Process: 660/2017-T

Date: September 15, 2020

Tax Type: IVA

Source: Original CAAD Decision

Summary

This landmark CAAD arbitral decision (Process 660/2017-T) addresses the VAT deduction rights of non-resident entities registered in Portugal, specifically examining whether A... GMBH, a German company with a Portuguese permanent establishment, could deduct VAT incurred before its Portuguese tax registration. The case involved a disputed VAT assessment denying €2,144,303.54 in deductions, with an alternative claim for €769,104.86 relating to post-registration operations. The arbitral tribunal, composed of three designated arbitrators, first addressed a jurisdictional challenge by the Tax Authority (AT) regarding CAAD's competence to review partial VAT refund denials. After extensive witness testimony and procedural deliberations spanning multiple hearings, the tribunal ruled against the incompetence exception, affirming its jurisdiction. This decision was subsequently reformed in September 2020, replacing the original March 2019 ruling. The case establishes important precedents regarding temporal limitations on VAT deduction rights for non-resident taxpayers, the scope of CAAD's competence in reviewing tax assessments involving both legal and material errors, and procedural requirements for reforming arbitral decisions. The tribunal's handling of complex cross-border VAT issues demonstrates the increasing sophistication of Portuguese tax arbitration in resolving disputes involving non-resident entities with Portuguese operations, particularly concerning the right to deduct input VAT and the timing requirements for valid VAT registration.

Full Decision

ARBITRATION JURISPRUDENCE IN TAX MATTERS

Process No. 660/2017-T

Decision Date:
15.09.2020

VAT

Value of Claim:
€ 2,144,303.54

Subject:
VAT – Right to deduction; errors of law and material errors; competence of the arbitral tribunal – Reform of the Arbitral Decision (attached to the decision).
*Replaces the Arbitral Decision of 12 March 2019.

ARBITRAL DECISION

The arbitrators designated to form the Arbitral Tribunal, Alexandra Coelho Martins (arbitrator-president), designated by the Ethics Board of the Center for Administrative Arbitration (CAAD), Clotilde Celorico Palma and Sérgio Vasques, designated by the parties, hereby agree on the following:

A. REPORT

I The Course of the Proceedings

  1. On 21.12.2017, the Request for Arbitral Opinion (PPA) submitted by A... GMBH (entity governed by German law, registered in Portugal as a non-resident taxable person under tax identification number ..., with a permanent establishment at Rua ..., no. ..., Porto, formerly B...) was accepted by the President of CAAD pursuant to articles 2, no. 1, paragraph a) and 10 of Decree-Law no. 10/2011, of 20.01 ("Legal Regime for Arbitration in Tax Matters", hereinafter RJAT), in the version introduced by articles 228 and 229 of Law no. 66-B/2012, of 31.12.

  2. This request has as its object:

a) the declaration of illegality of the tax assessment act for Value Added Tax (VAT) no. 2017... (notified on 21.09.2017), as a result of which a partial denial of a reimbursement request submitted was issued, that is, in the part in which it corrects the VAT deducted in the amount of 2,144,303.54, with all legal consequences; or, alternatively,

b) the declaration of illegality of the aforementioned assessment, and the consequent partial annulment in the part in which it corrects the VAT deducted in the amount of € 769,104.86 borne in operations carried out when the Claimant was already registered for VAT purposes in Portugal, with all legal consequences.

  1. On the same day, 21.12.2017, the request for constitution of the Arbitral Tribunal was automatically notified to the parties.

  2. Within the periods provided for in the RJAT, the Claimant proceeded to nominate an arbitrator, designating Professor Doctor Clotilde Celorico Palma, in accordance with article 11, no. 2, of the RJAT. Pursuant to no. 3 of the same article, the Respondent designated as arbitrator Professor Doctor Sérgio Vasques.

  3. The arbitrators designated by the parties designated as arbitrator-president Professor Doctor António Carlos dos Santos, who accepted this appointment within the applicable period, and such designation was subsequently made by CAAD.

  4. On 20.02.2018, the parties were notified of these designations, and neither party expressed a wish to challenge any of them.

  5. On 12.03.2018, in accordance with the provision in no. 7 of article 11 of the RJAT, the present Collective Arbitral Tribunal was constituted, thus being able to examine and decide on the object of the proceedings.

  6. On 23.03.2018, an arbitral order was issued pursuant to no. 1 of article 17 of the RJAT, of which the Respondent was notified on the same date.

  7. On 30.04.2018, the Respondent submitted its reply, beginning by invoking the exception of incompetence of this TA to examine the dispute, an issue that must be subject to prior analysis.

  8. On 11.05.2018, an order was issued scheduling for 08.06.2017 the meeting referred to in article 18 of the RJAT, to proceed with the examination of the witnesses listed. For this purpose, the Claimant was invited to indicate the facts on which the witnesses should be examined and to designate the translator for hearing foreign witnesses.

  9. On 08.06.2018, the meeting provided for in article 18 of the RJAT took place and the examination of the following witnesses designated by the Claimant (cf. Minutes of the Meeting): C...; D...; E...; F... and G... . For the hearing of these last two witnesses, H... was appointed as a German/English to Portuguese translator (and vice versa), indicated by the Claimant and accepted by the Respondent and the TA, after demonstration of their credentials as an interpreter. Witness I... did not appear due to illness, proof of which was presented. It was decided that their hearing would take place on 02.07.2017. It was further decided that the arguments should be submitted in writing and in successive form and that, taking into account the proceedings underway and the proximity of the judicial holidays (article 17-A of the RJAT), the deadline for the decision would be extended by two months, pursuant to article 21, no. 2 of the RJAT.

  10. On 02.07.2018, witness I... was examined, who had not appeared on 08.06.2018 (cf. the respective Minutes). At that same meeting, the TA notified the Claimant and the Respondent to submit, in this order, within a period of 20 days, successive written arguments, with the period for the Respondent beginning to run with the notification of the joinder of the Claimant's arguments. Taking into account the provision in no. 1 of article 21 of the RJAT, at that same time, 31.10.2018 was set as the deadline for rendering the arbitral decision.

  11. On 07.09.2018, arguments were submitted by the Claimant (joined to the case file), where the latter, taking into account the witness examination procedure, reiterates and develops its position on the facts and law expressed in the initial petition, as well as its position on the exception raised by the Respondent, refuting the Respondent's arguments.

  12. The Respondent did not submit arguments.

  13. On 18.10.2018, taking into account the conduct of the proceedings defined in the meetings of 08.06.2018 and 02.07.2018, an order was issued directing that the TA, together with the parties, analyze and decide in a meeting to be scheduled for 08.11.2018, the question of the exception invoked by the Respondent. In the same order, taking into account various absences of arbitrators and the complexity of the proceedings, the deadline for decision in the present case was extended by a further two months, pursuant to article 21, no. 2 of the RJAT.

  14. On 23.10.2018, the Respondent submitted a petition stating that it had nothing to add regarding the exception that it had not already written in its response (but still invoking, in favor of its thesis, two Superior Court of Audit (STA) rulings, one of 11.06.2008 and another of 21.02.2018), and requesting, as a result, the dispensation with holding the meeting scheduled for 08.11.2018.

  15. Upon being heard on the matter, the Claimant, on 29.10.2018, declared that it had no objection to the cancellation of the said meeting, simultaneously requesting that the new arguments brought to the proceedings by the Respondent be disregarded. Thus, the mentioned meeting was cancelled by order of 07.11.2018.

  16. By order of 28.11.2018, the parties were informed of the position of the collective that no merit would be given to the exception of incompetence of the TA invoked by the Respondent and, consequently, of the continuation of the present proceedings. In the same order, the parties were asked to submit the transcript (if it existed) of the statements made orally by the witnesses and, as a precaution, it was decided that, given the existence of new absences of members of the collective during some days in December and January, the deadline for rendering the arbitral decision would be extended by a further two months.

  17. By arbitral order of 18.12.2018, an order of the Respondent was granted in which it requested the annulment of the order of 28.11.2018 to the extent that it referred to the position of the TA on the exception of incompetence, which will be decided and substantiated at the time of the arbitral decision.

  18. On 08.02.2019, the following arbitral order was issued: "Taking into account a more complete ascertainment of material truth, the Claimant shall be notified to, within a period of 10 days, submit to the case file documentary evidence relating to the facts alleged in articles 40 and 42 of the initial petition, as well as in articles 96, 99 and 102 of its arguments, namely copies of the relevant parts of the report, analysis, memorandum or instruction that served as the basis for the revision of the invoices and/or correspondence with J...".

  19. In response to what was requested, the Claimant, on 19.02.2019, submitted nine documents to the case file (in German and English, their translation being sent on 04.03.2019, following an arbitral order of 21.02.2019 – which extended to 12.03.2019 the deadline for the arbitral decision, with no objection from the Respondent regarding the joinder or translation of these documents), among which a copy of a memorandum from K... of 20.10.2014 on the VAT classification of the transactions carried out by the Claimant, another from L... concerning proposals for tax consulting on the same subject, and documents proving the involvement of company M... in identifying the tax issues of the Claimant, as well as various emails and correspondence exchanges.

  20. On 05.03.2019, the Arbitral Tribunal determined that the Respondent be notified to make submissions, if it wished, within a period of 5 days, on the translated documents submitted to the case file by the Claimant, which was effected through the Case Management System, with dispatch of the electronic notification on 07.03.2019.

  21. The arbitral decision was rendered on 12.03.2020 (rectified by order of 23.04.2020).

  22. The Respondent filed a challenge of the arbitral decision in the Administrative Court of the South (TCA-South) (case no. 44/19.9BCLSB).

  23. Following the communication, on 27.05.2020, of the Judgment of the TCA-South declaring the arbitral decision null, in the above-mentioned challenge proceedings (case no. 44/19.9BCLSB), for violation of the right to be heard, the present proceedings were reopened and, by arbitral order dated 17.06.2020, the Respondent was notified, granting a period of 10 days for it to make submissions on the translated documents submitted by the Claimant [on 04.03.2019].

  24. On 23.06.2020, by virtue of the death of the Honorable Professor Doctor António Carlos dos Santos, arbitrator-president and rapporteur of the proceedings, the Honorable President of CAAD issued an order aimed at replacing him in accordance with the law.

  25. Following the petition submitted by the arbitrators designated by the parties for the arbitrator-president to be designated by the Ethics Board, the Honorable Ms. Alexandra Coelho Martins was designated in that capacity by order of 26.06.2020, in accordance with article 6, no. 2, paragraph b), of Decree-Law no. 10/2011, of 20 January, with appointment on 30.07.2020.

  26. The Judgment of the TCA-South rendered in the challenge proceedings filed under no. 44/19.9BCLSB, relating to the present arbitral proceedings, became res judicata on 02.07.2020.

  27. On that same date, the Respondent, following the notification of the arbitral order (of 17.06.2020) to exercise the right to be heard on the documentation translated and submitted by the Claimant, came to request the termination of the instance, for exhaustion of jurisdictional power, pursuant to the provision in article 21, no. 2 of the RJAT, of which the Claimant was notified, also to exercise the right to be heard, in accordance with the order of 01.09.2020.

  28. On 11.09.2020, the Claimant made submissions to the effect that the exception raised by the Respondent should be declared unfounded, with the proceedings continuing to their conclusion.

  29. The request for termination of the instance submitted by the Tax Authority was rejected by order of 15.09.2020, which precedes the present decision, as this Arbitral Tribunal was of the view that the initial arbitral decision was rendered within the deadline, although it was rendered on the last day.

II The Dispute

Substantiation of the Claimant's Position
  1. In defense of its position, the Claimant, in summary, alleges that:

a) the basis of the present dispute is the Respondent's non-acceptance of the correction of an erroneous classification of tax operations (provision of services instead of supplies of goods) carried out by its supplier, J... S.A.;

b) although these operations were not correctly invoiced or reported by J... S.A., with that company incurring various errors, this did not result in any prejudice to the State;

c) the corrections made by the Respondent to the deductible VAT, which gave rise to the assessment now challenged, refer to VAT charged to the Claimant in December 2015, following invoices issued by J..., S.A. (identified in articles 56 and 57 of the IP)

d) the deadline for issuing corrected invoices is not two years, as the Respondent argues, by application of article 78, no. 3 of the VAT Code (CIVA), but four years, resulting from article 98, no. 2 of the CIVA, in conjunction with article 22 of the same statute (error of law).

  1. The Claimant thus contests the position of the Respondent (according to which we would be dealing with "correction invoices" that were not declared in the periodic statement relating to the tax period in which they were issued and in which the respective description mentions as a taxable operation a "supply of goods"), since, given that the said invoicing covered components of wind turbine towers acquired by J... S.A. which, together with other components supplied by the Claimant, were subject to assembly by that company with the objective of delivering to the Claimant the final product (Nacelle), we would be dealing with "provision of services".

  2. In fact, the value contributed by J... S.A. relating to assembly services and incorporated components, namely, the Generator and Converter components (acquired by J... S.A., until 2013, from the company N..., S.A.) never exceeded an amount of 30% relative to the total cost of a Nacelle.

  3. Thus, pursuant to article 4, no. 2, paragraph c), of the CIVA, this operation should be classified as a provision of services and not as a supply of goods.

  4. Not having, at that time, a permanent establishment with a structure with technical and human resources to which the services were to be provided, the services carried out by J... S.A. would not be subject to VAT in Portugal, by application a contrario of the general rule of place of supply provided for in article 6, no. 6, paragraph a), of the CIVA.

  5. It so happens that J... S.A. erroneously classified as supplies of goods the operations carried out with the Claimant, charging VAT on the so-called "original invoices" (issued with the German tax identification number of the Claimant), as it understood that it was carrying out a supply of goods located in Portugal.

  6. However, at the beginning of 2015, following an internal audit conducted by the Claimant, it communicated to J... S.A. that it had detected the aforementioned error of classification of the operations in the issuance of invoices.

  7. Faced with this, in February 2015, J... S.A, with a view to correcting the improper charging of VAT, issued a credit note for cancellation of the invoices that improperly mentioned supplies of goods subject to tax in Portugal, as well as new invoices, now without VAT charge.

  8. It so happens, however, that J... S.A. then committed a new error: in the new invoices issued, it indicated as justification for the non-charging of VAT article 14 of the VAT Regime for Intra-Community Transactions ("RITI"), instead of referring to article 6, no. 6, paragraph a), of the CIVA.

  9. This error, which was not identified at the time by the contracting parties, was probably due to the fact that J... S.A.'s services resorted to previous invoice models (where reference was made to the RITI), given that references to the applicable VAT classification in the invoices were made manually.

  10. Thus, both the credit note and the new invoices (with errors) were reported by J... S.A. in the periodic VAT statement for February 2015.

  11. The Finance Directorate of ... (DF...) initiated an inspection action in response to a request for reimbursement of VAT credit in the periodic VAT statement for August 2015 made by J... S.A.

  12. J... S.A. then argued that the invoices under analysis related to provision of services and not to supplies of goods, contesting the classification made by the Tax Authority, which, based on the classification of the operations as intra-Community supplies of goods, requested proof of shipment of goods to another Member State and, in the absence thereof, informally gave notice that it would proceed with the correction of the reimbursement amount in the amount of € 1,027,946.88.

  13. Notwithstanding not having agreed with the position of the DF... (as it understood that the operations should be classified as provision of services), J... S.A. proceeded with the issuance of a credit note to cancel the invoices issued in February 2015 and issued new invoices with VAT charge, and it was based on these invoices that the Claimant exercised its right to deduction.

  14. However, a new error is committed by J... S.A., as, instead of reporting these new invoices in the substitute periodic statement no. ..., in fields 3 and 4, it merely withdrew from field 40 the amount of VAT from the credit note.

  15. Following the position of the DF... and with a view to standardizing its procedures, J... S.A. decided to also correct the invoices issued between 08.11.2011 and 18.07.2012.

  16. Thus, in December 2015, J... S.A. proceeded with the issuance of credit notes in the amount of € 1,458,021.66, to cancel the initially issued invoices, and issued new invoices with VAT charge, using the Portuguese tax identification number of the Claimant.

  17. However, due to manifest error, the new invoices, as well as the credit notes, were not reported in the periodic statement corresponding to the period of their issuance (December 2015), and this procedure did not result in any financial loss to the State.

  18. The procedures for cancellation and subsequent issuance of invoices were thus motivated by the fact that J... S.A., as well as the Claimant, concluded that the invoices originally issued did not reveal a correct legal and tax classification, and the invoices in question were issued with VAT charge because it was required by the Tax Authority, following the inspection procedure of J... S.A.

  19. With regard to the Claimant, the VAT is related to operations that confer the right to deduction and was mentioned in invoices that fully comply with the requirements provided for in article 36 of the CIVA.

  20. But, according to the Claimant, even if it were understood that there was some formal incorrectness in the description of the invoices, this would not prejudice the exercise of the right to deduction, as it is the understanding of the Court of Justice of the European Union ("CJEU") that the degree of requirement in the invoice description or relating to other formal requirements, for the purposes of exercising the right to deduction, should not be disproportionate to the purposes of identification of the operation and control of tax fraud and evasion.

  21. Now, in the case sub judice, the Claimant argues that the purposes of proper VAT collection were not placed at risk, nor was the effective control of operations by the Tax Authority impaired, since the tax was charged and paid into the State coffers.

  22. Having thus substantially complied with the requirements provided for in articles 19, 22 and 36 of the CIVA, the Respondent cannot deny the Claimant the exercise of the right to deduction on the ground that its supplier – J... S.A. – did not report the final invoices issued in a periodic VAT statement.

  23. In reality, such reporting is not a condition for the exercise of the right to deduction in the sphere of the purchaser, nor can the right to deduction be denied due to the fact that the invoices, for the reasons already given, do not make express mention of provision of services.

  24. The denial of the right to deduction would amount to a penalty contrary to both the principle of neutrality, the central principle in the common VAT system, and the principle of proportionality.

  25. As a subsidiary matter, the claimant further alleges that the invoices contained in documents 11 to 33 of the initial petition, to which corresponds VAT deducted in the amount of € 769,104.86, were issued by J... S.A. with a date after the registration of VAT in Portugal of the Claimant, that is, after 20.08.2012, and therefore, at least on this point, there should be no doubts as to the recognition of the right to deduction of the tax borne, for which reason the challenged assessment should be subject to partial annulment in that amount.

  26. With regard to these invoices, the Claimant contests the position of the Respondent, according to which the invoices in question were "improperly issued to the purchaser with German NIF, when it already possessed VAT registration in Portugal, and for which there would be no right to reimbursement under the refund scheme for taxable persons not established in Portugal", and even that "Although the four-year period has not yet expired with respect to the original invoices, these cannot be used because the purchaser's NIF does not match and, therefore, does not comply with the requirements of article 36, no. 5 of the CIVA. For the rectification to regularly operate, a rectifying document, credit note, would have had to be issued, which could only take effect within the periods of article 78, no. 3 of the CIVA".

  27. That is: according to the Claimant (since the Respondent recognizes that the VAT was effectively borne by the Claimant, when it was already registered for this purpose in Portugal), this implied, in accordance with the Respondent's own doctrine emanating from the Tax Authority, that the reimbursement request should be made in accordance with article 22 of the CIVA. In fact, the "original invoices" referred to above remain valid for all legal and tax purposes, including the right to deduction by the Claimant, without prejudice to the fact that the purchaser's NIF indicated on the invoice refers to its German NIF and not to its Portuguese NIF.

  28. However, even if it were understood that the "original invoices" do not produce effects due to having been subject to cancellation (and without prejudice to the Claimant's understanding that article 78, no. 3 of the CIVA is not applicable in this case), in fact, J... S.A. cancelled the original invoices, and indicated, in the last invoices issued, the Claimant's Portuguese VAT number.

  29. On 09.07.2018, the Claimant submitted written arguments (joined to the case file), where it reiterated and developed its position regarding the defense of the Respondent by exception (to be analyzed hereinafter) and by challenge, now supported by transcripts from the witness examination subsequently carried out.

  30. According to the Appellant, it follows from the examination of the witnesses the confirmation of the facts alleged in the IP, namely that:

  • J... S.A. merely proceeded to carry out assembly services for components sent by the Claimant;

  • only at the beginning of 2015 was it detected that the VAT regime applied in the invoices suffered from error, due to deficient legal and tax classification of the operations;

  • such fact occurred as a result of a reanalysis by the Claimant of the procedures followed on a worldwide scale, resulting in the constitution of a working group for this purpose;

  • an analysis of the commercial relations between the Appellant and J... S.A. was carried out in Portugal by K..., which concluded that the classification of taxable operations should be provision of services, a fact communicated to J... S.A.;

  • that the errors in the invoicing of the latter company were due to insufficient technical knowledge of the persons responsible for invoicing, as well as the use of inadequate management software for Portuguese reality.

  1. According to the Appellant, the documentary and witness evidence came to confirm "that the procedures for cancellation and subsequent issuance were motivated by the fact that J... S.A., as well as the Claimant, concluded that the originally issued invoices did not reveal a correct legal and tax classification, and that, furthermore, the invoices best identified in article 56 of the IP were issued with VAT charge as required by the Tax Authority following the inspection procedure on J... S.A."

  2. The Appellant reiterates and reinforces the invocation of European jurisprudence, namely that resulting from the CJEU judgment Biosafe-Indústria de Reciclagens, of 12.04.2018, rendered in case C-8/17, according to which the period for exercise of the right to deduction should be counted not from the issuance of the initial invoices but from the issuance or receipt of the rectifying documents, provided that lack of diligence of the purchaser or fraudulent collusion between the parties is not proven, with the competent tax authorities bearing the burden of such proof.

Substantiation of the Respondent's Position

  1. Notified on 30.04.2018, the Respondent submitted its reply, defending itself by exception (alleging the incompetence of the TA to decide the present dispute, an issue to be analyzed hereinafter) and by challenge. It requests the dismissal of the request for arbitral opinion, as not proven, and argues that the operations between the Claimant and J..., S. A. should be classified as supplies of goods and that the period for "correction of invoices is two years, by application of no. 3 of article 78 of the CIVA". Based on the argumentation set out hereinafter in summary, the Respondent requests its acquittal of all claims with the legal consequences.

  2. Following a request for VAT reimbursement, requested by the now claimant, in the amount of € 15,850,827.91, in the periodic statement for the period of January 2016, an inspection procedure was initiated (whose report was joined to the case file and is taken as reproduced), in order to assess the legitimacy of the said request.

  3. Until August 2012, the Claimant acted in Portugal as a non-resident taxable person, not registered, nor having a permanent establishment in the national territory, invoicing taxable operations, either for the domestic market or for the intra-Community market, using its German tax identification number (DE ...).

  4. Thus, it bore tax that resulted in a tax credit situation vis-à-vis the State, and such tax was reimbursed following requests made under the VAT Refund Scheme for non-resident taxable persons, published in the annex to Decree-Law no. 189/2009, of 12.08, whose article 6 approved it.

  5. From 20.08.2012 to 19.01.2015, the Claimant was classified as a non-resident entity without a permanent establishment, in the normal monthly periodicity regime, through a declaration of registration in the VAT tax register.

  6. No tax representative was indicated in the said declaration, in accordance with and for the purposes provided for in article 30 of the CIVA, a representation that only occurred on 28.08.2014.

  7. During this period, the Claimant acquired goods and services from domestic, intra-Community suppliers and operators from third countries, to which it communicated, as a rule, its Portuguese tax identification number.

  8. The first invoice issued by the Claimant with a Portuguese tax identification number (PT...) is dated 27.11.2014.

  9. The goods and services acquired were, in the vast majority, sent or made available to the Claimant at the premises of J..., S.A, its subsidiary, in order to assemble the said wind turbines.

  10. From late 2014 onwards, the Claimant began to also declare acquisitions of goods and services on the domestic market intended for the execution of wind farm construction projects in which it participated as a contracting party/supplier.

  11. Given the absence of a declaration of active operations with VAT charged, the deduction of tax resulted in tax credit that was successively accumulated, due to the increase in domestic operations for acquisition of goods and services and imports.

  12. On 19.01.2015, the Claimant delivered a new amendment declaration, classifying itself, from 01.01.2015, as a non-resident taxable person with a permanent establishment (EE).

  13. In addition to intra-Community transactions of goods that can be classified for VAT purposes under article 14 of the RITI, the Claimant began to carry out operations subject to and not exempt from VAT, nor classified under paragraph j) of no. 1 of article 2 of the CIVA.

  14. For these operations of supply of goods and provision of services essentially connected with maintenance contracts for wind farms, the Claimant charged tax, reporting the same in periodic statements.

  15. However, continuing to bear VAT in Portugal which it deducted in its periodic statements and continuing with respect to active operations with the aforementioned classification, a situation of tax credit resulted that accumulated until reaching the amount € 15,850,827.91, value requested in the periodic statement for January 2016.

  16. The amount of tax credit requested resulted, in large part, from the deduction of tax borne between 08.2012 and 01.2016, through acquisition of goods and services and the carrying out by the Claimant of exempt operations or operations for which the obligation to charge tax is the responsibility of the purchaser.

  17. The Claimant was carrying out new wind farm construction projects, with the determination of VAT in December 2015 reaching the declared value of € 12,870,773.01 (634,868.56 + 12,235,904.47), corresponding to the sum of tax reported from 2014, plus that incremented in 2015, with that overall value reported for the following period (January 2016).

  18. Between 08.2012 and 01.2016, the increase in declared deductible tax reached the amount of € 9,379,503.29, with the deduction of tax entered in field 24, of the periodic statement for December 2015, in the amount of € 1,027,946.88, being highlighted.

  19. In the inspection process referred to above, the accounting and other bookkeeping elements made available by the Claimant were analyzed, and the Respondent concluded that they did not meet all the requirements provided for in articles 44 of the CIVA and 31 of the RITI.

  20. Situations of improper deduction of tax were identified in the amount of € 341,665.00 relating to transactions evidenced by documents showing that they had been carried out prior to the date of VAT registration in Portugal by the Claimant.

  21. The registration of "correction invoices" for inaccuracies, issued after the cancellation of the original invoices, by issuing credit notes, was detected, without respect for the temporal limitation for correction provided for in no. 3 of article 78 of the CIVA (two years), in cases where there was tax charged to excess.

  22. A lack of correspondence between the "correction invoices" and the verification of new transactions was also verified, together with their issuance beyond the legally established period.

  23. The Respondent further argues that the amounts contained in the original invoices, which were, in its opinion, legally and regularly issued by J... S.A., with VAT and with the Claimant's German tax identification number, could and should have been requested, within the periods and conditions of the "VAT refund scheme for non-residents", as this was the procedure (not unknown to the Claimant) for recovery of tax through the refund of VAT to non-residents.

  24. The Respondent thus concludes that the "correction invoices" issued are irrelevant for VAT purposes, with the original invoices remaining valid for all legal purposes, relating to supplies of goods in the national territory issued with the German tax identification number.

  25. In fact, the "correction invoices" did not materialize new transactions, nor were they considered in the periodic statement relating to the tax period of December 2015, the period in which they were issued.

  26. For the deductions of tax to be possible, based on the documents that were analyzed, it was necessary that the new invoices issued (in the case at issue, the second invoices relative to the batch of ten original invoices and the third invoices relative to the batch of 25) be corrected in accordance with the law, which did not happen.

  27. No. 3 of article 78 of the CIVA has as its object invoices where the taxable person charged, to excess, tax to third parties, and which present inaccuracy in the taxable value of the operation or in the tax. The "correction of invoices" deemed to be inaccurate, due to error in classification, is not acceptable for the purposes of regularization of tax charged by J... S.A. beyond the two-year period provided for in no. 3 of article 78 of the CIVA.

  28. Furthermore, in the last reimbursement request relating to 2011, J... S.A. submitted invoices with tax charge, borne by the Claimant, in an amount reaching € 341,665.00, reimbursement which had been paid to it by international bank transfer on 14.04.2015.

  29. That is: the said invoices were again registered and reported in the periodic statement of the reimbursement request for January 2016, despite the reimbursement having already been made. This fact was, however, recognized by the Claimant and, consequently, such amount was excluded from the request.

B. CLARIFICATION

The Parties

  1. The parties have legal personality and legal capacity, are legitimate, and are regularly represented (articles 4 and 10 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22.03, hereinafter Binding Ordinance).

  2. The Tribunal was duly constituted.

  3. However, the question of the competence or incompetence of this TA raised by the Respondent must first be decided, as the resolution thereof depends on the legitimacy for it to examine the merits of the case.

C. PROOF OF THE FACTS

Substantiation

  1. With respect to the facts, the Tribunal does not have to pronounce on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and to distinguish the proven facts from the unproven ones (cf. article 123, no. 2, of the CPPT and article 607, no. 3, of the CPC, applicable ex vi article 29, no. 1, paragraphs a) and e), of the RJAT).

  2. Thus, the facts relevant to the judgment of the case are chosen and delimited in function of their legal relevance, which is established in view of the various plausible solutions of the question(s) of law (cf. previous article 511, no. 1, of the CPC, corresponding to current article 596, applicable ex vi article 29, no. 1, paragraph e), of the RJAT).

  3. In tax matters, the principle of free assessment of evidence applies, according to which the court must judge according to its intimate conviction, formed from the examination and evaluation of the various means of proof brought to the proceedings (cf. article 655, no. 1 of the CPC and article 72 of the LGT). But this does not mean the arbitrariness of the judge, as the evidence must be evaluated according to the criteria of common experience.

  4. Being all general means of proof admitted in the tax proceedings (article 115, no. 1, of the CPPT), the facts documented in the initial petition and in the arguments of the Claimant were first taken into consideration, as well as in the response of the Respondent (cf. article 110, nos. 6 and 7, of the CPPT), including the Administrative Proceedings joined to the case file, in particular the Report of the Tax Inspection, whose probative value may have binding force if the assertions contained therein are not challenged.

  5. Witness evidence was also admitted and carried out, which did not raise any doubts or reservations on the part of the Respondent (neither before, during, nor at any time after the examination of the witnesses) either as to the suitability of the persons indicated or as to the statements made.

  6. The witness evidence provided corroborated or did not contradict the existing documentary evidence, thus showing itself to be coherent and with the necessary certainty so as not to raise reasonable doubts regarding the verification of the facts under analysis.

  7. Allegations of the parties consisting of conclusive statements, incapable of proof, and whose truthfulness must be assessed in relation to the concrete consolidated facts were not given as proven or unproven.

Proven Facts with Relevance for the Decision

  1. The Claimant is an entity governed by German law (formerly designated as B...), which develops its activity in the area of renewable energy, specifically in the promotion, construction and operation of wind farms in various countries of the European Union.

  2. In Portugal, the Group of which the Claimant is the head comprises the following entities:

• O..., Lda., NIF..., Porto;
• P…, Lda., NIF…, Vagos;
• Q…, SA. NIF..., Vagos;
• R..., SA. NIF..., Vagos;
• S..., SA. NIF..., Oliveira de Frades

  1. Given the geographic dispersal of the markets in which it operates, as well as the complexity and size of the wind turbines, the Claimant's business model develops as follows:

a) The components that make up a wind turbine are mostly acquired by the Claimant from third-party entities, which may or may not be part of the T... Group;

b) The Nacelle, the core structure of the wind turbine, is assembled with the various components also acquired from third-party suppliers, and its assembly is also subcontracted to third-party suppliers; and,

c) As a rule, components are sent by suppliers directly to the locations where wind farms are being constructed.

  1. Currently, the Claimant carries out operations in Portugal for the sale of wind farm construction projects;

  2. In addition to these sales, it continues to carry out:

  • intra-Community acquisitions of goods, sent from other Member States to wind farms located here;
  • acquisition of components from Portuguese suppliers, which are intended for wind farms in Portugal or, if they are components of a Nacelle, are sent to Portuguese suppliers who proceed with their assembly;
  • acquisition of Nacelle assembly services from Portuguese suppliers, which are subsequently sent to wind farms, to be subject to installation in a wind turbine.

  1. Among the Portuguese suppliers from which goods and services are acquired are: U... S.A., with the collective identification number ...; V..., S.A., with the collective identification number 508.254.426; and the aforementioned J..., S.A., with the collective identification number 508.254.442, the latter two companies being part of the T... Group, as stated.

  2. J... S.A. is engaged in the manufacture, assembly and commercialization of wind turbine components and activities inherent to the assembly, coordination, management and implementation of industrial projects aimed at the assembly and operation of wind farms.

  3. The Claimant purchases from J... S.A. Nacelle assembly services, after acquiring from third parties – such as W..., S.L. – the various Nacelle components, which are delivered to the premises of J... S.A., which proceeds with the assembly of the Nacelle (documents 1 and 2 submitted by the Claimant).

  4. Once assembly is completed, the Nacelle is sent by J... S.A. to the wind farm, at the risk of the Claimant (document 3 submitted by the Claimant).

  5. The value contributed by J... S.A. never exceeds 30%, relating to assembly services and component incorporation.

  6. In the past, the Generator and Converter components were acquired by J... S.A from the company N... S.A. (document 4 submitted by the claimant).

  7. The components delivered by the Claimant thus represent approximately 70% of the value of a Nacelle.

  8. The classification of the Claimant's commercial activity in Portugal comprises three distinct periods:

a) Until 20.08.2012 it acted as a non-resident taxable person, not registered, nor possessing a permanent establishment among us;

b) Between 20.08.2012 and 19.01.2015, it acted as a non-resident taxable person, without a permanent establishment, but registered for VAT purposes, in the normal periodicity regime, in order to report intra-Community acquisitions of goods, sent from other Member States to Portugal;

c) From 19.01.2015 onwards, the Claimant was classified as a non-resident taxable person with a permanent establishment, becoming also a taxable person for corporate income tax purposes in Portugal with retroactive effect for purposes of this tax from January 2015. This registration resulted from the fact that the Claimant had wind farm construction projects in Portugal with a duration exceeding 6 months.

  1. Until September/October 2014, the Claimant issued its invoices with the German NIF (D...), starting to issue them with the Portuguese NIF in November/December 2014.

  2. The VAT regime of the Claimant's operations and their reporting in periodic statements remained unchanged, except for the Nacelle assembly services provided by J... S.A. relating to wind farms affected by the Claimant's permanent establishment.

  3. Thus, with respect to operations of the Claimant with J..., S.A. (the only ones under analysis in the case sub judice), the Claimant received, with relevance to the case file, two batches of invoices (the so-called original invoices) that were addressed to it by J..., S.A. with express mention of operations of supply of goods:

  • Batch 1: from 08.11.2011 to 18.07.2012, J..., S.A. charged VAT in the total amount of € 1,458,021.66, in 10 invoices issued to B... (...) with the German NIF

  • Batch 2 from 06.08.12 to 19.03.2013, J..., S.A. charged VAT in the total amount of € 1,028,494.88, in 25 invoices issued to B... (...) with the German NIF.

  1. The 10 invoices of Batch 1, issued between 08.11.2011 and 18.07.2012, are as follows:

Issue Date Invoice Issued to: Total Taxable Base VAT

08-11-2011 217500036 DE... 364,326.00 296,200.00 68,126.00
08-11-2011 217500037 DE... 364,326.00 296,200.00 68,126.00
08-11-2011 217500038 DE... 546,489.00 444,300.00 102,189.00
23-12-2011 217500042 DE... 552,024.00 448,800.00 103,224.00
06-02-2012 217500046 DE... 1,639,467.00 1,332,900.00 306,567.00
29-03-2012 217500048 DE... 918,195.00 746,500.00 171,695.00
24-04-2012 95300000 DE... 1,457,304.00 1,184,800.00 272,504.00
29-05-2012 95300003 DE... 910,815.00 740,500.00 170,315.00
02-07-2012 95300005 DE... 546,489.00 444,300.00 102,189.00
18-07-2012 95300006 DE... 497,811.27 404,724.61 93,086.66

                                     7,797,246.27   6,339,224.61     1,458,021.66
  1. In turn, the 25 invoices initially issued (Batch 2) are those contained in the table below (documents 9 to 33 submitted by the Claimant).

Issue Date Document Nr. Purchaser NIF Total Taxable Base VAT

06-08-2012 95300011 DE... 182,163.00 148,100.00 34,063.00
06-08-2012 95300012 DE... 1,202,079.00 977,300.00 224,779.00
18-09-2012 95300016 DE... 108.24 88.00 20.24
18-09-2012 95300017 DE... 413,034.00 335,800.00 77,234.00
03-10-2012 95300022 DE... 5,579.60 4,536.26 1,043.34
03-10-2012 95300023 DE... 74,261.25 60,375.00 13,886.25
03-10-2012 95300024 DE... 206,517.00 167,900.00 38,617.00
08-10-2012 95300025 DE... 148,522.50 120,750.00 27,772.50
18-10-2012 95300026 DE... 74,261.25 60,375.00 13,886.25
18-10-2012 95300027 DE... 257,662.11 209,481.39 48,180.72
31-10-2012 95300031 DE... 257,612.91 209,441.39 48,171.52
14-11-2012 95300033 DE... 331,874.16 269,816.39 62,057.77
14-11-2012 95300034 DE... 183,351.66 149,066.39 34,285.27
28-11-2012 95300035 DE... 10,587.00 8,600.00 1,978.00
28-11-2012 95300039 DE... 331,874.16 269,816.39 62,057.77
07-12-2012 95300040 DE... 257,612.91 209,441.39 48,171.52
19-12-2012 95300047 DE... 183,351.66 149,066.39 34,285.27
20-01-2013 95300051 DE... 275,027.52 223,599.61 51,427.91
11-02-2013 95300057 DE... 148,522.50 120,750.00 27,772.50
15-02-2013 95300058 DE... 183,400.86 149,106.39 34,294.47
15-02-2013 95300059 DE... 183,351.66 149,066.39 34,285.27
21-02-2013 95300061 DE... 74,261.25 60,375.00 13,886.25
21-02-2013 95300062 DE... 183,351.66 149,066.39 34,285.27
08-03-2013 95300065 DE... 148,522.50 120,750.00 27,772.50
19-03-2013 95300068 DE... 183,351.66 149,066.39 34,285.27

                                         5,500,233.12   4,471,734.24     1,028,498.88

  1. All these invoices were subject to correction by J... S.A. (correction invoices), after cancellation of the original invoices, by issuing credit notes.

  2. The active operations carried out by the Claimant, while a "non-resident taxable person with a permanent establishment" in Portugal, relate solely to wind farm construction projects in Portugal, with a duration exceeding 6 months, for Portuguese customers;

  3. These operations were viewed as not being subject to VAT charge, conferring the right to deduction, for which reason the Claimant is systematically in a position of tax credit.

  4. In the periodic statement for January 2016, the Claimant requested a VAT reimbursement in the amount of € 15,850,827.91 (document 6 submitted by the Claimant - copy of the Periodic Statement for period 2016/01).

  5. Following this reimbursement request, the Respondent initiated an inspection procedure authorized by service order no. OI2016..., of partial scope, in VAT, covering the period of January 2016, encompassing the periods of formation of the tax credit from August 2012 to January 2016.

  6. The amount of the reimbursement requested by the Claimant results, in large measure, from the deduction of tax borne between 08.2012 and 01.2016, through acquisition of goods and services, and from the carrying out by the Claimant of exempt operations or operations for which the obligation to charge tax is its responsibility (by application of the reverse charge mechanism).

  7. As a result of the inspection procedure, the Respondent concluded there was improper deduction of VAT:

a) in the period of December 2015, in the amount of € 1,027,946.88, relating to VAT charged by J... S.A.;

b) in the period of January 2016, in the amount of € 1,458,021.66, also relating to VAT charged by J... S.A.

  1. The 10 invoices referred to, contained in Batch 1 (documents 11 to 33 submitted by the Claimant), were issued by J... S.A. with a date after VAT registration in Portugal of the Claimant:

  2. Thus, the Respondent decided to make a correction to the VAT reimbursement amount to the Claimant in the total amount of € 2,485,968.54 (document 7 submitted by the Claimant – copy of the Report of Conclusions of the Inspection Action).

  3. According to the Report of the Tax Inspection, the corrections with an impact on the VAT reimbursement amount are broken down as follows:

a) € 341,665.00: VAT already refunded by the Respondent following a VAT reimbursement request by the Claimant under Directive no. 2008/9/CE; and,

b) € 2,144,303.54: VAT charged by J... S.A., in invoices issued in December 2015.

  1. In the amount of the correction to deductible VAT in the amount of € 1,458,021.66, reported in the period of January 2016, is included the aforementioned amount of € 341,665.00 reimbursed by the Tax Authority following a VAT reimbursement request by the Claimant under Directive no. 2008/9/CE.

  2. As a result, the Tax Authority issued the VAT assessment no. 2017..., the subject of the present request for arbitral opinion, in consequence of which resulted the partial denial of the VAT reimbursement request submitted by the Claimant, disregarding the amount of tax subject to corrections, in the amount of € 2,485,968.54 (document 8 submitted by the Claimant).

  3. The total amount of € 2,144,303.54, relating to VAT borne following operations carried out by J... S.A. is based on various invoices issued in December 2015, which, however, have underlying two distinct situations:

a) The amount of € 1,027,946.88, reported as VAT in favor of the Claimant in the VAT periodic statement for December 2015, relates to invoices issued by J... S.A., following an inspection action carried out by the DF... on that entity; and,

b) The amount of € 1,116,356.66, reported as VAT in favor of the Claimant in the VAT periodic statement for January 2016, relates to invoices issued after the period subject to the aforementioned inspection action with a view to standardizing procedures.

  1. In an initial phase of the operations carried out between J... S.A. and the Claimant, J... S.A. invoiced the Claimant by charging VAT, as it considered that it was carrying out a supply of goods located in Portugal, the invoices being issued with the Claimant's German tax identification number (Original Invoices 1).

  2. J... S.A. was informed by the Claimant that the VAT regime applied in the invoices in question would not be correct, an error having occurred in the legal and tax classification of the operations, in that, for VAT purposes, the operations carried out with the Claimant qualified as provision of services and not as supplies of goods, as erroneously stated in the description of the invoices in question.

  3. The conclusion regarding the erroneous classification of the operations resulted from a reanalysis, by a team specially assigned for this purpose by the Claimant, on a worldwide basis, and with respect to all suppliers, of the legal and tax classification that had been followed not only in the operations maintained with J... S.A., but with all of the Claimant's suppliers, subject to different taxation regimes.

  4. With a view to correcting the improper charging of VAT, in February 2015, J... S.A. proceeded as follows:

a) To issue a credit note (hereinafter designated as "Credit Note 1"), to cancel the initially issued invoices, namely the VAT improperly charged therein - € 1,027,946.88 (copy of credit note NC 95330006 submitted as document 34 by the Claimant).

b) To issue new invoices (Corrected invoices - invoices 2), to the Claimant's German tax identification number, without VAT charge, by application of article 4, no. 2, paragraph c) of the VAT Code combined with article 6, no. 6, paragraph a) of the CIVA (copies of invoices FT 95300255 and FT 95300257 submitted as documents 35 and 36 by the Claimant).

  1. The credit note (Credit Note 1) and the new invoices (Invoices 2) issued by J... S.A. were as follows:

Issue Date Credit note Issued to: Total Taxable Base VAT

12-02-2015 NC 95330006 DE... 5,497,281.12 4,469,334.24 1,027,946.88

Issue Date Invoice Issued to: Total Taxable Base

28-02-2015 FT 95300255 DE... 10,824.24 4,469,334.24
28-02-2015 FT 95300257 DE... 4,458,510.00 4,458,510.00

                                       4,469,334.24   4,469,334.24

  1. At the time of issuance of these corrected invoices, J... S.A. was unaware that the Claimant was already registered for VAT purposes in Portugal, and therefore, by oversight, the said invoices were issued with the Claimant's German tax identification number.

  2. In the new invoices issued, instead of indicating as justification for non-application of tax article 6, no. 6, paragraph a) of the CIVA a contrario, J... S.A. indicated article 14 of the VAT Regime for Intra-Community Transactions ("RITI"), the error not having been identified by J... S.A. nor by the Claimant.

  3. These documents were reported by J... S.A. in the VAT periodic statement for that month of February 2015 (document 37 submitted by the Claimant) in the following manner:

  • In field 40, the VAT of the credit note (Credit Note 1): € 1,027,946.88; and,
  • In field 7, the taxable base of the corrected invoices: € 4,469,334.24.

  1. In the context of the analysis of the reimbursement request referred to above submitted by J... S.A., and because the invoices whose amounts were reported in Field 7 of the VAT periodic statement for February 2015 indicated as justification for non-charging of VAT "article 14 of the RITI", the DF... requested proof of shipment of goods to another Member State.

  2. J... S.A., however, had already, before the inspection action, argued that the invoices in question related to provision of services (cf. Report of the Tax Inspection, p. 25).

  3. Having understood that J... S.A. had not presented, in due time, proof demonstrating that the operations corresponded to provision of services, the DF... informally indicated that it would correct the reimbursement amount in the amount of € 1,027,946.88.

  4. Notwithstanding manifesting disagreement with the position of the DF... (when this entity understands that the operations did not qualify as provision of services), J... S.A. adopted the following procedures:

  • Issuance of a credit note (hereinafter designated "Credit Note 2"), to cancel the corrected invoices 2 issued in February 2015 (document no. 40 submitted by the Claimant).
  • Issuance of new corrected invoices (hereinafter designated "Invoices 3"), with VAT charge, as by that time it had been identified that the Claimant was already registered for VAT purposes in Portugal, in the new invoices issued (Invoices 3) it indicated the respective Portuguese NIF (documents 41 and 42 submitted by the Claimant).

  1. Thus, in December 2015, J... S.A. proceeded with the issuance of credit notes (in the amount of € 1,458,021.66) to cancel the initially issued invoices, in accordance with the table below (documents 53 to 62 submitted by the Claimant):

  2. Instead, however, of reporting these new invoices (Invoices 3) in the substitute periodic statement no. ..., in fields 3 and 4, the Claimant merely withdrew from field 40 the amount of VAT from the credit notes (Credit Note 2).

  3. The new invoices were thus not reported in the periodic statement corresponding to the period of their issuance (December 2015), the same applying to the credit notes (document 73 submitted by the Claimant).

  4. In that the amount of the credit notes issued to the Claimant's German tax identification number corresponded exactly to the amount invoiced to its Portuguese tax identification number, J... S.A.'s accounting software made the correspondence and assumed a value of zero, not extracting the operations in question for the VAT periodic statement.

  5. No invoice, with the exception of Invoices 2, subsequently canceled, expressly refers in the description "supply of goods".

  6. These procedures – issuance of Invoices 3, with Portuguese NIF of the Claimant, issuance of Credit Note 2 and delivery of the substitute statement for February 2015 – were all carried out in December 2015 (point III.5.2.2.C, page 27 of document 7 submitted by the Claimant).

  7. Although the operations were not correctly invoiced and reported by J..., S.A., with excessive irregularities and inaccuracies that were, moreover, subject to administrative sanctions, the existence of financial neutrality was not questioned with respect to the volume of revenues received by the State, as follows from the table below:

Period Documents Issued VAT Statements State Revenue

2012 and 2013 Invoices 1 BT 4,741,734.24 Jan-Dec Field 3 4,741,734.24
VAT 1,028,498.88 Field 4 1,028,498.88 1,028,498.88

February 2015 Credit Note 1 BT 4,469,334.26 Feb-15
VAT 1,027,946.88 Field 40 1,027,946.88 -1,027,946.88

           Invoices 2                BT    4,469,334.26                    Field 7     4,469,334.26
                                    VAT    0.00

December 2015 Credit Note 2 BT 4,469,334.26
VAT 0.00 Feb-15 1,027,946.88 -1,027,946.88

           Invoices 3               BT     4,469,334.26     (DP substitute)      4,469,334.26
                                    VAT     1,027,946.88                            
                                                                                                            
                                                                     Field 40      -1,027,946.88    1,027,946.88

                                          1,028,498.88

           BT: Taxable Base

  1. Although they are not exhaustive or decisive for the resolution of the issue, the documents brought to the case file by the Claimant on 04.02.2019 reveal efforts on the part of the latter to correct an excessively negligent action on the part of J... throughout this process.

  2. Factual matter added by the Judgment rendered by the TCA-South (case no. 44/19.9 BCLSB) relating to the present arbitral proceedings:

"235. On 08 February 2019, an order was rendered by the Arbitrator-Rapporteur with the following tenor:

Taking into account a more complete ascertainment of material truth, notify the Claimant to, within a period of 10 days, submit to the case file documentary evidence relating to the facts alleged in articles 40 and 42 of the initial petition, as well as in articles 96, 99 and 102 of its arguments, namely copies of the relevant parts of the report, analysis, memorandum or instruction that served as the basis for the revision of the invoices and/or correspondence with J... .

(agreement of the parties; cf. pages 797 of PA attached);

  1. On the same date, electronic notification was dispatched to both parties with the following tenor:

With reference to the case in question, it is hereby communicated that it is available for consultation in the Case Management System, the order issued by the Arbitral Tribunal on 2019-02-08.

(agreement of the parties; cf. pages 798 to 782 of PA attached);

  1. Following the notification of the order issued in point 235., the Claimant proceeded, on 18 February 2019, to the joinder of nine documents written in English and German language, immediately expressing the availability for translation thereof (agreement of the parties; cf. pages 800 to 887 of PA attached);

  2. On 19 February 2019, Viviane Penas Ribeiro, Technician of CAAD, sends email addressed, in particular, to the Tax Authority, with the following tenor:

With reference to the case in question, we hereby communicate that it is available for consultation in the Case Management System, the petition submitted by the illustrious representative of the taxable person.

(cf. page 889 of PA attached);

  1. On 21 February 2019, the Arbitrator-Rapporteur issues an order with the following tenor:

Notify the Claimant to, within a period of 5 days, submit the translation of the documents in English and German recently submitted to the case file.

Given the above-mentioned proceedings, the deadline for the arbitral decision is extended to 12 March 2019, notifying the parties and the governing bodies of CAAD of this decision

(agreement of the parties; cf. page 890 of PA attached);

  1. Following the notification of the order referred to in point 239., the Claimant submitted, on 22 February 2019, a petition requesting extension of the deadline by a further five days (agreement of the parties; cf. pages 894 to 897 of PA attached);

  2. The petition referred to in the preceding point was granted by order dated 25 February 2019, which presents the following tenor:

The extension of the deadline for submission of translated documents is granted for a further 5 days. However, it is requested that, if the translation is ready before the end of the deadline, it be immediately sent

(agreement of the parties; cf. page 900 of PA attached);

  1. On the same date, the order referred to in the preceding point was dispatched via electronic notification to both parties (agreement of the parties; cf. pages 901 to 903 of PA attached);

  2. As a result of the order issued in point 241., the Claimant submitted a petition dated 04 March 2019, in which it proceeds to the joinder of the nine documents submitted on 18 February 2019, accompanied by the respective translation (agreement of the parties; cf. pages 904 to 1084 of PA attached);

  3. On 04 March 2019, Cláudia Vicente, Technician of CAAD, dispatches electronic notification addressed to the Tax Authority, with the following tenor:

With reference to the case in question, we hereby communicate that it is available for consultation in the Case Management System, the petition submitted by the illustrious representative of the taxable person.

(cf. page 1085 of PA attached);

  1. On 05 March 2

Frequently Asked Questions

Automatically Created

What is the right to VAT deduction for non-resident entities registered in Portugal?
Non-resident entities registered for VAT in Portugal have the right to deduct input VAT on expenses related to their Portuguese taxable operations, but this right is generally conditioned on proper VAT registration at the time the deductible tax was incurred. The CAAD case 660/2017-T examined whether a German company could claim deductions for VAT paid before obtaining Portuguese tax registration. The right to deduction must comply with Article 19 and following of the Portuguese VAT Code (CIVA), requiring a direct and immediate connection between input costs and taxable output supplies. For non-residents with permanent establishments in Portugal, the deduction right applies to VAT incurred in connection with Portuguese economic activities, subject to the same substantive and temporal requirements applicable to resident taxpayers, including proper registration status when the deductible tax becomes chargeable.
How does the CAAD arbitral tribunal handle errors of law and material errors in VAT assessments?
The CAAD arbitral tribunal distinguishes between errors of law (erros de direito) and material errors (erros materiais) when reviewing VAT assessments. Errors of law involve incorrect application or interpretation of tax legislation, while material errors relate to factual mistakes in calculations or data processing. In Process 660/2017-T, the tribunal demonstrated its competence to correct both types of errors within reformed arbitral decisions. The tribunal conducts thorough evidentiary procedures, including witness examinations and document analysis, to establish the factual matrix. When material errors are identified, the tribunal can reform its own decisions to correct computational mistakes or factual oversights. Legal errors are addressed through comprehensive legal analysis of applicable VAT provisions, EU directives, and Portuguese tax law principles. The tribunal's approach ensures both legal correctness and factual accuracy in resolving complex VAT disputes involving substantial amounts.
Can a non-resident company claim a VAT refund for input tax incurred before registering for VAT in Portugal?
The central issue in Process 660/2017-T was whether a non-resident company could claim VAT refunds for input tax incurred before completing Portuguese VAT registration. Portuguese tax law generally requires that taxpayers be properly registered for VAT purposes at the time the deductible tax becomes chargeable. The temporal connection between registration and the right to deduct is strictly interpreted by tax authorities. The case involved €2,144,303.54 in disputed deductions, with €769,104.86 specifically relating to post-registration operations. The Tax Authority's position typically denies deductions for pre-registration input VAT, even when those expenses relate to subsequent taxable activities in Portugal. This strict temporal requirement creates challenges for non-resident entities establishing Portuguese operations, as significant setup costs may be incurred before registration is completed. The arbitral tribunal's examination of this issue, including extensive witness testimony about the timing of operations and registration, addresses this critical gap in cross-border VAT treatment.
What is the procedure for reforming an arbitral decision at CAAD in Portuguese tax disputes?
The procedure for reforming an arbitral decision at CAAD involves the tribunal's authority to correct errors of law or material errors in previously issued decisions under Article 17 of the RJAT (Legal Regime for Arbitration in Tax Matters). In Process 660/2017-T, the original decision dated March 12, 2019, was reformed and replaced by a decision dated September 15, 2020. The reform procedure allows the same arbitral tribunal to reconsider and modify its previous ruling when errors are identified, either through the tribunal's own initiative or upon party application. This mechanism ensures accuracy and legal correctness in arbitral decisions. The reformed decision completely substitutes the original, maintaining procedural efficiency while correcting substantive errors. The tribunal must respect procedural guarantees, including the parties' right to be heard on matters subject to reform. The extended timeframe between the original and reformed decisions (over 18 months) reflects the complexity of the substantive issues involved and the tribunal's commitment to thorough legal analysis in high-value VAT disputes.
What are the limits of arbitral tribunal competence in reviewing partial VAT refund denials?
The limits of arbitral tribunal competence in reviewing partial VAT refund denials were central to Process 660/2017-T, where the Tax Authority raised an incompetence exception. CAAD's jurisdiction under Article 2(1)(a) of the RJAT extends to reviewing the legality of tax assessment acts, including partial denials of VAT refund requests. The tribunal firmly rejected the competence exception after thorough analysis, affirming its authority to examine whether the Tax Authority correctly denied deductions totaling €2,144,303.54. The tribunal's competence encompasses both substantive review of whether deduction requirements were met and procedural review of the assessment methodology. However, arbitral tribunals cannot substitute their judgment for administrative discretion in purely technical matters; they review legality, not merit. The tribunal demonstrated this by conducting extensive fact-finding through witness testimony to establish whether legal requirements for deduction were satisfied. This case clarifies that CAAD has full jurisdiction over disputes involving partial refund denials when they raise questions of legal compliance rather than purely discretionary administrative choices, establishing important precedent for non-resident taxpayers challenging Portuguese VAT assessments.