VAT Deduction on Invoices from Dissolved Companies: CAAD Arbitration 658/2015-T

ARBITRAL DECISION

I. REPORT

1. Object of the Request

A..., SA, Tax ID No..., with registered office at Av...., No..., ...-... LISBON, hereby, pursuant to the combined provisions of Article 2, No. 1, paragraph a) and Article 10, No. 1, paragraph a), both of the Legal Regime for Tax Arbitration approved by Decree-Law No. 10/2011, of 20 January, and Articles 1 and 2 of Ordinance No. 112-A/2011, of 22 March, presents a request for the establishment of an arbitral tribunal and an arbitral decision regarding additional VAT assessments and compensatory interest, in accordance with copies of the assessments attached hereto, relating to the tax periods 2010.01, 2010.02, 2010.03, 2010.04, 2010.05, 2010.06, 2010.07, 2010.08, 2010.10, 2010.11, 2010.12, in the amount of € 16,579.55, and to the tax period 2011.01, in the amount of € 3,322.78, in the total amount of € 19,902.33.

2. Constitution and Functioning of the Arbitral Tribunal

In accordance with Article 6, No. 1 of the RJAT, the Honorable President of the CAAD Ethics Council designated as sole arbitrator the undersigned, Joaquim Silvério Dias Mateus, who accepted the appointment within the legally prescribed period without either party having manifested any objection to his designation.

The sole arbitral tribunal was constituted on 08-01-2016.

By arbitral order of 22 April 2016, it was decided not to proceed with the convening of the meeting provided for in Article 18, No. 1 of the RJAT, as no matters justifying it had been raised.

3. Grounds for the Request

The grounds for the request are, in summary, as follows:

3.1. The claimant begins by reporting that in October 2014 it was notified by the Tax and Customs Authority – Large Taxpayers Unit, informing it that it intended to correct the VAT deduction relating to invoices issued by "B..., SA", Tax ID No..., "issued on a date after the date of registration of the closure of its liquidation (2009/03/24) with the consequent official cessation of its activity by the TA, in view of said extinction";

3.2. It informs that it exercised its right to be heard against the draft that was communicated to it, which was not accepted, and that on 6 November 2014, it received a new letter with the corrections converted to final, having subsequently been notified of the additional assessments that it now contests and which were paid on 12 January 2015 (those relating to 2010) and on 6 August 2015 (those relating to 2011);

3.3. The claimant goes on to develop the grounds invoked by the TA to support the said additional assessments, grounds based on the fact that VAT contained in invoices issued by the entity B..., SA (Free Trade Zone), after the date of registration of the closure of its liquidation, carried out within the scope of the administrative dissolution process initiated ex officio at the Commercial Registry of the Madeira Free Trade Zone, had been deducted, the deduction being considered undue on the basis of Article 19, No. 4 of the VAT Code because it is "resulting from operations in which the supplier of goods or service provider does not deliver to the State treasury the assessed tax, when the taxable person had or should have had knowledge that the supplier of goods or service provider does not have adequate business structure capable of carrying out the declared activity";

3.4. Expressing disagreement with the grounds used by the TA, the claimant begins by noting that it initiated business relations with the entity "B..." in fiscal year 2001 by means made available by the Tax Authority itself (specifically identification via Tax Portal), that given the quantity of transactions with the said entity it could never suppose that it would be officially extinguished, that the TA did not timely communicate said official extinction to it, that upon filing the Annual Declaration for 2010 it mentioned the supplier map with the Tax ID of the entity in question and with the amount of € 180,436 of transactions carried out with the same, such declaration having been validated and received without errors by the TA in the following year (2011) to the date of the tax facts in question, and that in 2011 the Tax ID of the said taxable person continued to be active in the TA databases;

3.5. On the other hand, the claimant strengthens its argument by saying that it has several thousand suppliers and it is entirely impossible to perform the tax validation of each one with a successive reasonable frequency, which only occurs upon opening the supplier in its computer systems or by communication from the TA, as is sometimes done;

3.6. The claimant next invokes a seizure procedure initiated by the TA against the company "B..." Tax ID..., the claimant having been notified in March 2013 that the credits of which it was the holder over the same entity had been seized, having paid the amount of € 458.31 in compliance with such notification;

Based on this fact, the claimant notes the contradiction arising from the TA proceeding with an enforcement action against B... and at the same time censuring it for not having ascertained signs of extinction;

3.7. The claimant then invokes the VAT mechanism and the high degree of formalization to which invoicing is subject and its probative value for purposes of the right to deduction, whereby, given the elements contained in the invoices issued by the company B..., the deductibility of the VAT paid in 2010 by the claimant cannot be questioned;

3.8. The claimant proceeds by referring to the issue of the rate applied being that of the mainland and not the one in force in the Madeira Autonomous Region, where B... was based, clarifying that the goods were placed at the disposal of A... from the installations of the supplier located on Rua ..., ..., in Lisbon, reinforcing with this fact the conclusion that there were no signs for A... to have knowledge that the supplier of the goods did not have adequate business structure capable of carrying out the declared activity;

3.9. The claimant thus concludes that none of the prerequisites mentioned in Article 19, No. 4 of the VAT Code for the deductibility of the tax in question to be called into question were verified, and therefore, it concludes, the annulment of the additional VAT and compensatory interest assessments unduly paid, totaling € 19,902.33, should be decreed.

4. Position of the Respondent Authority

4.1. The additional assessments contested were issued following an internal inspection action of limited scope with respect to the company "A... SA", covering fiscal year 2010, which was initiated in view of information that it had recorded invoices issued by a non-existent taxable person;

4.2. Indeed, according to the inspection report, the company "B...SA" was declared dissolved and liquidated on 2009/03/24, the registration of this fact having been made at the Commercial Registry of the Madeira Free Trade Zone, published online on the Ministry of Justice portal, due to the fact that it failed to proceed with the increase of its capital to the legal minimum in accordance with the provisions of Article 533, Nos. 4 and 6 of the Commercial Companies Code and no assets and liabilities to be liquidated resulted from the process, the administrative dissolution process having been initiated ex officio on 2008/12/09 and notified electronically to the company B... itself, to its shareholders, "to the administrator of company C..., resident at Rua..., No..., Rome, Italy" and to "any potential creditors of the company";

4.3. In accordance with legal provisions, the report continues, the Registrar communicates the closure of liquidation to the National Registry of Legal Entities, to the Tax Administration and to Social Security for purposes of exemption from presenting the competent declarations of cessation of activity;

4.4. Of interest to the proceedings is also the part of the inspection report which states that "the tax paid and deducted in 2010 by A..., contained in the invoices issued by the extinct company B... was not delivered to the State treasury by virtue of the fact that from the date of its extinction on 2009/03/24, it lost its legal and juridical personality, which only continued to exist in the sphere of the partners as to the pending actions practiced prior to its extinction";

4.5. The report further adds that "company A... should have had knowledge that the supplier of goods did not have adequate business structure capable of carrying out the declared activity, that is, it should have known that the entity selling it the goods in question was not the company appearing in the invoices (B...SA (ZFM) – Tax ID..., based in the Madeira Free Trade Zone, either because the company was extinct due to dissolution, or because the VAT rate stated in the invoices was the rate applicable to transactions carried out on the mainland;

4.6. The TA's Response supports, in essence, the grounds and conclusions presented in the inspection report, basing itself, essentially, on the same facts and the same legal frameworks;

4.7. In summary, the respondent's response states that the "ignorance by the claimant of the fact that B... was extinct on that date is always attributable to the claimant;

4.8. On the other hand, the response invokes the legal prerequisites for the right to deduction and certain situations in which that right is excluded, namely the provision of Article 2, No. 1, paragraph c) of the VAT Code in which VAT improperly mentioned in invoices, as is the case with invoices issued by an extinct company, is due to the State but is not deductible by whoever is improperly invoiced;

4.9. The response also invokes the issue related to the address indicated in the invoices, located on the mainland (Rua..., ... , in Lisbon), which did not correspond to the tax domicile of the entity in question, located in Madeira, drawing from this the conclusion "that it was incumbent upon the claimant to control for purposes of exercising the corresponding right to deduct the assessed tax, taking into account the special requirements of Article 36 of the VAT Code", further adding that as the operator was registered in the Madeira AR the transport or dispatch would have to always take place there, reason why the tax rate would necessarily be the rate in force in Madeira and not the mainland rate, ending this reflection with the statement (which also appeared in the inspection report) that "in the event that the operations had been carried out by the new company "D..., Unipessoal, Lda, with Tax ID ... (established on 2009/04/07), based at Rua do..., No..., ..., Lisbon, it would be necessary that the respective invoice be issued in accordance, fact which also did not occur";

4.10. Continuing in the same vein, the response insists that the claimant was in a position to know of the extinction of its supplier B..., that the extinction was duly registered and publicized, that the claimant made no proof of the ignorance it invoked, and cannot shelter itself in the size of its structure;

4.11. To respond to the claimant's objection related to the validation of the supplier declaration in which B... was found and that, therefore, the Tax ID of said supplier was valid in the Taxpayer Management and Registry System, the TA responds that, at least from 18/08/2010, the date on which the cessation was entered into the Taxpayer Management and Registry System, such argument loses any foundation, and recognizing that the Tax ID of B... continued to be active, despite its extinction, it responds that such is necessary because all tax information is associated with it, that if this were not the case the information would be lost, such maintenance of the Tax ID that allowed the TA to identify the situation in question;

4.12. As regards the claimant's argument related to the seizure of credits for debts of B..., the TA responds that "the extinction of the company does not determine the extinction of the legal relationships of which the company was the holder, proceedings pending against the respective partners continuing in accordance with the provisions of Articles 161, 163 and 164 of the Commercial Companies Code".

The Response concludes by affirming that all matters of fact raised by the claimant have been contested and that all legal grounds invoked by it have been refuted, thus concluding by the rejection of the request.

The parties were notified by order of 21 May 2016 to, if they so wish, allege within 10 days, without either of them having exercised this procedural right.

5. Sanitation

The arbitral tribunal is materially competent and was regularly constituted, the parties enjoy legal personality and capacity, have standing and were legally represented.

Since the proceedings do not suffer from nullities and no issues have been raised that prevent the examination of the merits of the case, it is considered that the conditions are met for the arbitral decision to be rendered.

II. DECISION

II.A. On the Factual Matters

II.A.1 Presentation of Facts Relevant to the Arbitral Decision

a) The internal inspection action covering fiscal year 2010 and taxpayer "A..., SA", from which resulted the additional assessments contested, was carried out by the Large Taxpayers Unit and initiated based on information that it had recorded invoices issued by a ceased taxable person called "B... SA", Tax ID..., based in the Madeira Free Trade Zone, with the competent inspection report having been prepared and notified to the claimant through the letter..., of 14-11-04, of the LTU;

b) The information contained in the inspection report is established that the invoices recorded by the claimant between 2010/03/01 and 2011/02/28 evidenced transfers of goods of the said company B... SA, in the total amount of 151,750.81, being € 139,475.62 corresponding to the value of the merchandise and € 12,275.19 corresponding to the underlying VAT;

c) Continuing to reproduce the information contained in the inspection report, it is proven that the company "B... SA" was declared dissolved and liquidated on 2009/03/24, the registration of this fact having been made at the Commercial Registry of the Madeira Free Trade Zone, published online on the Ministry of Justice portal, due to the fact that it failed to proceed with the increase of its capital to the legal minimum in accordance with the provisions of Article 533, Nos. 4 and 6 of the Commercial Companies Code and no assets and liabilities to be liquidated resulted from the process, the administrative dissolution process having been initiated ex officio on 2008/12/09 and notified electronically to the company B... itself, to its shareholders, "to the administrator of company C..., resident at Rua..., No..., Rome, Italy" and to "any potential creditors of the company";

d) In accordance with legal provisions, the inspection report continues to inform, the Registrar communicates the closure of liquidation to the National Registry of Legal Entities, to the Tax Administration and to Social Security for purposes of exemption from presenting the competent declarations of cessation of activity;

e) It is noted that the inspection report informs on several occasions that the Tax Authority declared the cessation of activity of company B... for purposes of Corporate Income Tax and VAT on 2009/03/24, information which the TA's Response corrected by informing, with attached document, that said cessation was only entered in the Taxpayer Management and Registry System on 18/08/2010;

f) Of interest to the proceedings is also the part of the inspection report which informs that "the tax paid and deducted in 2010 by A..., contained in the invoices issued by the extinct company B..., was not delivered to the State treasury by virtue of the fact that from the date of its extinction on 2009/03/24, it lost its legal and juridical personality, which only continued to exist in the sphere of the partners as to the pending actions practiced prior to its extinction";

g) The inspection report adds that "company A... should have had knowledge that the supplier of goods did not have adequate business structure capable of carrying out the declared activity, that is, it should have known that the entity selling it the goods in question was not the company appearing in the invoices (B... SA (ZFM) – Tax ID..., based in the Madeira Free Trade Zone, either because the company was extinct due to dissolution, or because the VAT rate stated in the invoices was the rate applicable to transactions carried out on the mainland;

h) It is proven that the invoices issued by company B... and recorded by company A... have the address Rua..., No..., ..., ...-..., Lisbon stated thereon;

i) The claimant attached to the request a copy of notification addressed to "A... SA" by the Finance Service of Funchal, dated 19 March 2013, communicating that in the tax enforcement proceedings ...2010... and related cases the credits of which it was the holder over "B... SA", Tax ID..., were seized up to the amount of € 2011.72;

j) It is proven that upon filing in 2011 the Annual Declaration for 2010, the claimant mentioned in the supplier map the Tax ID of the entity in question with the amount of € 180,436 of transactions carried out with the same, such declaration having been validated and received without errors by the TA;

k) Still on the matter of evidence it is noted that by order of 22 April 2016, the claimant was notified to, within 10 days, inform which of the facts articulated in the request it intended to subject to witness evidence and to inform whether the invoices issued by "B..., SA", Tax ID..., for supplies prior to the date of its official liquidation already indicated its location in Lisbon, attaching copies of some of those invoices, the claimant having not responded timely to this order;

l) For its part, also on the matter of evidence, by means of the same arbitral order, the respondent authority was notified to, within 10 days, attach copies of the periodic VAT declarations "relating to the tax periods 2010 and first quarter of 2011 and to taxable person B... SA Tax ID..." and to inform whether there was assessment of tax payable and whether the same was paid or, if not, to inform in what situation its collection stood;

m) In response to this order, the respondent authority presented a request to attach copies of the periodic declarations relating to the claimant and to the time period in question (2010-01 to 2011-03), which were ordered to be removed from the proceedings as it was considered that such attachment was not provided for in the said order and that the TA did not invoke any grounds for the attachment of such copies;

n) The respondent authority informed, also following the same arbitral order, that company B... SA Tax ID ... did not file periodic declarations for the period in question (2010-01 to 2011-03), having attached a printout extracted from the periodic VAT declarations system.

II.A.2 Facts Found to be Proven and Not Proven

There are no other facts proven and/or not proven of relevance to the decision and in light of the various perspectives for analyzing the legal questions.

The Court's conviction in fixing the factual framework described was based on the documentary evidence integrated in the proceedings by the claimant and respondent.

Nevertheless, it is borne in mind that the tribunal need not pronounce on everything alleged by the parties, it being incumbent upon it to select the facts relevant to the decision and to distinguish the proven from the unproven matter (cf. Article 123, No. 2, of the Tax Procedural Code and Article 607, No. 3 of the Civil Procedure Code, applicable by virtue of Article 29, No. 1, paragraphs a) and e), of the RJAT).

II.B. ON THE LAW

At issue in the present proceedings is whether a set of invoices issued by a taxable person that was officially extinct during the period of their issuance and that did not deliver VAT to the State treasury confers or does not confer the right to deduction on the taxable person who acquired the goods mentioned therein and recorded them in his accounting.

The right to deduction is one of the structuring elements of the VAT system and is characterized by prerequisites of substantive nature and of formal nature.

In very brief terms, it can be said that the requirements of substantive nature relate to the quality of taxable person of the operator, that this effectively acquires goods and services from other taxable persons and that these goods and services are dedicated to his taxable operations (see Articles 1, 2 and 20 of the VAT Code) and, on the side of the requirements of formal nature, we have the obligation of the operator/taxable person to be armed with invoices or other documents of the same nature drawn in legal form (see Articles 19 and 36 of the VAT Code).

Note that in the essential requirements just referred to, the law does not require that the taxable person holding the right to deduction must control or be armed with documents relating to the legal nature of the taxable person who transmits goods or provides services to him and issues the invoices.

The law simplifies the purchaser's role here by requiring that acquisitions be effective and contain no simulated elements (see Article 19, No. 3 of the VAT Code) but, as regards control over its supplier, it requires only that the invoice have stated its identification elements and its taxpayer number (see Article 36, No. 5, paragraph a) of the VAT Code).

Now, it being true that the tax system does not make the attribution of tax personality dependent on the requirement of legal personality of economic operators, as is clearly provided in Article 18, No. 3 of the General Tax Law, it is totally compatible with the quality of taxable person and inherent subjection to VAT, with the issuance of invoices and with the attribution of the right to deduction, the fact that there exist goods and services whose supplier or provider does not yet or no longer has legal personality, be it a mere de facto entity, an autonomous patrimony or an organization of similar nature.

What is determinative, it is repeated, is that there be effective transmission of goods or provision of services and that the operator present itself as a taxable person issuing properly filled invoices including its own identification.

It is observed, on the other hand, that the right to deduction which is attributed to taxable persons in relation to their inputs does not depend, as a rule, on the posture that the invoice issuer has in relation to the fulfillment of his own declaration and payment obligations related to the invoices he issues to downstream taxable persons.

See the wording of Article 19, No. 4 of the VAT Code which the TA invoked to deny the right to deduction and to issue the additional assessments contested.

That provision determines the following:

The tax resulting from operations in which the supplier of goods or service provider does not deliver to the State treasury the assessed tax may equally not be deducted, when the taxable person had or should have had knowledge that the supplier of goods or service provider does not have adequate business structure capable of carrying out the declared activity.

As can be seen, for the non-payment of tax by the supplier or service provider to affect the right to deduction that is generated in the downstream taxable person, in relation to invoices issued in legal form, it is necessary that this taxable person – the one downstream and who is the holder of the invoices issued in legal form – had or should have had knowledge that its supplier did not have an adequate business structure to carry out the activity within the scope of which it transmits goods or provides services.

Now, as results from the factual matters and the elements attached within the scope of the administrative proceedings, the tax services limited themselves to invoking a ground related to the official extinction of the supplier taxable person, fact which, while potentially having some relevance, was not sufficient and therefore would require complementary information and evidence on the circumstances in which that taxable person continued to supply very significant quantities of goods to the claimant and to issue it the competent invoices and whether there was any situation of fraud regarding the rules of the tax.

The TA's invocations regarding the divergence between the seat of B..., located in the Madeira AR, and the Lisbon address from which goods are supplied and which is indicated in the invoices, as well as the application of the VAT rate in force on the mainland, prove nothing by themselves about the alleged lack of structure on the part of the supplier of goods for purposes of denying the right to deduction under the transcribed Article 19, No. 4 of the VAT Code.

On the other hand, it cannot be overlooked that despite the legal extinction of B..., the TA only more than a year and a half after receiving from the Commercial Registry Registrar the communication of the extinction did it enter that information in its taxpayer management and registry system (see above II.A.1. d) and e)) and, furthermore, as was also proven, the TA in 2011 validated the Tax ID of the extinct entity in the context of the filing of the claimant's annual declaration (see above II.A.1 j)) and in 2013 notified the claimant to seize credits over said B... (see above II.A.1k)).

While the facts just described are not by themselves determinative to give reason to the claimant, they reveal that the TA also was not prevented from using the identification of an extinct company for certain tax purposes.

It is further to be observed that the internal analysis carried out by the TA of the tax situation in question did not point out any error or omission in the elements that the tax law requires in filling out invoices; that no external diligence was undertaken aimed at ascertaining whether company B... had or did not have facilities or some establishment on Rua do..., ..., in Lisbon, from which it would supply merchandise; that nothing was inquired about the relationship between B... SA and D... Unipessoal Lda (see above 4.9); that nothing was inquired in order to call into question that the invoices issued corresponded to actual transactions; that no evidence was presented which would allow concluding that the extinction of B... was notified to company A... or that it was effectively informed of the extinction when it acquired the merchandise that the invoices evidenced; that, in sum, no founded indication was presented related to the issuance and recording of the invoices that would allow concluding that there could be some situation of fraud or tax evasion.

To conclude, the fundamental flaw from which the TA's position suffers is considering that it would be sufficient to invoke the formal extinction of taxable person B... to withdraw the right to deduction from company A... of the VAT debited in invoices issued in the name of that company after that extinction.

Now, more than that, it would be necessary for the formal extinction of B... to be objectively translated into lack of structure to carry out the activity and that it be proven that such lack, being or needing to be of the knowledge of A..., was associated with the failure to deliver the tax.

And, as jurisprudence considers (see judgments below), the burden of proof to demonstrate this situation was incumbent on the tax administration itself in accordance with Article 74, No. 1, of the General Tax Law.

In a word, the TA did not gather objective elements that demonstrated that taxable person A... knew or should have known that B... did not have structure to carry out activity and that for that reason it failed to deliver to the State treasury the tax it had assessed.

The situation object of the present proceedings is addressed in extensive jurisprudence of the internal courts and of the Court of Justice of the European Union.

Beginning with the jurisprudence of the latter, it is worth transcribing some parts of the Judgment of 22 October 2015, case C-277/14, reproducing the thinking of this Court on the relevance of the right to deduction and on the conditions required of the tax authorities and of the taxable persons of the tax, notably on the matter of burden of proof, so that the right to deduction can be refused, even when the issuers of invoices are considered non-existent.

Thus, said judgment begins by invoking the main provisions of the VAT Directive which delimit the incidence of the tax, the taxable event and the right to deduction, namely:

Article 4, Nos. 1 and 2, which provides:

"1. 'Taxable person' shall mean any person who carries out in any place any of the economic activities referred to in point 2, whatever the purpose or results of that activity.

1. The economic activities referred to in point 1 shall comprise all activities of producers, traders and persons supplying services, including mining and agricultural activities and the activities of the professions listed below. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall also be regarded as an economic activity."

In accordance with Article 5, No. 1, of the directive, by "supply of goods" shall be understood the transfer of the right to dispose of tangible property as owner.

Article 10, Nos. 1 and 2, provides:

"1. For the purposes of this Directive:

a) 'Taxable event' shall mean the occurrence of the conditions under which tax becomes chargeable;

b) 'Tax becomes chargeable' shall mean the right which the tax authority may assert from a given point in time against the taxable person as regards payment of the tax, notwithstanding that the time of payment may be deferred.

1. The taxable event occurs and tax becomes chargeable at the moment the supply of goods or the supply of services is completed. [...]."

In accordance with Article 17, No. 1, of the same directive, "[t]he right of deduction shall arise at the moment the deductible tax becomes chargeable."

Article 17, No. 2, paragraph a), of this directive, as amended by Article 28F, No. 1, provides:

"In so far as the goods and services are used for the purposes of the taxable transactions of a taxable person, the following shall be allowed to be deducted from the VAT which that person is liable to pay:

a) The [VAT] due or paid in respect of goods supplied or to be supplied to him and services supplied or to be supplied to him by another taxable person[.]"

Article 18, No. 1, paragraph a), of the Sixth Directive, as amended by Article 28F, No. 2, provides that, in order to be able to exercise the right of deduction provided for in Article 17, No. 2, paragraph a), of this directive, the taxable person must be in possession of an invoice issued in accordance with the provisions of Article 22, No. 3, of the same directive;

Article 22, which appears in Title XIII of the same directive, entitled "Obligations of the persons liable to pay the tax" provides in its Nos. 1, paragraph a), 3, paragraph b), 4, paragraph a), and 5, as amended by Article 28H of the Sixth Directive:

"1. a) Taxable persons must declare the opening, alteration and closure of their business, trades or professions as taxable persons. Member States shall allow, and may require, such declarations to be made by electronic means according to procedures which they determine;

[…]

[…]

b) Save as otherwise provided in this Directive, the only particulars to appear on invoices issued pursuant to the first, second and third sentences of point (a) for the purposes of the value added tax are the following:

– the date of issue;

– a sequential number, based on one or more series, which uniquely identifies the invoice;

– the VAT identification number, referred to in paragraph (1)(c), under which the taxable person effected the supply of goods or services;

– the VAT identification number of the customer, referred to in paragraph (1)(c), to which the supply of goods or services was made for which that person is liable to pay the VAT or a supply of goods referred to in point A of Article 28C;

– the full name and address of the taxable person and his customer;

– the quantity and nature of the goods supplied or the extent of the services supplied;

– the date on which the supply of goods or services was effected or completed, or the date on which payment was made on account, as referred to in the first sentence of point (a), insofar as such date is determinable and differs from the date of issue of the invoice;

– the taxable amount for each rate or exemption, unit price without tax, and any discounts or rebates not included in the unit price;

– the VAT rate applicable;

– the amount of VAT payable, except where a special scheme which this Directive provides for excludes such mention;

[…]"

The dispute in the main proceedings

During the year 2004, E… made several purchases of diesel fuel which it used within the scope of its economic activity. The invoices relating to these purchases of diesel fuel were issued by F… (hereinafter "F…"). E… proceeded to deduct the VAT paid relating to the purchases of diesel fuel.

Following a tax inspection, the Tax Administration refused it, by decision of 5 April 2012, the right to deduct this VAT due to the fact that the invoices relating to these purchases of diesel fuel were issued by a non-existent operator.

The Dyrektor … confirmed this decision, by decision of 29 May 2012, on the ground that F… should be considered, in light of the criteria provided for by the decree of 27 April 2004, a non-existent operator which could not proceed to supplies of goods. The finding regarding the non-existence of F… was based on a set of elements, namely the fact that such company was not registered for VAT purposes, did not file a tax declaration nor pay taxes. Furthermore, the said company did not publish its annual accounts and did not hold a concession for the sale of liquid fuels. The property designated as its registered office in the commercial register would be in such a state of ruin as to make any economic activity impossible. Finally, all attempts to contact F… or the person registered as its director in the commercial register proved fruitless.

The preliminary questions submitted to the Court of Justice were as follows:

"1. Must Articles 2(1), 4(1) and (2), 5(1), and 10(1) and (2) of the Sixth Directive […] be interpreted as meaning that acts carried out in circumstances such as those described in the case pending before the referring court, in which neither the taxable person nor the tax authority is able to determine the identity of the actual supplier of goods, constitute a supply of goods?

1. If the reply to the first question is in the affirmative: Must Articles 17(2)(a), 18(1)(a)[,] and 22(3) of the Sixth Directive be interpreted as meaning that they preclude national provisions under which – in circumstances such as those described in the case pending before the referring court – the taxable person is not entitled to deduct the input VAT on the ground that the invoice was issued by a person who is not the actual supplier of the goods and it is impossible to determine the identity of the actual supplier of the goods and to oblige him to pay the VAT or to identify the person who, because he issued the invoice, is required to pay it, pursuant to Article 21(1)(c) of the Sixth Directive?"

The following paragraphs 34 and subsequent of the judgment under analysis are transcribed, reproducing the thinking of the Court of Justice on the relevance of the right to deduction and on the conditions required of the tax authorities for these to be able to deny that right:

"34 Under Article 4(1) of the Sixth Directive, 'taxable person' means any person who carries out in any place any of the economic activities referred to in point 2, whatever the purpose or results of that activity. It follows from this that the concept of 'taxable person' is defined in broad terms, on the basis of factual circumstances (see Tóth, C-324/11, EU:C:2012:549, para. 30).

35 As regards F…, such economic activity does not appear to be excluded, having regard to the circumstances surrounding the supplies of fuel at issue in the main proceedings. This conclusion is not affected by the fact, emphasized by the referring court, that the ruined state of the property in which the registered office of F… is located made it impossible for any economic activity to be carried out there, since such a finding does not preclude the possibility that such activity could be carried out elsewhere from the registered office. Where an economic activity consists of supplies of goods effected in the context of successive sales, the initial purchaser and reseller of those goods may confine itself to instructing the initial supplier to carry the goods directly to the subsequent purchaser (see Forvards V, C-563/11, EU:C:2013:125, para. 34, and Jagiello, C-33/13, EU:C:2014:184, para. 32), even though he does not himself possess the warehousing and transport facilities necessary to effect delivery of the goods.

36 Likewise, the possible impossibility of establishing contact with F… or with the person registered as its director in the commercial register during administrative procedures, where such attempts at contact were made during the period before or after the supplies at issue in the main proceedings, does not permit the automatic conclusion that there was no economic activity at the time of those supplies.

37 Furthermore, it does not follow from Article 4(1) and (2) of the Sixth Directive that the status of taxable person is conditional upon any authorization or license granted by the Tax Administration for the pursuit of an economic activity (see, to that effect, Tóth, C-324/11, EU:C:2012:549, para. 30).

38 It is true that Article 22(1)(a) of this Directive provides that taxable persons must declare the opening, alteration and closure of their business, trades or professions as taxable persons. Nevertheless, notwithstanding the importance of that declaration for the proper functioning of the VAT system, that declaration is not a further condition for the recognition of the status of taxable person within the meaning of Article 4 of this Directive, since Article 22 appears in Title XIII of the Directive, entitled 'Obligations of the persons liable to pay the tax' (see, to that effect, Tóth, C-324/11, EU:C:2012:549, para. 31).

39 It follows from this that this status cannot depend on the performance of the obligations of the taxable person as set out in Article 22(4) and (5), to file a tax return and pay VAT. A fortiori, recognition of the status of taxable person cannot be made conditional on the obligation to publish annual accounts or to hold a license for the sale of fuel, since such obligations are not provided for in the Sixth Directive.

40 In this context, the Court of Justice also declared that any failure by a supplier of goods to comply with the obligation to declare the opening of taxable activity does not affect the right to deduction of the recipient of the goods delivered as regards the VAT paid for these. Thus, the said recipient benefits from the right to deduction even if the supplier of those goods is a taxable person who is not registered for VAT purposes, provided that the invoices relating to the goods delivered contain all the information required by Article 22(3)(b) of the Sixth Directive, in particular that necessary for the identification of the person who issued the invoices and the nature of the goods (see, to that effect, Dankowski, C-438/09, EU:C:2010:818, paras. 33, 36 and 38, and Tóth, C-324/11, EU:C:2012:549, para. 32).

41 The Court of Justice concludes from this that the tax authorities cannot refuse the right to deduction on the ground that the issuer of the invoice no longer has a merchant's license in his own name and therefore no longer has the right to use his tax identification number, when the invoice includes all the information listed in Article 22(3)(b) (see, to that effect, Tóth, C-324/11, EU:C:2012:549, para. 33).

42 In the case in question, it follows from the file sent to the Court of Justice that the invoices relating to the operations at issue in the main proceedings mention, in accordance with that provision, the nature of the goods delivered and the amount of VAT due, as well as the name of F…, its tax identification number and the address of its registered office. Accordingly, the circumstances indicated by the referring court and summarized in para. 30 of this judgment do not permit the conclusion that the status of taxable person of F… was non-existent and therefore to refuse E… the right to deduction.

43 Secondly, it must be added that, as regards the supplies of fuel at issue in the main proceedings, the other substantive conditions of the right to deduction, indicated in para. 28 of this judgment, were equally satisfied, notwithstanding the possible non-existence of F… in the light of the decree of 27 April 2004.

44 In fact, the concept of 'supply of goods' in Article 5(1) of the Sixth Directive does not refer to the transfer of ownership in the forms provided for by the applicable national law, but to any transfer of a tangible asset by one party which gives to the other party the power to dispose of it as owner (see in particular Shipping and Forwarding Enterprise Safe, C-320/88, EU:C:1990:61, para. 7, and Dixons Retail, C-494/12, EU:C:2013:758, paras. 20 and the case-law cited), the possible absence of power of disposal in law on the part of F… in relation to the goods at issue in the main proceedings cannot exclude the existence of a supply of those goods within the meaning of that provision, provided that the said goods were actually delivered to E…, which used them for the purposes of its taxable operations.

45 Furthermore, the VAT which E… actually paid in respect of the supplies of fuel at issue in the main proceedings, according to the indications in the file sent to the Court of Justice, was also 'due or paid' within the meaning of Article 17(2)(a) of the Sixth Directive. In fact, it is settled case-law that VAT is levied on all transactions involving production or distribution, with a deduction of the tax which has directly borne the various components of the price (see in particular Optigen and Others, C-354/03, C-355/03 and C-484/03, EU:C:2006:16, para. 54; Kittel and Recolta Recycling, C-439/04 and C-440/04, EU:C:2006:446, para. 49; and Bonik, C-285/11, EU:C:2012:774, para. 28). Accordingly, the question whether or not the supplier of the goods at issue in the main proceedings paid the VAT due on those sales to the Tax Administration is not relevant to the right of the taxable person to deduct the input VAT (see, to that effect, Optigen and Others, C-354/03, C-355/03 and C-484/03, EU:C:2006:16, para. 54, and Véleclair, C-414/10, EU:C:2012:183, para. 25).

46 Now, it follows from the request for a preliminary ruling that, in view of the circumstances of the main proceedings, the referring court considers that the operations at issue in the main proceedings were effected not by F…, but by another operator who could not be identified in such a way that the tax authorities could not recover the tax relating to those operations.

47 In this regard, it is to be recalled that the fight against possible fraud, evasion and abuses is an objective recognized and encouraged by the Sixth Directive. Thus, it is for the national authorities and courts to refuse the right to deduction if it is established, on objective evidence, that that right was invoked fraudulently or abusively (see Bonik, C-285/11, EU:C:2012:774, paras. 35 and 37 and the case-law cited, and Maks Pen, C-18/13, EU:C:2014:69, para. 26).

48 If it is so when a tax fraud has been committed by the taxable person himself, so it is likewise when the taxable person knew or had reason to know that, with its acquisition, it was participating in an operation involved in a VAT fraud. In such circumstances, the taxable person in question must, for the purposes of the Sixth Directive, be considered a participant in that fraud, regardless of the question whether or not it obtained a benefit from the resale of the goods or the use of the services within the scope of the taxable transactions it carried out downstream (see Bonik, C-285/11, EU:C:2012:774, paras. 38, 39 and case-law cited, and Maks Pen, C-18/13, EU:C:2014:69, para. 27).

49 By contrast, when the substantive and formal conditions laid down in the Sixth Directive for the existence and exercise of the right to deduction are met, it is not compatible with the deduction right regime provided for in that Directive to penalize with the denial of that right a taxable person who did not know and could not have known that the operation in question was involved in a fraud committed by the supplier or that another operation in the chain of supplies, before or after that carried out by that taxable person, was tainted by VAT fraud (see, to that effect, Optigen and Others, C-354/03, C-355/03 and C-484/03, EU:C:2006:16, paras. 51, 52 and 55; Kittel and Recolta Recycling, C-439/04 and C-440/04, EU:C:2006:446, paras. 44 to 46 and 60; and Mahagében and Dávid, C-80/11 and C-142/11, EU:C:2012:373, paras. 44, 45 and 47).

50 It is for the Tax Administration that has found the frauds or irregularities committed by the issuer of the invoice to prove, on the basis of objective evidence and without requiring of the recipient of the invoice to carry out checks which do not fall within his remit, that that recipient knew or had reason to know that the operation relied on to assert the right to deduction was involved in a VAT fraud, which it is for the referring court to verify (see, to that effect, Bonik, C-285/11, EU:C:2012:774, para. 45, and LVK – 56, C-643/11, EU:C:2013:55, para. 64).

51 The determination of the measures which may, in the case in question, be reasonably required of a taxable person seeking to exercise his right to deduct VAT to ensure that his operations are not involved in a fraud committed by an upstream operator depends essentially on the circumstances of the case in question (see Mahagében and Dávid, C-80/11 and C-142/11, EU:C:2012:373, para. 59, and order Jagiello, C-33/13, EU:C:2014:184, para. 37).

52 It is true that such a taxable person may be required, when he has indications which give rise to the suspicion of the existence of irregularities or fraud, to obtain information about the operator from whom he intends to purchase goods or services in order to assure himself of its reliability, but the Tax Administration cannot require him, in general, to verify, on the one hand, whether the issuer of the invoice relating to the goods and services for which deduction of that right is requested had those goods available and could deliver them and fulfilled his declaration and payment obligations for VAT, to ensure that there are no irregularities or fraud at the level of upstream operations, or, on the other hand, to have documents to that effect (see, to that effect, Mahagében and Dávid, C-80/11 and C-142/11, EU:C:2012:373, paras. 60 and 61; Stroy trans, C-642/11, EU:C:2013:54, para. 49, and order Jagiello, C-33/13, EU:C:2014:184, paras. 38 and 39).

53 Having regard to the foregoing considerations, the answer to the questions referred must be that the provisions of the Sixth Directive must be interpreted as precluding a national regulation, such as that in the case in question, which refuses a taxable person the right to deduct the VAT due or paid relating to goods delivered to him on the ground that the invoice was issued by an operator who should be considered, in light of the criteria laid down in that regulation, a non-existent operator and where it is impossible to determine the identity of the actual supplier of the goods, except where it is established, on the basis of objective evidence and without the taxable person being required to undertake checks which do not fall within his remit, that the taxable person knew or had reason to know that the delivery was involved in a VAT fraud, which it is for the referring court to determine."

By the reasoning disclosed, the Court of Justice (Fifth Chamber) declares:

The provisions of Council Sixth Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, as amended by Council Directive 2002/38/EC of 7 May 2002, must be interpreted as precluding national regulation, such as that at issue in the main proceedings, which refuses a taxable person the right to deduct the value added tax due or paid relating to goods delivered to him on the ground that the invoice was issued by an operator who should be considered, in light of the criteria laid down in that regulation, a non-existent operator and where it is impossible to determine the identity of the actual supplier of the goods, except where it is established, on the basis of objective evidence and without the taxable person being required to undertake checks which do not fall within his remit, that the taxable person knew or had reason to know that the delivery was involved in a fraud in value added tax, which it is for the referring court to determine.

The internal jurisprudence, as could not be otherwise, follows the same line.

See, for example, the Judgment of the Southern Administrative Court of Appeal of 14/04/2015, case 06525/13, whose most relevant conclusions are transcribed:

"4. The exercise of the right to deduct VAT embodies one of the main characteristics of this tax, all in accordance with the regime enshrined in the Sixth Directive of 1977 (Directive 77/388/EEC, of the Council, of 17/5/1977), more precisely in its Article 17, a provision which enshrines the rules for the exercise of the right to deduct the tax, contemplating various objective and subjective requirements for the exercise of the same right to deduction.

1. The mechanisms for deduction of VAT are enshrined in Articles 19 to 25 of the VAT Code. As the tax in question is based on a system of fractional payments destined to tax final consumption, the deduction of the tax paid in the intermediate operations of the economic circuit is indispensable to the functioning of such system.

2. Both the deduction of VAT and its refund are subject to certain conditions provided for in the VAT Code that may be considered similar. Refund consists of the return to the taxable person of the tax borne in excess during a certain period of time. For its part, the VAT deduction mechanism consists in the faculty that the taxable person has to be able to deduct from the tax incurred on the taxable operations it carried out the tax that was invoiced to it in its acquisitions of goods or services from other VAT taxable persons.

3. Article 19, No. 4, of the VAT Code, in the wording of Decree-Law 31/2001, of 8/2, enshrined limitations on the right to deduct VAT, by preventing deduction of tax in cases of non-existence or inadequacy of the supplier's or service provider's business structure to the activity carried out, if the tax is not paid to the State. The law requires, for this purpose, that the acquiring taxable person have knowledge of the fraudulent intention of the supplier, of non-delivery of the tax to the State treasury. It is further stated that the principle of VAT neutrality imposes the safeguarding of the right to deduction when there are no objective elements demonstrating that the taxable person knew or should have known that, with its acquisition, it was participating in a VAT fraud, a matter whose burden of proof belongs to the Tax Administration (see Article 74, No. 1, of the General Tax Law).

4. The provisions which enshrine derogations to the principle of the right to deduct VAT, a system that ensures the neutrality of this tax, are to be interpreted restrictively.

5. The CJEU has held that it is not compatible with the deduction rights regime provided for in the VAT Directive to refuse that right to a taxable person who did not know, being it not required of him to know, that the operation in question was part of a fraud, or that another operation in the supply chain, before or after that carried out by the taxable person, was constitutive of a VAT fraud."

The teaching of the two judgments transcribed above also forms the basis for the decision that must be rendered here, which is to recognize the merit of the arbitral request.

C. DECISION

In these terms, the arbitral request is declared well-founded, ordering the annulment of the additional VAT and compensatory interest assessments identified in the petition and relating to the tax periods 2010.01, 2010.02, 2010.03, 2010.04, 2010.05, 2010.06, 2010.07, 2010.08, 2010.10, 2010.11, 2010.12, in the amount of € 16,579.55, and to the tax period 2011.01, in the amount of € 3,322.78, in the total amount of € 19,902.33.

D. Value of the Proceedings

The value of the proceedings is fixed at € 19,902.33, in accordance with Article 97-A, No. 1, paragraph a), of the Tax Procedural Code, applicable by virtue of paragraphs a) and b) of No. 1 of Article 29 of the RJAT and of No. 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is fixed at € 1,224.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be borne entirely by the Respondent Authority, in accordance with Articles 12, No. 2, and 22, No. 4, both of the RJAT, and Article 4, No. 4, of the said Regulation.

Lisbon, 6 June 2016

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The Arbitrator,

Joaquim Silvério Mateus