operated in accordance with paragraph 1 of Article 13 of the RJAT and the knowledge of the procedure on which such revocation is based.

In this connection, we follow the understanding issued in Case no. 656/2014-T, which dealt with similar matters, although relating to another fiscal year:

"As results from the factual matter established, following notification of the initial assessments, the applicant filed an administrative complaint.

In that administrative complaint, an opinion was issued intended to be the support of the final decision issued by the same Tax Inspector who prepared the Report of the Tax Inspection.

It was also the same Tax Inspector who prepared the information of 6-10-2014, issued in the Finance Directorate of ..., which served as the basis for the act of partial revocation of the initial assessments.

The position assumed by that Tax Inspector is the only substantive foundation of the revocatory decision.

In fact, the revocation order merely manifests agreement with an information of 14 October 2014, which was attached with it to the case record, but this information was based only on the "information provided by the Finance Directorate of ...", containing no independent appraisal of the grounds for the partial revocation of the initial assessments and maintenance of part of them, merely reproducing in full the table that summarizes the alterations prepared in that information of 06-10-2014 issued in the Finance Directorate of ....

The applicant, in the request of 28-01-2015, imputes a vice to the revocation act, in that it "led to the determination of VAT values allegedly still owed", as the information on which it was based was authored by the same inspector who carried out the tax inspection (Article 62 of that request). "That is, the same inspector who made the inspection and initial corrections, underlying the initial VAT assessments, made a 'self-inspection' of the inspection that he himself had previously carried out, following the taxpayer's arbitral requests (Article 63 of the request).

The applicant contends that "we are ostensibly faced with a specific incompatibility of the inspector, in accordance with Article 20, paragraph 1, letter f) of the Supplementary Regulations for Tax Inspection Procedure" and "faced with a case of impediment, in accordance with Article 44, paragraph 1, letter g) of the Administrative Procedure Code".

Article 20 of the Supplementary Regulations for Tax Inspection Procedure relates to specific incompatibilities of officials of the Tax Administration, establishing the following, to the extent relevant here:

Article 20

Specific Incompatibilities

1. Officials of tax inspection, in addition to the incompatibilities applicable to officials of the Tax and Customs Authority in general, are subject to the following specific incompatibilities:[1]

(...)

f) To carry out or participate in inspection actions aimed at providing information on matters of fact in proceedings of complaint, challenge or appeal of any acts of tax administration in which they have had intervention.

The applicant contends that "we are ostensibly faced with a specific incompatibility of the inspector, in accordance with Article 20, paragraph 1, letter f) of the Supplementary Regulations for Tax Inspection Procedure" and "faced with a case of impediment, in accordance with Article 44, paragraph 1, letter g) of the Administrative Procedure Code".

Article 20 of the Supplementary Regulations for Tax Inspection Procedure relates to specific incompatibilities of officials of the Tax Administration, establishing the following, to the extent relevant here:

Article 20

Specific Incompatibilities

1. Officials of tax inspection, in addition to the incompatibilities applicable to officials of the Tax and Customs Authority in general, are subject to the following specific incompatibilities:

(...)

f) To carry out or participate in inspection actions aimed at providing information on matters of fact in proceedings of complaint, challenge or appeal of any acts of tax administration in which they have had intervention.

Article 44, paragraph 1 of the Administrative Procedure Code of 1991 establishes the following:

Article 44

Cases of Impediment

1 - No official or agent of the Public Administration may intervene in administrative proceedings or in acts or contracts of public or private law of the Public Administration, in the following cases:

(...)

g) When it is a matter of appeal of a decision issued by him, or with his intervention, or issued by any of the persons referred to in letter b) or with the intervention of these.

This Article 44 of the Administrative Procedure Code of 1991, inserted in a Section with the heading "Guarantees of Impartiality", aims to ensure observance of the principle of impartiality, which is imposed on the Tax Administration by Article 266, paragraph 2, of the Constitution of the Portuguese Republic and is reaffirmed by Article 55 of the General Tax Law.

Thus, the impediments provided for in this Article 44 are applicable to officials of the Tax and Customs Authority in general, by force of the rule of subsidiarity of the application of the Administrative Procedure Code to the activity of the Tax Administration established in Article 2, letter e), of the General Tax Law.

The procedure for revocation of acts which are subject to requests for arbitral pronouncement falls, by mere declarative interpretation, within the concept of "appeal", as this expression is appropriate to reference any means of challenge of acts of the Administration and in the procedure referred to aims, to the face of what is alleged in the request for arbitral pronouncement, to appraise the correctness of the act which is its subject.

Thus, it is manifest that we are faced with a situation that can be framed in this letter g) of paragraph 1 of Article 44 of the Code of Procedure in Administrative Courts.

The impediments provided for in the aforesaid Article 44 of the Administrative Procedure Code aim to ensure the guarantees of impartiality and transparency of the operation of the decision-making activity of the Public Administration, which are imposed by Article 266, paragraph 2, of the Constitution of the Portuguese Republic.

In the specific case of the impediment of intervention in procedures of an administrative nature in which acts are challenged, it aims to ensure a double degree of appraisal, through a new analysis of the situation without any psychological predisposition to maintain what was decided, which legislatively was understood to be able to be ensured only by inhibiting officials who intervened in earlier phases of procedures from having intervention in appeals which, directly or indirectly, aim to appraise their action.

And, if it is true that, in the case in question, the official who carried out the inspection altered in large part the position assumed in the Report of the Tax Inspection, it is also true that in another part he maintained the position assumed, whereby one cannot rule out the possibility that the impartiality of the decision was ensured.

In any case, impediments operate abstractly, independently of the demonstration that, in concrete terms, an impartial or partial action occurred.

In truth, the aim with them is to prevent "situations in which there is risk or breach of the duty of impartiality, in particular by attributing annulling effect to facts which do not involve an effective violation of this principle, but have inherent the risk or danger of its violation". "The non-declaration of the impediment verified wounds the act practiced with the vice of violation of law, determining its voidability (Article 51, paragraph 1 Administrative Procedure Code), a vice of which are equally affected by the consequential acts thereof, in particular the assessment act subject to judicial challenge."[2]

Thus, it is to be concluded that the act of partial revocation of the original assessments, in the part in which it maintained them partially on the basis of the grounds of the opinion issued by the Tax Inspector who carried out the inspection, suffers from a vice of violation of law, which repercusses in the maintained part of the assessments, which justifies its annulment (Articles 51, paragraph 1 and 135 of the Administrative Procedure Code of 1991).

The compensatory interest assessments depend on the legality of the act of assessment of the tax to which they relate, being integrated in the same tax debt (Article 35, paragraph 8, of the General Tax Law), whereby they are affected by the illegality that affects the VAT assessments, justifying their annulment, for the same reasons."

1. Questions of Forfeited Knowledge

The above ordering of the controversial questions in these proceedings corresponds to the order of priority by which the Tribunal must rule on the vices imputed to the challenged assessments.

In truth, by force of the provision of Article 124, paragraph 2, letter b) of the Code of Tax Court Procedure, applicable by reference to Article 29, paragraph 1, letter c) of the RJAT, the appraisal of the vices invoked is made in the order indicated by the applicant, always that he establishes among them a relationship of subsidiarity – which, here, is verified, the applicant, by using the expression "without foregoing" (both in the IP and in the Pleadings), having established, in relation to the plurality of vices alleged, a relationship of subsidiarity in the order of their respective appraisal (see Article 101 of the Code of Tax Court Procedure) - thus, the Tribunal must appraise the vices invoked in the order pre-determined by the applicant. Naturally, it is kept in mind that paragraph 5 of Article 91 of the Code of Administrative Court Procedure, applicable by reference to Article 29, letter e) of the RJAT, allows that in the pleadings the plaintiff may invoke new grounds of the petition, of supervening knowledge, which is shown to be verified in the case under analysis.

Now, when the vice of specific incompatibility is verified, plurality of vices alleged, it is verified that if any vice conferring stable and effective protection of the taxpayer's rights is upheld, the appraisal of other vices that are imputed to the challenged act becomes forfeited, as useless, since if it were always necessary to rule on all vices, the order of their appraisal would be irrelevant.

In the specific case of arbitral decisions that rule on the merits, it is provided in paragraph 4 of Article 24 of the RJAT, the preclusion of the "right of the tax administration to practice a new tax act in relation to the same taxable person or tax obligor and taxation period, except in cases where this is based on new facts different from those that motivated the arbitral decision", whereby the annulment provides stable and effective protection of the interests of the applicant.

Consequently, there is no utility to the appraisal of the remaining questions raised, whereby no knowledge is taken of them (Article 130 of the Code of Civil Procedure).

1. Reimbursement of Amounts Paid and Indemnity Interest

Having the applicant proceeded to the payment of the additional tax assessments and compensatory interest assessments, the amounts paid should be reimbursed to it, as a consequence of the annulment of the additional assessments.

On the other hand, the additional assessments made by the Tax and Customs Authority being illegal, due to a fact attributable to it, indemnity interest is owed, by force of the provision of Article 43, paragraph 1 of the General Tax Law.

Indemnity interest is owed at the legal default rate (Articles 43, paragraphs 1 and 4, and 35, paragraph 10 of the General Tax Law, Article 559 of the Civil Code and Ordinance no. 291/2003, of 8 April) and calculated on the basis of the amounts of tax and compensatory interest paid by the applicant, between the date of such payment and the date of reimbursement to the applicant of those amounts.

Given the absence of elements that allow one to state with certainty what are the amounts of reimbursements as well as the amount of indemnity interest, their values should be assessed in execution of the present decision (Articles 609, paragraph 2, of the Code of Civil Procedure and 565 of the Civil Code).

1. Decision

Terms in which this Tribunal decides:

a) To uphold the request for arbitral pronouncement;

b) To annul the additional VAT and compensatory interest assessments, in the part that subsisted following the partial revocation operated by the Director-General of the Authority, namely: ..., ..., ..., ..., ..., ..., ..., ... (VAT) and ..., ..., ..., ..., ..., ..., ..., and ... (compensatory interest);

c) To order the Tax and Customs Authority to refund to the applicant the amounts paid, plus indemnity interest, in accordance with the terms referred to in point 3 of this decision;

d) To order the Tax and Customs Authority to pay the costs of the proceedings, taking into account what has already been paid.

1. Value of the Action

The Tax and Customs Authority contends that the value of the action should not be the amount indicated by the applicant (€11,482.22), as there has been partial revocation of the challenged acts, whereby the value should correspond, according to it, to the sum of the corrections contested and maintained, that is, €9,310.88, for the fiscal year 2010.

In accordance with Article 299, paragraph 1, of the Code of Civil Procedure, subsidiarily applicable by force of the provision of Article 29, paragraph 1, letter e), of the RJAT and Article 6, letter a), of the Regulations on Costs in Tax Arbitration Proceedings, "in the determination of the value of the case, one should have regard to the moment in which the action is brought, except when there is a counterclaim or main intervention".

For this reason, the value of the case is €11,482.22, in harmony with the provision of Article 306, paragraph 2, of the Code of Civil Procedure of 2013, Article 97-A, paragraph 1, letter a), of the Code of Tax Court Procedure and Article 3, paragraph 2, of the Regulations on Costs in Tax Arbitration Proceedings.

Thus, the costs are fixed at €918, in accordance with Table I of the Regulations on Costs in Tax Arbitration Proceedings, to be paid by the respondent, since the request was wholly upheld, in accordance with the provisions of Articles 12, paragraph 2 and 22, paragraph 4 of the RJAT, and Article 4, paragraph 4 of the cited Regulations.

Lisbon, 24 July 2015

The Arbitrator

(Marta Gaudêncio)

[1] This wording was introduced by Law no. 75-A/2014, of 30 September, and was already in force on 6 October 2014, when the Information from the Finance Directorate of ... was prepared.

In any case, the alteration is irrelevant, as it merely substituted the reference to the Directorate-General of Taxes that appeared in the previous wording, which established that "1. Officials of tax inspection, in addition to the incompatibilities applicable to officials of the Directorate-General of Taxes in general, are subject to the following specific incompatibilities."

Thus, the new wording is nothing new, as the redirection to the Tax and Customs Authority of all references to the Directorate-General of Taxes already resulted from Article 12, paragraph 2, letter a).

[2] Decision of the Supreme Administrative Court of 13 October 2010, case no. 0218110. Moreover, it is settled jurisprudence of the Supreme Administrative Court that the violation of the principle of transparency, which underlies the impediments provided for in Article 44 of the Administrative Procedure Code of 1991 and is a corollary of the principle of impartiality, with constitutional consecration in paragraph 2 of Article 266 of the Constitution of the Portuguese Republic, constitutes an autonomous vice, not dependent on the demonstration of effective action with partiality. In this regard, reference may be made to the Decisions of the Plenary of the Administrative Litigation Section of 16 November 1995, issued in appeal no. 31932, published in Appendix to the Official Journal of 30 September 1997, page 788, and of the same Plenary of 19 February 1997, issued in appeal no. 28280, published in Appendix to the Official Journal of 28 May 1999.