Process: 655/2014-T

Date: June 16, 2015

Tax Type: Valor do pedido:

Source: Original CAAD Decision

Summary

CAAD arbitration process 655/2014-T involved a Portuguese company challenging additional VAT assessments totaling €78,749.98 plus €4,820.17 in compensatory interest for the 2011 fiscal year (all twelve months). The claimant contested the assessments on multiple grounds: insufficiency and unintelligibility of reasoning in the tax inspection report, well-founded doubt regarding quantification of tax facts, illegal extension of the tax inspection procedure, and illegality of corrections concerning VAT deductions and exemptions applied. The case raised important questions regarding the application of EU Directive 2006/112/EC on the common VAT system, with the claimant requesting a preliminary ruling from the Court of Justice of the European Union under Article 267 TFEU. During proceedings, the Tax and Customs Authority (TCA) executed a partial revocation of the assessments, reducing the disputed amount to €52,844.55, though procedural irregularities emerged regarding the revocation process. The claimant argued that the TCA failed to provide transparent information about which specific tax facts the partial revocation addressed or the factual and legal grounds supporting it. Furthermore, critical documentation referenced in the administrative file—specifically information provided to the Justice and Litigation Division—was missing, raising concerns about procedural completeness and the taxpayer's right to adequate defense. The arbitral court, constituted on November 14, 2014, had to address not only the substantive VAT issues but also procedural questions regarding the validity of the inspection procedure, the adequacy of administrative reasoning, and the proper calculation of costs based on the revised assessment values.

Full Decision

ARBITRAL AWARD

CAAD: Tax Arbitration

Case no. 655/2014 – T

Subject: VAT; corrections; impediment in procedure relating to the revocation act

The arbitrators José Pedro Carvalho (arbitrator-president), Arlindo José Francisco and João Menezes Leitão (arbitrators-members), appointed by the Deontological Council of the Centre for Administrative Arbitration to form the present Arbitral Court, constituted on 14.11.2014, hereby agree as follows:

I. Report[1]

  1. A…, Lda, collective person no. …, with headquarters at …, no. …, … (hereinafter the Claimant), submitted on 01.09.2014, pursuant to article 10 of Decree-Law no. 10/2011, of 20 January, as amended (Legal Regime for Tax Arbitration, hereinafter LRTA), a request for arbitral pronouncement, in which the Tax and Customs Authority (hereinafter, Respondent or TCA) is sought, concerning additional assessments of Value Added Tax (VAT) nos. …, …, …, …, …, …, …, …, …, … and account reconciliation statements ID Document 2013 … - assessment no. 2013 …, and ID Document 2013 … - assessment no. 2013 …, in the total amount of €78,749.98, and the respective compensatory interest assessments nos. …, …, …, …, …, …, …, …,… and …, in the total amount of €4,820.17, issued on 26.11.2013, relating to the year 2011 (periods of January, February, March, April, May, June, July, August, September, October, November and December), totalling €83,750.15.

  2. In accordance with articles 5, no. 3, para. a), 6, no. 2, para. a) and 11, no. 1, para. a) of the LRTA, the Deontological Council of this Centre for Administrative Arbitration (CAAD) appointed as arbitrators of the collective arbitral court Dr. José Pedro Carvalho, as arbitrator-president, and Drs. Arlindo José Francisco and João Menezes Leitão, as arbitrators-members, who accepted the appointment.

The parties were notified of this appointment, and the Claimant submitted a request to challenge the appointment of Dr. Arlindo José Francisco, which was rejected by dispatch of 6.11.2014 from the President of the Deontological Council of CAAD.

Pursuant to the provisions in para. c) of no. 1 and no. 8 of article 11 of the LRTA, as per communication from the President of the Deontological Council of CAAD, the Arbitral Court was constituted on 14.11.2014.

  1. In its request for arbitral pronouncement (hereinafter initial petition or IP), the Claimant seeks a declaration of illegality of the additional VAT and compensatory interest assessments identified above on the grounds of insufficiency and unintelligibility of the reasoning contained in the tax inspection report, well-founded doubt concerning the quantification of tax facts, illegal extension of the tax inspection procedure, illegality of corrections relating to VAT deductions made and VAT exemptions applied.

In its IP, the Claimant, considering the application of the norms of Directive 2006/112/EC of the Council of 28 November 2006, relating to the common system of value added tax, also raises the question of formulating a request for preliminary ruling to the Court of Justice, pursuant to article 267 of the Treaty on the Functioning of the European Union (TFEU), for the clarification of the matters it indicates (nos. 287 and 288 of the IP).

The Claimant concludes its IP requesting:

"i) The annulment of the VAT and CI assessments (...) challenged, with the consequent reimbursement of taxes unduly paid;

ii) The recognition of the Claimant's right to compensatory interest, to be calculated in accordance with legal provisions, for factual and legal error by the TCA in issuing the assessments (...) challenged; and

iii) The condemnation of the Respondent to pay the costs of the present action".

  1. By dispatch of 14.10.2014, communicated to CAAD on 16.10.2014, the Director-General of the TCA, in accordance with the provisions of no. 1 of article 13 of the LRTA, proceeded, insofar as it is relevant here, to the partial revocation of the additional VAT assessments for January to November 2011, with corresponding alteration of the compensatory interest assessments, on the basis of TCA Information no. …/2014, of 14.10.2014.

Pursuant to this partial revocation, with regard to the year 2011, which is the subject matter of this process, the corrections resulting from the table reproduced below were maintained:

[table content preserved]

  1. The TCA presented its response, in which, after referring to the fact that a "partial revocation of the disputed tax acts" was carried out "in compliance with the information of the services", "within the period stipulated in article 13 of the LRTA", "with alteration of" "the assessments of January to November 2011" (no. 12), stated that "the assessments that replaced or will replace the revoked ones are not yet known" (no. 15), and that "reserving that all assessments originally challenged are revoked, it remains to discuss the grounds for the corrections that were not revoked in the administrative sphere and therefore will give rise to substitute assessments" (no. 16). In this context, the TCA petitions for the dismissal of the request for arbitral pronouncement, with consequent dismissal of the claims made.

In this response, the TCA also argues, regarding the value of the action, that "the total value challenged cannot be that initially indicated by the Claimant, of €83,750.15, but only the value corresponding to the sum of the disputed corrections maintained, that is, €52,844.55, for the 2011 fiscal year, the subject matter of the present case", a value that should be "the value of the case to be considered for costs purposes, as it corresponds to the value of the tax act not revoked, since a partial revocation occurred" (nos. 17 and 18 of the response).

  1. By application of 16.1.2015, the Claimant:

i) invoking that "the TCA carried out a partial revocation of the assessments, yet the Claimant continues not to know which concrete tax facts this revocation refers to, nor what are the reasons of fact and law for this revocation - so that the process and evidence may focus, on a sound basis, only on the factual matter in relation to which the assessments have not yet been annulled" (no. 4),

ii) as well as that "upon examination of the administrative file it is found that it contains Information dated 06.10.2014, from the Tax Inspection Division of the Finance Directorate of …, sanctioned by dispatch of 07.10.2014 (...) from the respective Division Chief", in which "reference is made, on several occasions, to an alleged 'information provided to the Justice and Litigation Division of the FD ...' – which supposedly would have been decisive and which presumably would contain the operations whose VAT is still outstanding, as well as the grounds of fact and law for the partial revocation of the assessments, as well as the administrative procedure specifically followed", whereas "that alleged 'information provided to the Justice and Litigation Division of the FD ...' is not contained in the administrative file – nor in any other document on file", whereby "the administrative procedure remains incomplete, in parts fundamental to the adequate understanding and assessment of the TCA's procedure" (nos. 6 to 9);

  • requested notification of the Respondent "to attach to the file a copy of the aforementioned information that the Tax Inspection Division of the Finance Directorate of ... provided to the Justice and Litigation Division of the Finance Directorate of ...".

By dispatch of the Court of 19.1.2015, it was ordered that the TCA be notified to attach to the file the elements of the administrative file that were missing, as well as to, if it so wished, pronounce itself on the application presented by the Claimant.

By application of 28.1.2015, the Respondent attached to the file Information from the Finance Directorate of ..., Tax Inspection Division-II, of 1.10.2014, headed "Analysis of the administrative appeal processes nos. … 2014 …, … 2014 … and … 2014 … – VAT, 2010, 2011 and 2012". In this same application, the Respondent, invoking the duty of procedural cooperation, also informed "that, following the revocation of part of the disputed corrections, pursuant to article 13 of the LRTA, and in view of the fact that the assessments have been paid, the competent services did not proceed to issue new assessments, but rather made reimbursement of the amounts corresponding to the corrections subject to revocation", whereby, "for the 2011 fiscal year, according to information from the services, the amounts of €23,326.60, relating to tax, and €2,605.10, relating to compensatory interest, were reimbursed" (nos. 4 and 5 of the said application).

By application of 9.2.2015, the Claimant pronounced itself on the application and documents thus presented by the Respondent, invoking that: "the inspection and report of the Tax Inspection Division of the FD of ... which led to the determination of the alleged outstanding VAT values is authored precisely by the same tax inspector who prepared the initial inspection report (see doc. B attached to the initial petition) that was the basis for the assessments challenged here – B…", which implies that "the same inspector who carried out the initial inspection and corrections himself subsequently carried out a 'self-inspection' of the inspection that he himself had previously conducted, following the taxpayer's arbitration requests – which, besides being unusual, is manifestly illegal", since "we are clearly faced with specific incompatibility of the inspector, pursuant to article 20 no. 1 f) of the RCPIT" and "before a case of impediment, pursuant to article 44 no. 1 g) of the CPA", "and the failure to self-report this situation constitutes even a serious offense for disciplinary purposes, pursuant to articles 45 no. 1 and 51 no. 2 of the CPA", whereby "also for this reason, the VAT and CI values still owed should be annulled" (nos. 4 to 10).

  1. On 19.2.2015, as appears from the respective minutes, testimony was given by the managing partner of the Claimant, C…, and witness evidence was produced, with examination of witnesses, called by the Claimant, D…., Official accountant of the Claimant until 2013, E…, administrative employee and currently Official accountant of the Claimant, and F…, also an employee of the Claimant.

By dispatch issued at the same time, the application of the Claimant, to which the TCA did not object, was granted, pursuant to para. c) of article 16 of the LRTA, for the use, for purposes of instruction of the present process, of the testimony, subject to recording in case 656/2014-T, of witness G…, relating to a matter identical to that being examined in this case.

Finally, the Court admitted the submission of successive written arguments and determined, in compliance with the provisions of article 18, no. 2 of the LRTA, that the decision would be issued within one month after the submission of the Respondent's arguments, a period which was subsequently extended, pursuant to article 21, no. 2 of the LRTA, by dispatch of 2.6.2015.

  1. By application of 2.3.2015, as well as with its arguments, the Claimant submitted additional documents, whose attachment to the file was admitted by dispatch of 16.3.2015, on the basis of the provisions in paras. c), d) and f) of article 16 of the LRTA, with the same determination being made that translation of documents in a foreign language, which the Claimant wished to have considered in the file, be attached, which was carried out on 16.4.2015.

  2. The arbitral court is competent to judge the request for arbitral pronouncement (article 2, no. 1, para. a) of the LRTA), the parties have legal personality and capacity, have standing (articles 4 and 10, no. 2 of the LRTA and article 1 of Ordinance no. 112-A/2011, of 22 March), and are duly represented.

The conditions for issuing a final decision are therefore met.

II. Questions to be decided

  1. Taking into account the subject matter of the dispute as it was configured following the decision to partially revoke the additional VAT assessments made by the TCA (see above no. 4), the specific questions raised within the scope of this process, as results from what was petitioned by the Claimant in the IP and what was referred to by the Respondent in its response, as well as what was invoked in subsequent applications and arguments, are as follows:

i) illegality of the disputed VAT and compensatory interest assessments in the segment in which they were not revoked by the TCA, given the presence of specific incompatibility, pursuant to article 20, no. 1, para. f) of the Supplementary Regime for Tax and Customs Inspection Procedure (RCPIT), and impediment, pursuant to article 44, no. 1, para. g) of the Administrative Procedure Code (APC), in the administrative decision of the taxpayer's means of challenge;

ii) insufficiency and intelligibility of the reasoning, due to lack of explicit statement and breakdown, as well as relationship with the corrections made, of the annexes to the inspection report that are the basis for the calculation and quantification of the corrections in question, with consequent violation of the provisions of articles 77, nos. 1 and 2 of the General Tax Law (GTL) and 268, no. 3 of the Constitution of the Portuguese Republic (CPR);

iii) occurrence of well-founded doubt concerning the quantification of tax facts and corrections made by the TCA in the inspection report, with consequent application of article 100, no. 1 of the Tax Procedure and Process Code (TPPC);

iv) illegal extension of the external tax inspection procedure, in breach of article 36, nos. 2 and 3 of the RCPIT;

v) error in the factual assumptions and erroneous interpretation and application of article 78, no. 5 of the Value Added Tax Code (VATC) in the correction relating to VAT deduction in the amount of €3,001.83 relating to credit notes issued to FNAC Portugal;

vi) erroneous legal characterization, considering article 19, no. 2, para. a) of the VATC, of the correction, on the grounds of accounting lapses and arithmetic errors, relating to VAT deduction in the amount of €5,849.07;

vii) error in the factual assumptions and violation of article 14, para. a) of the Intra-Community VAT Transaction Regime (ICVTR) and the principles of justice and proportionality subject to articles 55 of the GTL, 266, no. 2 of the CPR, 5 and 6 of the APC and 5 of the Treaty of the European Union (TEU), as well as lack of reasoning, concerning the correction of €3,609.26 relating to alleged irregularities of intra-community customers;

viii) error in the factual assumptions and violation of the norms and principles subject to articles 14, a) of the ICVTR, 6, no. 6, para. a) of the VATC, 29, no. 8 of the VATC, 6-A of the APC and 266, no. 2 of the CPR, 68-A, no. 1 of the GTL and 55 of the TPPC, 59 of the GTL, 5 and 9 of the RCPIT, 7 of the RCPIT, 5 and 6 of the APC, concerning the correction of €49,469.61 for alleged lack of supporting evidence of the departure of goods from Portugal to other EU countries;

ix) error in the factual assumptions and erroneous interpretation and application of articles 14, no. 1, para. a) and 29, no. 8 of the VATC concerning the VAT correction of €19,696.73 relating to exports;

x) illegality of the assessments challenged by violation of article 87, no. 1 of the VATC, considering the fact that the Claimant, pursuant to the periodic monthly VAT statements presented for 2011, self-assessed VAT receivable (VAT credits), so that, even if one were to admit, by mere hypothesis, the corrections in question, there would only be a reduction in the VAT credits self-assessed in those months, with no outstanding tax occurring;

xi) illegality of the compensatory interest assessment due to lack of the requirements provided for in articles 96, no. 1 of the VATC and 35 of the GTL;

xii) right to compensatory interest pursuant to article 43 of the GTL.

  1. The above ordering of the disputed questions in this case corresponds to the order of priority in which this Court should rule on the defects attributed to the disputed assessments.

In fact, by virtue of the provisions of article 124, no. 2, para. b) of the TPPC, applicable ex vi article 29, no. 1, para. c) of the LRTA, the examination of the defects invoked is made in the order indicated by the challenger, whenever the latter establishes between them a relationship of subsidiarity.

Now, it is found that in the arguments presented, through the use of the expression "Without waiving" (see the sentences following nos. 32, 43, 69 and 254 of the arguments; see also in the IP the sentence following no. 258), the Claimant established, in relation to the plurality of defects alleged, a relationship of subsidiarity in the order of their examination (see article 101 of the TPPC), so that the Court must examine the defects invoked in the pre-determined order by the Claimant. Naturally, it is borne in mind that no. 5 of article 91 of the Code of Procedure in Administrative Courts (CPAC), applicable ex vi article 29, para. c) of the LRTA, admits that in the arguments the plaintiff may invoke new grounds for the claim, of subsequent knowledge, which is verified in the case given the above described in no. 6 of the Report.

It follows that one should begin with the defect invoked by the Claimant relating to the presence of specific incompatibility, pursuant to article 20, no. 1, para. f) of the RCPIT, and impediment, pursuant to article 44, no. 1, para. g) of the APC, in the decision to partially revoke issued pursuant to article 13, no. 1 of the LRTA, which is now carried out.

III. Factual Basis

  1. It should be noted first that the selection of facts relevant to the judgment of the case is a function of its legal relevance in light of the terms of the dispute, which is carried out, in the formulation enshrined, by reason of the various plausible solutions of the legal questions being examined.

Given that, as mentioned, the primary concrete legal problem that this Court is called upon to solve within the scope of this process concerns the illegality of the act issued by the Director-General of the TCA pursuant to article 13, no. 1 of the LRTA and the configuration resulting therefrom of the disputed assessments, a question that is decisive for the configuration of the very subject matter of the process and for the examination of the other questions raised, it is relevant to begin by giving priority to the fixation of the factual matter specifically relevant for this purpose.

  1. Thus, having examined the documentary evidence produced and the tax administrative file attached (hereinafter, AF), the following facts are considered proven, with relevance for the examination of the question of the validity of the decision issued pursuant to article 13, no. 1 of the LRTA regarding the maintenance of the VAT corrections in question, in addition to the procedural dynamics referred to above in the Report:

I. The Claimant is a commercial company with limited liability that has as its business purpose the "import, export, purchase, sale and distribution of phonographic material; purchase, sale, distribution and editing of discs, CDs, video cassettes and other phonographic and audio and video reproduction material; wholesale and retail trading of phonographic material; promotion, organization and promotion of musical and entertainment events and shows which exercises the activity of buying and selling CDs, DVDs, vinyl records, merchandise and other articles related to music and audiovisuals", being registered for the exercise of the activity "Other wholesale trade of consumer goods, n.e.c.", CAE 46494 (see publication in the Court Portal and Tax Inspection Report (hereinafter TIR), respective page 1, attached as document B to the IP and also appearing on pages 1774 to 1785 of the AF, document named "Pages of RG15.part1").

II. In the year 2011, the subject matter of this process, the Claimant was subject to the normal VAT regime, with monthly periodicity (see TIR, p. 1).

III. The Claimant, in the periodic statements presented for the year 2011, as per copies attached in aggregate terms as document M to the IP, which are reproduced here, self-assessed the following VAT receivable values (VAT credits) in successive monthly statements: January-10,446.84; February-12,475.54; March-45,601.59; April-55,634.47; May-38,390.19; June-34,462.93; July-27,890.22; August-19,868.22; September-12,777.64; October-8,969.74; November-34,701.28; December-22,154.27.

IV. In 2013 the Tax Inspection Services of the Finance Directorate of ... conducted an inspection action on the Claimant, based on Service Order no. OI2013 …, with partial scope relating to VAT and temporal scope covering the fiscal years of 2010, 2011 and 2012 (see TIR, p. 1).

V. The inspection action began on 18.1.2013 and ended on 2.8.2013, with the company being notified, by official letter no. …/0505, of 11.7.2013, as per document F attached to the IP, of the extension, for a period of 3 months, of the tax inspection procedure period, with the expected end date of the procedure on 18.10.2013 (see TIR, p. 1; also see pages 7 to 9 of the AF [document named "Pages of RG2.Part2"]).

VI. Notified for this purpose by Official Letter …/0505, of 13.9.2013, the Claimant exercised in writing on 7.10.2013 its right to prior hearing regarding the Draft Tax Inspection Report (appearing on pages 14 to 22 of the AF, which is reproduced here), contesting its respective conclusions and attaching various documents, as per document C attached to the IP and pages 120 to 1773 of the AF ([documents named "Pages of RG3.Part1", "Pages of RG3.Part2", "Pages of RG4.Part1", "Pages of RG4.Part2", "RG5" to "RG14").

VII. Following the inspection action, the TIR was prepared (attached as document B to the IP and also appearing on pages 1774 onwards of the AF [document named "Pages of RG15.part1]), the content of which is here fully reproduced, in which the following were identified as situations determining technical corrections for the year 2011: i) improper VAT deduction in the amount of €8,850.90; ii) intra-community supplies without adequate supporting documents in the amount of €49,469.61; iii) exports without adequate supporting documents in the amount of €19,696.73; iv) intra-community supplies to taxable persons with invalid tax identification number in the amount of €3,609.26, which are summarized in the following table:

[table content preserved]

VIII. The Tax Inspection Report was prepared by Tax Inspector B… (see the indications contained in the TIR, namely p. 19).

IX. Following the corrections resulting from the aforementioned TIR, the Claimant was subject to additional VAT assessments nos. …, in the amount of €1,624.00, …, in the amount of €2,146.93, …, in the amount of €11,666.49, …, in the amount of €7,267.30, …, in the amount of €6,420.60, …, in the amount of €5,782.60, …, in the amount of €3,232.13, …, in the amount of €6,433.95, …, in the amount of €5,549.80, …, in the amount of €7,215.97 and account reconciliation statements ID Document 2013 .. - assessment no. 2013 …, with determined balance of €17,607.03 and ID Document 2013 … - assessment no. 2013 …, with determined balance of €3,803.18, in the total amount of €78,749.98, as well as the corresponding compensatory interest assessments nos. …, in the amount of €162.84, …, in the amount of €207.75, …, in the amount of €1,091.86, …, in the amount of €653.06, …, in the amount of €557.27, …, in the amount of €482.89, …, in the amount of €258.22, …, in the amount of €494.27, …, in the amount of €407.49, and …, in the amount of €504.52, in the total amount of €4,820.17, all issued on 26.11.2013, relating to the year 2011 (periods of January, February, March, April, May, June, July, August, September, October, November and December), totalling €83,750.15, as per documents attached as document A to the IP.

X. The Claimant made payment of the assessments referred to in the preceding number on 31.1.2014 and 17.1.2014 in the terms resulting from the payment receipts attached as document E to the IP.

XI. The Claimant submitted on 17.1.2014 an administrative appeal relating to the identified additional assessments, requesting that the same be set aside "as demonstrably having no grounds for being", within the scope of which it submitted various documentation (as per document D attached to the IP, which is reproduced here).

XII. Within the scope of this administrative appeal procedure, Information was issued on 01.10.2014, from the Finance Directorate of ..., Tax Inspection Division-II, headed "Analysis of the administrative appeal processes nos. … 2014 …, … 2014 … and … 2014 … – VAT, 2010, 2011 and 2012", authored by Tax Inspector B…, as per document attached to the file by application of 28.1.2015 from the Respondent (see above no. 6 of the Report), information in which it was proposed, with respect to the year 2011, the reduction of the values of the corrections according to the following table:

[table content preserved]

XIII. The administrative appeal was not decided within the four-month period following the date of its submission (factuality recognized in nos. 10 of the response and 6 of the IP).

XIV. On 01.09.2014, the Claimant submitted the request for arbitral pronouncement that gave rise to the present process, as per information from the CAAD case management system.

XV. On 6.10.2014, Information was issued from the Finance Directorate of ..., Tax Inspection Division-II, headed "Pronouncement regarding the maintenance of the assessments, in light of the request to establish the arbitral court – article 13, no. 1 of the LRTA", authored by Tax Inspector B…, confirmed by dispatch from the Division Chief, in subdelegation from the Deputy Finance Director (as appears on unnumbered pages of the AF [document named "Pages of RG1.part1"], from which it is relevant to highlight, for its immediate interest to the case, the following considerations:

"1. By email from the Legal Advice and Litigation Services Directorate (LALDSD), this Finance Directorate was informed that the taxpayer A…, Lda, submitted a request to establish an arbitral court at the Centre for Administrative Arbitration (CAAD), concerning the assessments in the subject heading, resulting from an inspection procedure carried out by the Inspection Services of this Finance Directorate, requesting the transmission of the tax inspection reports, as well as other elements considered relevant for the defense of the TCA.

  1. It further requests that this Finance Directorate, noting that pursuant to no. 1 of article 13 of the LRTA may proceed to the revocation, ratification, reformation or conversion of the tax act whose illegality has been raised, pronounce itself on the petitioner's requests. (...)

Year 2011:

  1. With respect to the credit notes issued by the Claimant in favor of H…, with nos. …/2011, …/2011 TCA and …/2011, it does not seem possible to relate the values indicated in the listings contained in invoices nos. A0 … and A0 …, both issued by said company on 2011/03/28, in the name of the taxable person, where records of returns are listed, with the indication that the returns therein in the amount of €4,492.10, €2,839.68 and €692.85, respectively, plus normal rate VAT, relate to the aforementioned credit notes, with the credit notes in question, so that the proposed correction should be maintained, since the VAT contained in the related credit notes is considered improperly deducted by virtue of the provisions of no. 5 of article 78 of the VATC (...).

  2. As for the proposed corrections, resulting from accounting lapses and arithmetic errors, the VAT deducted in excess as a result of these facts is not supported by any document, so that it is considered improperly deducted, as it contravenes the provisions of para. a) of no. 2 of article 19 of the VATC (...).

  3. Lack of VAT assessment in intra-community supplies of goods not substantiated (...)

  4. The company subsequently, within the scope of the administrative appeal processes, presented documents that were intended to prove the departure of goods from the national territory to another Member State, with destination to the purchaser.

  5. After analyzing and assessing these elements, it was concluded that of the value initially not justified, part of the intra-community supplies of goods billed, recorded and declared for VAT purposes remains unsubstantiated, for the reasons listed in the information provided to the Legal Advice and Litigation Division of the FD....

  6. Lack of VAT assessment in unsubstantiated exports (...)

  7. The company subsequently, within the scope of the administrative appeal processes, presented documents that were intended to prove the departure of goods from the national territory to third countries, with destination to the purchaser.

  8. After analyzing and assessing these elements, it was concluded that of the value initially not justified, part of the exports billed and recorded, but not declared for VAT purposes, remains unsubstantiated, for the reasons listed in the information provided to the Legal Advice and Litigation Division of the FD..., and in cases where customs documents are not required, as these are not one-off cases, and are not duly justified (...).

V - CONCLUSION

  1. VAT improperly deducted

  2. In light of the above, the proposed corrections regarding VAT improperly deducted should remain unchanged, with the exception of the correction relating to the waybill ("…") no. … (...).

  3. Lack of VAT assessment

  4. Lack of VAT assessment resulting from the validation of the tax identification numbers of intra-community customers:

  5. In light of the above, the corrections contained in Table 2 should be maintained.

  6. Lack of VAT assessment in unsubstantiated intra-community supplies of goods:

  7. In light of the above, and with respect to intra-community supplies of goods declared, the corrections contained in Table 3 should assume the following values:

(...)

  1. Lack of VAT assessment in unsubstantiated exports:

  2. In light of the above, and with respect to recorded exports, the corrections contained in Table 4 should assume the following values:

(...)

  1. Summary of the proposed purely arithmetic corrections that should be maintained: (...)

Concluding, the corrections of a purely arithmetic nature are summarized in Table 9:

whereby the assessments subject to challenge should be partially reformulated".

XVI. By dispatch of 14.10.2014, the Director-General of the TCA ordered the partial revocation of the tax acts contested here "as proposed" (see the indicated dispatch issued on Information no. …/2014, of 14.10.2014, contained on the CAAD electronic platform).

XVII. The proposed decision contained in Information no. …/2014, of 14.10.2014, on the basis of the dispatch for partial revocation from the Director-General of the TCA mentioned in the preceding number, states the following "taking into consideration the information provided by the FD of ..., and in exercise of the prerogative contained in article 13 of the LRTA, it is proposed that partial acceptance of the Claimant's claim be determined, with the corrections maintained accordingly, in accordance with the values contained in the following table, with compensatory interest to be reformulated accordingly" (see the indicated Information contained on the CAAD electronic platform, which is fully reproduced here, the mentioned table, in the part relevant here, having already been reproduced above in no. 4).

  1. The Court's conviction about the facts given as proven resulted from the documents attached to the file and contained in the AF, as well as from the recognition of facts assumed in the procedural documents by the parties, as specified in each of the points of the factual matter enumerated above.

  2. There is no factuality given as unproven that is relevant to the decision of the specific question being examined.

IV. Legal Grounds

a) Impediment in the procedure relating to the revocation act

  1. It is now necessary to address, in legal terms, the question concerning the defect invoked by the Claimant in relation to the decision issued pursuant to article 13, no. 1 of the LRTA regarding the presence of specific incompatibility, pursuant to article 20, no. 1, para. f) of the RCPIT, and impediment, pursuant to article 44, no. 1, para. g) of the APC.

This question was raised by the Claimant after the submission of the IP in an application of 9.2.2015 (see no. 6 of the Report) and in the respective arguments. The invocation of this ground is, however, timely, as it concerns the subsequent fact of the revocation carried out pursuant to no. 1 of article 13 of the LRTA and the knowledge of the procedure on which such revocation is based, and, as mentioned above in no. 11, no. 5 of article 91 of the CPAC, applicable ex vi article 29, para. c) of the LRTA, permits that in the arguments the plaintiff may invoke new grounds for the claim, of subsequent knowledge.

  1. The Claimant, in its arguments (see also the application of 9.2.2015 mentioned above), sustains the following (nos. 22 to 32 of the arguments) on the question now being examined:

  • "from the AF it results that the inspection and report of the Tax Inspection Division of the FD of ..., dated 06.10.2014 (which supports the Opinion of the FD of ... – Tax Inspection Division, of 06.10.2014, and the agreeing dispatch of 07.10.2014, from the Chief of that Inspection Division), and which led to the determination of the alleged outstanding VAT values (that is, not annulled by the TCA), is authored precisely by the same tax inspector who prepared the inspection report that was the basis for the assessments challenged here – B…";

  • thus, "the administrative decision of the taxpayer's means of challenge was based on an inspection carried out by the very same inspector who initially conducted the inspection that generated the additional VAT and CI assessments challenged here", so that "we are faced with an obvious specific incompatibility of the inspector, pursuant to article 20 no. 1 f) of the RCPIT" and "before a case of impediment, pursuant to article 44 no. 1 g) of the APC";

  • "Consequently, taking into account that it was precisely this inspection, vitiated with the defect 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", since "the VAT and CI assessments challenged here, in the segment in which they were not revoked by the TCA, constitute consequent acts of an inspection procedure that suffers from the defect of violation of the aforementioned legal provisions – fundamentally because carried out by the same inspector who carried out the inspection underlying the assessments";

  • "as consequent acts of unlawful inspection procedure, the VAT and CI assessments challenged here, in the segment in which they were not revoked by the TCA, are null and void, pursuant to article 133 no. 2 i) of the APC", and "pursuant to article 54 of the TPPC, the principle of unitary challenge of the final act of the tax procedure applies (...) – in this case, the additional VAT and CI assessments in the part not revoked by the TCA".

For its part, the TCA did not take a specific position on the substance of this matter in the procedural documents presented, namely in its application of 11.3.2015 and in its counter-arguments.

It is now necessary to decide.

  1. Article 20, no. 1, para. f) of the RCPIT provides that: "Tax inspection officers, in addition to the incompatibilities applicable to officers 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 processes of appeal, challenge or recourse against any acts of the tax administration in which they have had involvement".

In turn, article 44, no. 1, para. g) of the APC 1991, applicable as of the date of the facts (see currently article 69, no. 1, para. f) of the APC 2015), whose content is relevant for the tax procedure by virtue of para. c) of article 2 of the GTL, establishes, under the heading "Cases of impediment", that: "No holder of a public body or agent of Public Administration may intervene in an administrative procedure or in an act or contract of public or private law of Public Administration in the following cases: g) When it concerns recourse from a decision issued by him, or with his intervention, or issued by any of the persons referred to in para. b) or with the intervention of these".

As explained in the judgment of the Central Administrative Court of the South of 20.12.2006, case no. 0606/02, this legal provision, which "aims at the implementation of one of the preventive guarantees of impartiality, which guide the activity of the Administration and also the administrative procedure, and finds its recognition in article 266 no. 2 of the CPR, and reaffirmation in article 6 of the APC", is "a prohibition rule aimed at ensuring the fairness and independence of the deciding authority", since "the removal of those who are compromised with a specific act that is the subject of challenge ensures the minimum distance necessary for the decision to be made without interference from interests of a functional nature or even mere exaggeration of personality, which could lead the decision-maker to reproduce the judgment already issued, and safeguards the decision-making freedom of the superior hierarchy, to the extent that it provides them with contact with the reality of the first-instance administrative procedure, as it exists, apart from any further interference". In fact, as noted in the judgment of the Supreme Administrative Court of 17.11.2004, case no. 02038/03, "[it is] inevitable that whoever prepared this [primary decision], supplying it with supporting motivation, will tend, if involved in the decision of the recourse, to maintain his opinion and to uphold the decision based on it", so that "his involvement, in addition to the guarantee deficit it implies, goes against a rational, balanced and as correct as possible administrative decision".

It should be noted that the concept of "intervention" present in para. g) of no. 1 of article 44 of the APC 1991 encompasses not only the decision-making activity proper, but all other procedural actions relevant (see no. 2 of article 44 of the APC) to the instruction and preparation of the decision (see the aforementioned judgment of the Supreme Administrative Court of 17.11.2004, case no. 02038/03), particularly acts that determine or shape the final decision.

Now, it should be understood that the reference contained in the aforementioned para. g) of no. 1 of article 44 of the APC to "recourse from a decision issued by him, or with his intervention" encompasses the procedure for revocation of the tax acts subject to a request for arbitral pronouncement provided for in no. 1 of article 13 of the LRTA (see, moreover, the enumeration contained in article 20, no. 1, para. f) of the RCPIT which explicitly refers to "processes of appeal, challenge or recourse against any acts of tax administration"). Indeed, as noted in the judgment issued in case no. 656/2014-T of this CAAD, "[the] procedure for revocation of acts that are the subject of requests for arbitral pronouncement is inserted, by mere declarative interpretation, in the concept of 'recourse', since this expression is suitable to reference any means of challenge of acts of the Administration and in the procedure referred to aims, in light of what is alleged in the request for arbitral pronouncement, to assess the correctness of the act which is its subject".

Pursuant to article 51, no. 1 of the APC 1991, acts in which officials or agents with impediments have intervened are voidable in general terms.

  1. It is now necessary to apply to the situation sub judice the solutions set out above.

Let it be noted first that the configuration of the tax relationship (article 2, no. 1 of the GTL) between the Claimant and the TCA in respect of VAT for the year 2011 results, ultimately, following the administrative-tax actions adopted, from the content of the decision issued pursuant to no. 1 of article 13 of the LRTA, which partially revoked the assessments here challenged, annulling part of the underlying corrections and maintaining the remaining disputed technical corrections, in accordance with the reasoning resulting from the Information regarding which agreement is manifested (see points nos. XVI and XVII of the findings).

In this way, the subject matter of the present process is the "corrected" (or "reformulated" as referred to in the Information cited in no. XV of the findings) assessments as they were configured by this decision issued pursuant to article 13, no. 1 of the LRTA, which determined, in execution terms, differences in VAT to be reimbursed to the Claimant (see above no. 6 of the Report), as the latter proceeded to pay in full the original assessments (see no. X of the findings). With the decision issued pursuant to article 13 of the LRTA the TCA proceeded, then, to an administrative annulment, by means of partial annulling revocation, of the tax acts which, by error of fact or law, fixed a tax obligation superior to that legally owed.

Now, as results from the description in nos. XV, XVI and XVII of the findings, the decision to partially revoke certain corrections and to maintain each of the other disputed technical corrections, and the consequent configuration of the "corrected" assessments resulting from this decision, was based exclusively on the reasoning contained in the Information from the Finance Directorate of ..., Tax Inspection Division-II, headed "Pronouncement regarding the maintenance of the assessments, in light of the request to establish the arbitral court – article 13, no. 1 of the LRTA". Note, in fact, that the dispatch of 14.10.2014 orders the partial revocation of the contested tax acts "as proposed" (see no. XVI of the findings) in Information no. …/2014, of 14.10.2014, which, "taking into consideration the information provided by the FD of ...", proposes "that partial acceptance of the Claimant's claim be determined, with the corrections maintained accordingly, in accordance with the values contained in the table" indicated there (see no. XVII of the findings), and the "information provided by the FD of ..." is reduced to the Information from the Finance Directorate of ..., Tax Inspection Division-II, headed "Pronouncement regarding the maintenance of the assessments, in light of the request to establish the arbitral court – article 13, no. 1 of the LRTA", confirmed by dispatch from the Division Chief, in subdelegation from the Deputy Finance Director (see no. XV of the findings).

It is thus found, in light of the proven facts, that the maintenance of the disputed technical corrections relating to VAT for the year 2011 that was decided by the dispatch issued pursuant to article 13, no. 1 of the LRTA resulted solely and exclusively from the analysis of the request for arbitral pronouncement and the reasoning that were developed in the said Information of 6.10.2014 titled "Pronouncement regarding the maintenance of the assessments, in light of the request to establish the arbitral court – article 13, no. 1 of the LRTA" authored by the same Tax Inspector who prepared the Tax Inspection Report on the basis of the technical corrections and the consequent additional VAT assessments here in question (see nos. VIII and XV of the findings).

In this way, as the position assumed by the said Tax Inspector is the sole material foundation of the partial revocation decision issued pursuant to article 13, no. 1 of the LRTA, it is not possible to assimilate such a situation to a pronouncement on recourse as provided for in no. 1 of article 172 of the APC 1991, a pronouncement that, as explained in the judgment of the SAC of 28.1.2003, case no. 705/02, is intended for the "complete clarification of the situation that is the subject of the activity of the Administration", which involves, in the name of contradiction, that "the author of the challenged act may contradict the facts and legal arguments set out in the petition of the challenger and/or issue an opinion on the validity and relevance of the documents presented [see article 169 no. 1 of the APC], broadening the universe of elements important to the debate". For this to occur, it is essential that the "pronouncement" does not have "the power to shape or decisively influence the solution adopted" by the entity deciding the recourse (see the aforementioned judgment of the Central Administrative Court of the South of 20.12.2006, case no. …/02), for then it would not be contained within the parameters proper to the purpose of the rule in question.

In this sequence, it should be emphasized that the provision of article 44, no. 1, para. g) of the APC prohibits that the "recourse" be decided solely on the basis of information, opinion or proposal authored by the technical officer who, in the service of the body issuing the primary decision, prepared the information or opinion on which the latter relied in making the primary decision. As noted in the aforementioned judgment issued in case no. 656/2014-T of this CAAD: "In the specific case of the impediment to intervention in administrative procedures in which acts are challenged, the aim is to ensure a twofold degree of examination, through a new analysis of the situation without any psychological predisposition to maintain the decided, which legislatively was understood to be assured only by inhibiting officials who intervened in earlier phases of procedures from intervening in the recourses which, directly or indirectly, seek to assess their actions".

In these terms, as the dispatch for revocation of 14.10.2014, issued pursuant to no. 1 of article 13 of the LRTA, was limited to manifesting agreement with Information no. …/2014, of 14.10.2014 (no. XVI of the proven facts), which, for its part, did not involve any independent assessment of the grounds for the partial revocation of the original assessments and the maintenance of the remaining disputed technical corrections, but simply accepted the "information provided by the FD of ...", reproducing in full the table presented in the Information of 6.10.2014, relating to "Pronouncement regarding the maintenance of the assessments, in light of the request to establish the arbitral court – article 13, no. 1 of the LRTA" (nos. XV and XVII of the proven facts), authored by the same Tax Inspector who prepared the TIR on the basis of the original assessments (nos. VIII and XV of the findings), it must be recognized that there occurs in the situation in question the occurrence of impediment within the meaning of the provisions of article 44, no. 1, para. g) of the APC 1991.

Thus, given that the presence of this defect pertaining to the violation of the provisions of article 44, no. 1, para. g) of the APC 1991 contends with the formation of the will of the deciding body regarding the maintenance of the disputed technical corrections and the "corrected" assessments, these suffer from a defect of violation of law that affects their validity.

In summary, the act of partial revocation of the original assessments issued pursuant to article 13, no. 1 of the LRTA, insofar as it maintained them based solely on the grounds of the Information issued by the Tax Inspector who carried out the inspection and prepared the respective Tax Inspection Report, is burdened with a defect of violation of law, which impacts on the technical corrections that were maintained and the corresponding "corrected" assessments, which determines their annulment, pursuant to the provisions of articles 51, no. 1 and 135 of the APC 1991, which is hereby decided.

b) Questions of prejudiced knowledge

  1. In light of what was decided regarding the validity of the defect invoked in the question now resolved, and taking into account the relationship of subsidiarity established by the Claimant (see above no. 11), the examination of the other questions enumerated in paras. ii) to x) of no. 10 is prejudiced, so that they cannot be examined, pursuant to article 608, no. 2 of the Civil Procedure Code (CPC), applicable ex vi article 29, no. 1, para. e) of the LRTA, as this would constitute the performance of a useless act, which is not admissible (article 130 of the CPC).

c) Compensatory interest assessments

  1. The compensatory interest assessments are dependent on the legality of the tax assessment act to which they relate, being integrated in the same tax debt (article 35, no. 8, of the GTL), so they are affected by the annulment of the VAT assessments decreed above, which implies, consequently, their respective invalidity.

d) Compensatory interest

  1. Finally, the Claimant petitions the condemnation of the TCA to reimburse the tax paid unduly as well as the respective compensatory interest.

Article 24, para. b) of the LRTA provides that the arbitral decision on the merits of the claim for which no recourse or challenge is available binds the tax administration from the end of the period provided for recourse or challenge, and the latter must, in the exact terms of the success of the arbitral decision in favor of the taxable person and until the end of the period provided for the spontaneous execution of judicial court sentences in tax matters, restore the situation that would have existed if the tax act subject of the arbitral decision had not been made, adopting the acts and operations necessary for this purpose, which should be understood, in accordance with article 100 of the GTL, applicable ex vi para. a) of no. 1 of article 29 of the LRTA, as encompassing the payment of compensatory interest, in consonance, moreover, with the provisions of no. 5 of this same article 24 of the RGAT.

Article 43, no. 1, of the GTL provides that "compensatory interest is due when it is determined, in administrative appeal or judicial challenge, that there was error attributable to the services that results in payment of the tax debt in an amount exceeding the amount legally owed", establishing no. 4 of article 61 of the TPPC, that "if the decision recognizing the right to compensatory interest is judicial, the payment period is counted from the beginning of the period of its spontaneous execution".

Given that, in the case under examination, the illegality of the disputed assessments, attributable to the Tax Administration, is verified, the Claimant has a right, in accordance with articles 24, no. 1, para. b) of the LRTA and 100 of the GTL, to the reimbursement of the tax obligations paid in excess and to compensatory interest, pursuant to article 43, no. 1 of the GTL and 61 of the TPPC, calculated from the dates of the payments made (17.1.2014 and 31.1.2014 – see factuality proven in no. X of the findings) at the rate resulting from no. 4 of article 43 of the GTL, until the date of the full reimbursement of the total amount paid.

V. Decision

This Arbitral Court hereby decides:

i) to judge the request for arbitral pronouncement well-founded and, in consequence, to annul, in the part subsisting after the partial revocation carried out pursuant to article 13, no. 1 of the LRTA, the tax acts challenged in the case, namely, the additional VAT assessments nos. …, …, …, …, …, …, …, .., …, … and account reconciliation statements ID Document 2013 … - assessment no. 2013 …, and ID Document 2013 .. - assessment no. 2013 …, and the respective compensatory interest assessments nos. …, …, …, …, …, …, …, …,… and …;

ii) to judge the request for condemnation of the Tax and Customs Authority to reimburse to the Claimant the value unduly paid, plus compensatory interest in accordance with legal provisions, from the date on which the payments were made until the date of their full reimbursement;

iii) to condemn the TCA to pay the costs of the process.

VI. Value of the case

In harmony with the provisions of article 306, nos. 1 and 2 of the CPC, article 97-A, no. 1, para. a) of the TPPC, applicable by virtue of paras. c) and e) of no. 1 of article 29 of the LRTA and of no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Processes (RCPAT), the value of the case is fixed at €83,750.15.

The Respondent's claim that, in light of the partial revocation carried out, the value of the case corresponds to the amount of the corrections maintained (€52,844.55), does not therefore proceed, since article 299, no. 1, of the CPC, applicable by virtue of para. e) of no. 1 of article 29 of the LRTA, establishes that: "In determining the value of the case, regard should be had to the moment at which the action is brought, except when there is counterclaim or principal intervention".

VII. Costs

In harmony with the provisions of articles 12, no. 2, and 22, no. 4, both of the LRTA, and article 4, no. 4 of the RCPAT, the value of the arbitration fee is fixed at €2,754.00, in accordance with Table I of the aforementioned RCPAT, charged to the Respondent given the success of the request for arbitral pronouncement.

Let notification be made.

Lisbon, 16 June 2015.

The Arbitrators

José Pedro Carvalho
(President)

Arlindo José Francisco

João Menezes Leitão

[1] The orthography resulting from the Portuguese Language Orthographic Agreement of 1990 is adopted, having been updated in accordance with the spelling contained in the citations made.

Frequently Asked Questions

Automatically Created

What VAT corrections were challenged in CAAD arbitration process 655/2014-T?
The taxpayer challenged additional VAT assessments for all twelve months of 2011 (January through December) totaling €78,749.98, plus compensatory interest assessments of €4,820.17, for a total of €83,750.15. The corrections specifically related to disallowed VAT deductions and disputed VAT exemptions that the company had applied. After partial revocation by the Tax and Customs Authority during the arbitration proceedings, the disputed corrections were reduced to €52,844.55 for the 2011 fiscal year, though the specific factual basis for which corrections were maintained versus revoked remained unclear to the claimant.
Can a taxpayer contest the extension of a tax inspection procedure under Portuguese law?
Yes, under Portuguese tax law a taxpayer can contest the illegal extension of a tax inspection procedure as a ground for challenging resulting assessments. In this case, the claimant specifically raised 'illegal extension of the tax inspection procedure' as one of the bases for annulment of the VAT assessments. Portuguese administrative law requires that inspection procedures comply with legal timeframes and formalities, and violations of these procedural guarantees can constitute grounds for declaring the resulting tax assessments illegal, even if substantive tax obligations may exist.
What constitutes sufficient legal reasoning for additional VAT assessments in Portugal?
Under Portuguese administrative and tax law, additional VAT assessments must contain sufficient, clear, and intelligible legal reasoning explaining the factual and legal basis for the corrections. The tax inspection report must adequately identify the specific operations or transactions corrected, the legal provisions applied, and the calculation methodology used. In this case, the claimant challenged the assessments on grounds of 'insufficiency and unintelligibility of reasoning,' suggesting the inspection report failed to meet minimum standards of clarity and completeness. Additionally, well-founded doubts about the quantification of tax facts can render assessments illegal if the Tax Authority fails to properly substantiate its calculations with adequate evidence and reasoning.
How does EU Directive 2006/112/CE apply to VAT deduction and exemption disputes in Portugal?
EU Directive 2006/112/EC, which establishes the common system of value added tax across the European Union, directly applies to Portuguese VAT law and takes precedence over conflicting national provisions. The Directive governs fundamental aspects of VAT including the right to deduct input VAT (Articles 167-192) and various exemptions (Articles 132-166). In this case, the claimant invoked the Directive regarding disputed corrections to VAT deductions and exemptions, and even requested that the arbitral tribunal submit a preliminary ruling question to the Court of Justice of the European Union under Article 267 TFEU for clarification on how the Directive should be interpreted. Portuguese courts and arbitral tribunals must interpret national VAT law in conformity with the Directive and CJEU jurisprudence.
What are the grounds for challenging compensatory interest on additional VAT assessments at CAAD?
Compensatory interest assessments on additional VAT can be challenged at CAAD on several grounds. First, since compensatory interest is accessory to the principal tax assessment, any illegality affecting the underlying VAT assessment (such as insufficient reasoning, procedural violations, illegal extension of inspection, or substantive errors in applying VAT rules) automatically renders the corresponding interest assessment illegal as well. Second, taxpayers can claim their own right to compensatory interest from the Tax Authority when assessments are annulled due to factual or legal errors by the administration, as the claimant did in this case. Third, errors in calculating the interest amount, period, or applicable rate can be independently challenged. The key principle is that compensatory interest follows the fate of the principal assessment.