Process: 686/2018-T

Date: May 6, 2019

Tax Type: IVA

Source: Original CAAD Decision

Summary

CAAD arbitration case 686/2018-T addressed the annulment of VAT assessments totaling €503,819.55 for the 2014 tax year (periods 03-T, 06-T, 09-T, and 12-T). The dispute centered on whether services provided by the taxpayer qualified for VAT exemption under Portuguese tax law. The Portuguese Tax Authority (AT) conducted a tax inspection under Service Order OI2015, concluding that the taxpayer's service provision did not fall within the scope of non-taxation but constituted taxable income subject to IRC and VAT. The AT raised a preliminary exception arguing the claimant's right of action had lapsed, claiming the arbitration request was filed more than 90 days after notification. The CAAD tribunal rejected this exception, determining that the 90-day period begins from the expiration of the voluntary payment deadline (27-09-2018), not the notification date. Since the request was filed on 25-12-2018, it was timely. The case highlights critical procedural issues in Portuguese tax arbitration, including proper calculation of limitation periods under Article 102 of the CPPT and Article 10 of the RJAT. The tribunal's analysis focused on whether the tax inspection report provided adequate reasoning for denying the VAT exemption and whether the AT committed factual errors in its assessment. This decision underscores the importance of understanding procedural deadlines in tax arbitration and the requirement for tax authorities to properly substantiate denial of VAT exemptions with clear factual and legal grounds.

Full Decision

ARBITRAL DECISION (consult full version in PDF)

The arbitrators Counselor Jorge Lopes de Sousa (arbitrator-president), Prof. Doctor Clotilde Celorico Palma and Prof. Doctor Francisco José Nicolau Domingos (arbitrator-members), designated by the Ethics Council of the Center for Administrative Arbitration to form the Arbitral Tribunal, constituted on 06-03-2019, hereby agree as follows:

1. Report

A..., taxpayer no. ..., with headquarters at ..., no. ..., ...-... ... (hereinafter "Claimant") filed, under Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT") a request for arbitral pronouncement with a view to the annulment of VAT assessments nos. 2018..., 2018..., 2018... and 2018..., all of 17-08-2018, relating to the periods 03-T, 06-T, 09-T and 12-T of the year 2014, in the total amount of € 503,819.55 and respective compensatory interest assessments nos. 2018..., 2018..., 2018... and 2018....

The AUTHORITY FOR TAX AND CUSTOMS is the Respondent.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Authority for Tax and Customs on 26-12-2018.

Under the terms of subparagraph a) of section 2 of article 6 and subparagraph b) of section 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Ethics Council designated as arbitrators of the collective arbitral tribunal the undersigned signatories, who communicated acceptance of the appointment within the applicable time period.

On 14-02-2019 the parties were duly notified of this designation, having not manifested any will to refuse the designation of the arbitrators, under the combined terms of article 11 section 1 subparagraphs a) and b) of the RJAT and articles 6 and 7 of the Code of Ethics.

Thus, in accordance with the provision of subparagraph c) of section 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 06-03-2019.

The Authority for Tax and Customs submitted a response in which it raised the exception of lapse of the right of action and argued that the request should be ruled unfounded.

By order of 03-04-2019 it was decided to dispense with the meeting provided for in article 18 of the RJAT and arguments.

The Claimant pronounced on the exception raised by the Authority for Tax and Customs.

The arbitral tribunal was regularly constituted, in accordance with the provisions of articles 2, section 1, subparagraph a), and 10, section 1, of Decree-Law no. 10/2011, of 20 January.

The parties are duly represented, enjoy judicial personality and capacity and have standing (articles 4 and 10, section 2, of the same statute and art. 1 of Ordinance no. 112-A/2011, of 22 March).

The case does not suffer from any nullities.

It is necessary to assess as a priority the exception of lapse of the right of action.

2. Exception of Lapse of the Right of Action

The Authority for Tax and Customs raises the exception of lapse of the right of action on the grounds that the Claimant filed the request for constitution of the arbitral tribunal on 25-12-2018, more than 90 days after the date on which it is considered to have been notified of the assessments (26-08-2018).

By documents nos. 2, 4, 6, 8, 20, 12, 14 and 16 attached to the request for arbitral pronouncement, whose contents are deemed reproduced, it appears that the deadline for voluntary payment of all assessments was set for 27-09-2018.

Under section 1 of article 10 of the RJAT, the request for constitution of the arbitral tribunal is filed "within a period of 90 days, counted from the facts provided for in sections 1 and 2 of article 102 of the Code of Tax Procedure and Process, as to acts susceptible of independent challenge and, likewise, from the notification of the decision or the expiration of the legal period for decision of the administrative appeal."

Article 102, section 1, of the CPPT establishes the following:

1 – Challenges shall be filed within a period of three months counted from the following facts:

a) Expiration of the deadline for voluntary payment of tax payments legally notified to the taxpayer;

b) Notification of other tax acts, even when they do not give rise to any assessment;

c) Service on secondary liable persons in tax execution proceedings;

d) Formation of the presumption of tacit dismissal;

e) Notification of other acts that may be subject to independent challenge under this Code;

f) Knowledge of acts detrimental to legally protected interests not covered in the preceding subparagraphs.

As follows from subparagraph a) of this provision, when a deadline for voluntary payment of tax payments is set, the deadline for judicial challenge is counted from the expiration of the deadline for voluntary payment of the notified tax payments and not from the notification date.

Thus, in the case at hand, given that the date of 27-09-2018 was set for voluntary payment of the tax payments, it is from this date that the deadline for filing a request for constitution of the arbitral tribunal is counted.

Therefore, the 90-day period for filing the request for constitution of the arbitral tribunal expired on 26-12-2018.

As the request for constitution of the arbitral tribunal was filed on 25-12-2018, it must be concluded that it was filed in a timely manner.

The exception of lapse of the right of action is therefore unfounded.

3. Factual Matter

3.1. Proven Facts

The following facts are deemed proven:

A) The Authority for Tax and Customs conducted a tax inspection of the Claimant under Service Order no. OI2015..., of 10 July 2015, relating to the fiscal year 2014;

B) In this inspection a Tax Inspection Report was drawn up, which is contained in document no. 17 attached to the request for arbitral pronouncement, whose content is deemed reproduced, in which the following is noted, among other matters:

II 3.4 Diligences Undertaken

II 3.4 1 - On 23.02.2017 through official letter no. ..., registered with CTT RD...PT, a notification was sent to the taxpayer requesting submission to these Services of analytical trial balances as of 31.12.2013, 31.12.2014 and 31.12.2015, before and after determination of results and extracts from account 71 (sales), account 72 (provision of services) and account 243 (VAT) for the years 2013, 2014 and 2015 (see annex I).

II 3.4 2 - With the objective that the [taxpayer] would regularize its tax situation in the area of VAT and IR, through submission of the periodic VAT declarations in default and the income declaration - mod 22 of IRC, a notification was sent on 22.03.2017, official letter ..., registered with CTT RD...PT (see annex II).

II 3.4 2 - On 18.05.2018 through official letter no. ..., registered with CTT RH...PT, a notification was sent to the taxpayer requesting submission to these Services of the Depreciation and Amortization Schedule - Tangible Fixed Assets, extracts from the current account of rents and copies of 4 documents by way of example (see annex III).

II 3.5. Taxpayer's Response

From the diligences undertaken (notifications), responses were obtained to the official letter ... of 23.02.2017 and to the official letter ... of 18.05.2018, with the information that accounts 71 and 243 had no recorded movements and the requested items were submitted to these Services.

III – Description of Facts and Grounds of Purely Arithmetical Corrections

III.1 - IRC/VAT - Provision of Services

In the computer records of the AT it appears that through Service Order OI 2015... an external inspection was conducted of the Association for the year 2012. From this inspection resulted a change to the VAT taxation regime and it was concluded in the context of IRC that the provision of services undertaken did not fall within the scope of non-taxation pursuant to no. 3 of article 53 of the CIRC, but rather constituted income subject to IRC pursuant to subparagraph a) of no. 1 of article 2 and article 10, both of the CIRC, as well as income subject to taxation in the area of VAT, under the terms of subparagraph a) of article 10 of the VAT Code:

II.3.4.6 - Conclusion

From the facts reported it appears that, although we are dealing with a formally constituted association, the utilization of resources does not exhaust itself in the pursuit of the objectives laid down in its bylaws, since it generates surpluses which thereafter are not applied to the execution of its services, and these surpluses are used in accordance with the decisions of a restricted group of its members, which deprives it of the "associative" character arising from the development of its activities, in addition to, as has already been stated and demonstrated, providing these services both to members and to non-members.

Consequently,

We understand that the activity developed by this association which consists in the operation of a gymnasium with the brand "B...", is a commercial activity and as such, the income resulting from these activities cannot be considered fixed quotas paid by its members, all the more so since, as has already been presented and justified in point II.3.3.3.2, the very receipt document demonstrates this, and such income is thus subject to:

• VAT under the terms of subparagraph a) no. 1 of art. 1 of the VAT Code and

• IRC in accordance with subparagraph a) of no. 1 of art. 2 and art. 1 of the CIRC.

II.3.5 - Change of Framework

Given the foregoing in the preceding point, given that it has been determined that A..., with the NIF: ..., cannot benefit from the exemption under sections 8 and 19 of art. 9 of the CIVA, since the provision of services and transmission of goods undertaken by it do not meet any of the requirements established therein, namely:

  • That they be undertaken by non-profit organisms (art. 10 of the CIVA),

  • That they be in direct relation with the interests of its members and

  • That they be exclusively remunerated by a fixed quota as set out in the bylaws.

Given that it has been demonstrated that in the period between 2012/01/01 and 2012/12/31 in the exercise of its activity, the taxable person undertook operations subject to VAT and not exempt therefrom, although it was exempt from VAT under the terms of art. 9 of the CIVA, the BAO (Official Amendment Notice) was prepared for a change of framework to the Normal Regime with quarterly frequency, mixed with actual apportionment of all assets, as to the type of operations and VAT options, to take effect as of 2012/01/01.

Since the conditions of the taxpayer's activity remain for the year under analysis, we will proceed with the necessary technical corrections in the area of IRC and VAT.

(...)

III - Other Relevant Elements

In accordance with subparagraph b) of no. 4 of art. 88 of the CIVA, official assessments issued by the central services under no. 1 of this article may be subject to correction.

Given that, at this date, official assessments have been issued under the terms of section 1 of Article 88 of the VAT Code, the corrections proposed, in accordance with the provision of section 4, subparagraph b), of the aforementioned article, correspond to the difference between the tax that should have been assessed in the taxation period under analysis and the official assessments undertaken, and which may be summarized in the following table:

Therefore, the VAT corrections correspond to the difference between the amounts of Official Assessments (OA) and those determined in chapter III of this report:

C) In point II.3.3.3.2 of the Tax Inspection Report relating to 2012 (to which reference is made in point II.3.4.6 of the same, transcribed in the Tax Inspection Report relating to 2014) the following is stated:

II.3.3.3.2 - Income

As to annual income, from an accounting standpoint they are recorded for a global amount in the account "7214 - Provision of Services - Member Quotas - Gymnasium", amounting to € 576,520.79, the amount for this 2012 fiscal year.

April was selected randomly for verification of the breakdown of the recorded amount, and it was found that the documentary support of the amount recorded in that month is as follows - (Annex 6):

a) "Manual schedule" where two amounts are indicated, one referring to "counter revenue" and another relating to "revenues SDD + bank transfers (includes refunds and revocations)", in the amounts of € 5,145.60 and € 47,762.94, respectively, recorded on 30-04-2012, under number 40.001, Journal 33, in the amount of € 52,908.54, corresponding to the total revenue for the month of April (fls. 1/40 of Annex 6);

b) "Global Revenue Schedule" extracted by month, with the sum for April of € 52,992.74, whose values are broken down by items, corresponding to receipts from various types of services provided, ranging from towel rental, monthly locker rental, ballet course for members, ballet course for non-members, dance week, to various qualifications of quotas, variable according to sports modalities, their duration and weekly frequency, as well as total or partial "free passage," among others. Given that the amount presented here, corresponding to the revenue for the month of April, does not match the amount found in the preceding subparagraph, which corresponds to the revenue for the same month, clarification was requested regarding this discrepancy, and it was reported that this would be related to "problems" with the "computer program" (fls.2/40 of Annex 6);

c) The breakdown of the aforementioned total amounts corresponds to a listing in which neither the number nor the name of the member is indicated, with only the "payment number" being the sole correspondence with the respective receipt document (invoice/receipt or slip);

d) In both documents the "Code" is indicated which corresponds to the aforementioned "payment number" and the "Description" which indicates the month and the descriptions already mentioned in subparagraph a). However, although the member (number and name) is identified in the invoice/receipt, in the slips there is no identification whatsoever, either of the member or of the document issuer, and in the analyzed month (April), of the total of 1,400 "records," 99% of the revenue receipt documents correspond to slips, with the remaining 1% referring to invoices/receipts. By way of example only, copies of invoices nos. 49, 55, 56, 60, 61, 62 and 68 and slips nos. 179673, 180212, 180260, 180407, 180447, 180484, 180579, 180580, 180657, 180722, 180777, 180949 and 180966 are attached in Annex 6, all issued in the month of April (from fls. 4/40 to 22/40 of Annex 5).

Given article 27 of the Bylaws, in particular subparagraph a) where it is stated that the "...product of membership fees and quotas to be paid by Members...", constitutes a source of income for the taxable person, the annual schedule for the year 2012 was requested, to which subparagraph a) of Article 9 of the same Bylaws refers, which is part of Service Order no. .../02, dated 2011-08-09, which approves the "...new Quota Schedule for the 2011/2012 period...", the following points being noteworthy:

"...8. The enrollment fee shall have a maximum value of € 60.00

  1. The Minimum Annual Quota which includes sports insurance shall be € 10.00

  2. The Monthly Quota to be borne by the Member shall be fixed in accordance with the sports modalities practiced by the Association in accordance with the attached schedule...".

It should be noted that the amounts contained in that schedule, corresponding to the "DEFINITION OF MONTHLY QUOTA" vary between € 23.00 and € 54.50, depending on the modality (sports, aquatic or studio) and also personalized training.

D) The Claimant challenged the corrections relating to the 2012 fiscal year and corresponding assessments by filing a request for arbitral pronouncement, which proceeded through the respective proceedings in the context of case no. 585/2017-T, and which was ruled partially founded by decision of 24-09-2019 (document no. 18 attached to the request for arbitral pronouncement, whose content is deemed reproduced);

E) The Claimant is a non-profit association, having been established on 10 December 2004, in accordance with a deed executed at the ... Notarial Office of Specialized Competence of ... (document no. 19 attached to the request for arbitral pronouncement, whose content is deemed reproduced);

F) The Bylaws of the Claimant were amended on 12-08-2013, in the terms set out in document no. 20 attached to the request for arbitral pronouncement, whose content is deemed reproduced;

G) The Claimant is headquartered at ..., no. ..., in ..., at the location where, in pursuit of its statutory objectives, it develops the activity of operating sports facilities, in particular, a facility equipped for gymnasium activities, swimming, hydro-aerobics and classes in various sports modalities, health and wellness;

H) The facilities where the Claimant exercises its activity are not its own property, and for purposes of exploitation thereof, it has executed an exploitation concession agreement with the entity holding the operation of the property, the company "D..., S.A.", a legal entity with the number D... — hereinafter referred to as D...;

I) This agreement was executed on 3 January 2005, remaining in effect until 31 December 2005, being automatically and successively renewed for periods of one year, as may be seen from clause 3 of the respective agreement (document no. 22 attached to the request for arbitral pronouncement, whose content is deemed reproduced);

J) This agreement continues in force, two amendments to it having been executed on 30 March 2007 and 9 April 2012 (documents nos. 23 and 24 attached to the request for arbitral pronouncement, whose contents are deemed reproduced);

K) It is in these facilities that the members of the Claimant enjoy the benefits of that status, practicing sports and benefiting from their health and wellness;

L) The Claimant has a gymnasium space, with training monitors and also with personnel specialized in the practice of physical exercise and classrooms where its teachers teach members the practice of sports modalities such as functional and maintenance training, global and children's gymnastics, step, cycling, pilates, various types of fitness practices, yoga, various dances, including ballet, among others, always with a view to improving physical condition and active and healthy lifestyle;

M) The Claimant has a swimming pool in its facilities, the only one existing in the city of ..., being one of the main equipment used by its Members;

N) In the swimming pool facilities, swimming lessons and hydro-aerobics classes are offered, the former much attended by young people (in particular by members of educational institutions in the city of ... that are members of the Claimant), the latter mainly by the older population;

O) The Claimant also holds sports tournaments and other leisure, sports and wellness initiatives, free of charge, to its members;

P) Under the terms of the Bylaws, members pay a membership fee at the time of enrollment, which for the year 2012 was a maximum of € 60 (sixty euros) (document no. 15 attached to the request for arbitral pronouncement, whose content is deemed reproduced);

Q) Members of the Claimant pay a minimum annual quota of € 10 (ten euros), which corresponds to the amount of mandatory sports insurance;

R) Each member pays a monthly quota, fixed in accordance with the sports modalities practiced by them, as per schedule attached to Document no. 25 attached to the request for arbitral pronouncement, whose content is deemed reproduced;

S) This schedule includes discounts for family units, young people and the elderly;

T) It is provided in document no. 25 for the possibility of suspension of payment of monthly quotas to members, without them losing this status, in cases (i) where they find themselves in precarious financial situation due to unemployment, (ii) where they find themselves unable to practice sports in the Claimant's facilities (ii.a) for medical reasons, (ii.b) for professional reasons or (ii.c) due to change of residence;

U) The Claimant has various members that are legal entities, which, by becoming themselves members, would have as a benefit the access of their employees to all services provided by the Claimant;

V) The Claimant had as members various educational institutions of the city of ... and companies;

W) On 25-12-2018, the Claimant filed the request for arbitral pronouncement that gave rise to this proceeding.

3.2. Unproven Facts and Grounds for Determination of Factual Matter

The proven facts are based on the documents submitted by the Claimant and those contained in the administrative proceedings and on statements by the Claimant that are corroborated by documents and are not contradicted by any evidence.

It was not proven which conditions of exercise of the activity by the Claimant that the Authority for Tax and Customs considered to be demonstrated as to the 2012 fiscal year remained in 2014, in particular those that serve as the basis for the conclusion that "the utilization of resources does not exhaust itself in the pursuit of the objectives laid down in its bylaws, since it generates surpluses which are thereafter not applied to the execution of its services, and these surpluses are used in accordance with the decisions of a restricted group of its members."

In fact, the Authority for Tax and Customs undertook no diligence aimed at ascertaining these conditions in the year 2014, as is apparent from the list of "diligences undertaken" indicated in point II 3.4 of the Tax Inspection Report.

It was exclusively on the basis of the Inspection Report relating to the 2012 fiscal year, which it partially transcribed, that the Authority for Tax and Customs concluded that "given that the conditions of the taxpayer's activity remain for the year under analysis, we will proceed with the necessary technical corrections in the area of IRC and VAT."

However, there is no evidence in the proceedings that, in 2014, surpluses were generated that were not used for the execution of its services, nor that they were used in accordance with the decisions of a restricted group of its members, decisions that are not even identified, nor are the aforementioned members.

3. Legal Matter

3.1. Question of Res Judicata Arising from the Decision Rendered in Arbitral Proceeding no. 585/2017-T

The Claimant argues, in summary, as follows:

– the tax inspection that the Tax Administration conducted on the Claimant under Service Order no. OI2015..., of 10 July 2015 was based on the conclusions of a previous external inspection, conducted in relation to the 2012 fiscal year, whose grounds were adopted in their entirety;

– the Respondent based the corrections made to the 2014 fiscal year in the area of VAT on the conclusions reached in the Tax Inspection Report relating to the year 2012, considering the amount declared by the Claimant in the current account – 72 as the value of services rendered and 3 invoices for purposes of tax deductible;

– in the arbitral decision rendered in case no. 585/2017-T it was decided, in summary, that it was not proven that the Claimant was oriented toward the generation of profits in favor of its members or third parties, and therefore should be regarded as a non-profit organism for purposes of article 9, section 8 of the applicable CIVA, and that such status could not be disregarded under the terms of article 10 of the same statute, as it was not demonstrated that the Claimant acted in direct competition with other economic operators;

– the requirements of the exception of res judicata do not apply, but the authority of res judicata should be imposed, with the first decision being a prerequisite of the second, regarding "the decision of preliminary questions that were the logical prerequisite, indispensable to the issuance of the operative part of the judgment, all in the name of procedural economy, the prestige of judicial institutions and the stability and certainty of legal relations."

First of all, it should be noted that when the acts that are the subject of this proceeding were undertaken, the decision in case no. 585/2017-T had not yet been rendered, so there is no possibility of nullity for violation of res judicata, provided for in subparagraph j) of section 2 of article 161 of the Code of Administrative Procedure.

The object of arbitral proceedings is the declaration of legality of acts of the types indicated in article 2 of the RJAT and not the direct definition of the legal relationships underlying them, which is the proper object of actions for recognition of a right or legitimate interest.

Moreover, in the area of tax assessment acts that relate to specific periods of time, the legal relationships underlying them are legally autonomized as a function of the periods to which they relate, so that what is decided by the administration or courts regarding one of the periods does not constitute a binding precedent regarding other periods.

The Supreme Administrative Court has repeatedly stated, regarding this type of act impugning proceedings, that res judicata encompasses the qualification, positive or negative, as defects of the circumstances assessed in the judgment that has become final, and must be respected, in execution of the judgment, the assessment made on that matter. ( )

There is thus a preclusive effect of res judicata that projects itself in the exercise of subsequent administrative power, but which is limited to acts that relate to the same underlying legal relationship (autonomized with respect to a specific period of time, when the act relates to such period).

In the case at hand, we are not dealing with a situation of that type, as we are dealing with the practice of assessment acts relating to other periods and not undertaken in execution of the judgment.

Outside the scope of the execution of a judgment, following the declaration of illegality of certain acts, in a type of impugning proceeding that has as its object acts relating to specific periods of time, the Administration is not prevented from undertaking new acts of the same type as the previous ones, with or without new grounds, as the declaration of illegality on which res judicata is formed is restricted to the acts that were assessed and the underlying legal relationships generated in the period of time to which the acts relate.

Res judicata has objective limits: "the judgment constitutes res judicata within the precise limits and terms in which it judges" (article 621, section 1, of the CPC).

In the case at hand, in proceeding no. 585/2017-T the illegality of certain acts that were the subject of that proceeding was declared, relating to legal-tax relationships that occurred in specific periods of time, but nothing was decided regarding hypothetical acts of the same type relating to other periods of time, relating to other similar legal-tax relationships.

It was in those terms that it was decided there, so it is in those terms and with those limits that res judicata was formed.

As far as the authority of res judicata regarding "preliminary questions that were the logical prerequisite, indispensable to the issuance of the operative part of the judgment" is concerned, ( ), if admitted in type-impugning proceedings, it will only be viable in situations in which judgment was requested with that amplitude, in harmony with the provision of article 91, section 2, of the CPC, which did not occur in the case at hand.

Based on the foregoing, the request for arbitral pronouncement does not proceed on the question of illegality for violation of res judicata, nor is this Arbitral Tribunal bound by what was decided in case no. 585/2017-T regarding different acts and distinct legal-tax relationships.

3.2. Question of Illegality of Assessments Due to Lack of Grounds Regarding Demonstration of Conditions for Elimination of VAT Exemption

The Claimant attributes to the challenged assessments the defect of lack of grounds on the grounds that the corrections rest on the "assumption — unproven, undocumented and undemonstrated — that in 2014 the CLAIMANT did not meet the conditions for its activity to benefit from VAT exemption."

One must distinguish the concepts of "substantive grounds" and "formal grounds." The latter "can be understood as a statement setting forth the reasons or grounds of the decision," while substantive grounds corresponds to "tracing the decided matter back to an evaluative parameter that justifies it: in the first sense, the formal aspect of the operation is emphasized, associating it with the transparency of the decision-making perspective; in the second, emphasis is given to the substantive suitability of the act undertaken, integrating it into a system of reference in which it finds bases of legitimacy." (...) "The duty to provide express grounds obligates the administrative body to indicate the facts and legal grounds that determined it to undertake that act, exteriorizing, in its decisive aspects, the internal procedure for formation of the decision-making will. The duty is fulfilled once there is a statement expressing a discourse that purports to justify the decision, regardless of whether that reasoning is materially correct, convincing or unassailable." ( )

Only the lack of formal grounds will constitute a defect of form.

The lack of substantive grounds, due to incorrectness or lack of proof of the factual or legal grounds, will constitute a defect of error regarding the factual grounds or error regarding the legal grounds.

The Supreme Administrative Court has consistently held that the grounds for administrative or tax acts are a relative concept that varies depending on the type of act and the circumstances of the particular case, but that grounds are sufficient when they allow a normal recipient to perceive the cognitive and evaluative process followed by the author of the act in rendering the decision, that is, when that person can know the reasons why the author of the act decided as it did and not differently, so as to be able to trigger administrative or contentious mechanisms of challenge. ( )

In the case at hand, the Tax Inspection Report relating to 2014 suffers from the defect of lack of grounds, as it is not possible to perceive the reasons why the Authority for Tax and Customs concludes, as in 2012, that "the utilization of resources does not exhaust itself in the pursuit of the objectives laid down in its bylaws, since it generates surpluses which are thereafter not applied to the execution of its services, and these surpluses are used in accordance with the decisions of a restricted group of its members."

In fact, not a single one of the decisions that hypothetically will have been rendered in the year 2014 by a "restricted group" of members of the Claimant is even identified, the identities of the members who would constitute the aforementioned group are not revealed, nor is it even indicated how many members would form it.

In the same way, the "surpluses" generated in 2014 are not indicated, nor what use was made of them.

In fact, with the reference to the Tax Inspection Report of 2012 and its point II.3.3.3.2, reference is only made to facts occurring in 2012, so one is left without knowing the reasons why the Authority for Tax and Customs understood that those same facts or other similar ones that are not identified will have occurred in 2014.

It is concluded, therefore, that we are dealing, from the start, with a situation of lack of formal grounds.

In effect, "the adoption of grounds that, due to obscurity, contradiction or insufficiency, do not concretely clarify the motivation of the act is equivalent to lack of grounds" (article 153, section 2, of the Code of Administrative Procedure), which clearly occurs in this case, as it is not possible to determine the reasons why the Authority for Tax and Customs concluded that, in 2014, the situation existed that it understood to exist in 2012, in particular which "surpluses were used in accordance with the decisions of a restricted group of its members" and which were the members who decided and which decisions were rendered.

Furthermore, we are also dealing with a situation of lack of substantive grounds, which relates to error regarding the factual grounds, as it is not demonstrated that facts occurred that would allow such conclusions to be drawn on which the corrections undertaken were based.

3.3. Questions of Prejudiced Consideration

Given that the request for arbitral pronouncement is to be ruled founded on the grounds of the defects mentioned, the consideration of the remaining defects attributed by the Claimant to the challenged acts becomes prejudiced, as it is rendered unnecessary (articles 130 and 608, section 2, 1st part, of the CPC, subsidiarily applicable by force of the provision of article 29, section 1, subparagraph e), of the RJAT).

4. Decision

In accordance with the foregoing, the Arbitral Tribunal hereby agrees to:

a) Rule the exception raised by the Authority for Tax and Customs unfounded;

b) Rule the request for arbitral pronouncement founded;

c) Annul the VAT assessments nos. 2018..., 2018..., 2018... and 2018..., all of 17-08-2018, relating to the periods 03-T, 06-T, 09-T and 12-T of the year 2014, in the total amount of € 503,819.55 and respective compensatory interest assessments nos. 2018..., 2018... and 2018....

5. Value of the Case

In accordance with the provision of art. 305, section 2, of the CPC and 97-A, section 1, subparagraph a), of the CPPT and 3, section 2, of the Regulations on Costs in Tax Arbitration Proceedings, the value of the case is set at € 503,819.55.

6. Costs

Under the terms of article 22, section 4, of the RJAT, the amount of costs is set at € 7,956.00, in accordance with Table I attached to the Regulations on Costs in Tax Arbitration Proceedings, to be borne by the Authority for Tax and Customs.

Lisbon, 06-05-2019

The Arbitrators

(Jorge Lopes de Sousa)

(Clotilde Celorico Palma)

(Francisco José Nicolau Domingos)

Frequently Asked Questions

Automatically Created

What VAT exemption issues were disputed in CAAD arbitration process 686/2018-T regarding the 2014 tax periods?
The VAT exemption dispute in CAAD process 686/2018-T concerned whether services provided by the taxpayer during 2014 qualified for non-taxation under Article 53(3) of the CIRC. The Portuguese Tax Authority determined through an inspection that the services constituted taxable income subject to both IRC and VAT, rejecting the exemption claim. The taxpayer challenged VAT assessments totaling €503,819.55 across four quarterly periods, arguing the AT's denial of exemption lacked proper legal basis and contained factual errors.
How does the CAAD tribunal assess claims of lack of reasoning (falta de fundamentação) in VAT liquidation decisions by the Portuguese Tax Authority?
The CAAD tribunal assesses claims of lack of reasoning (falta de fundamentação) by examining whether the Tax Authority's liquidation decisions provide sufficient factual and legal justification for their conclusions. In this case, the tribunal would review the Tax Inspection Report to determine if it adequately explained why the taxpayer's services did not qualify for VAT exemption. Portuguese administrative law requires tax assessments to contain clear reasoning allowing taxpayers to understand the basis for taxation and effectively exercise their right to challenge decisions. Insufficient reasoning constitutes a procedural defect that can lead to annulment.
What constitutes an error on factual assumptions (erro sobre os pressupostos de facto) in Portuguese VAT assessment cases?
An error on factual assumptions (erro sobre os pressupostos de facto) in Portuguese VAT assessment cases occurs when the Tax Authority bases its liquidation on incorrect, incomplete, or misinterpreted facts. This can include mischaracterizing the nature of services provided, incorrectly applying facts to legal exemption criteria, or failing to consider relevant evidence submitted by the taxpayer. In process 686/2018-T, such errors might involve misconstruing the actual services provided or incorrectly concluding they fell outside exemption provisions. The tribunal examines whether the factual basis supporting the assessment aligns with evidence in the administrative file.
Can the right of action expire (caducidade do direito de acção) in Portuguese tax arbitration proceedings before CAAD?
Yes, the right of action can expire (caducidade do direito de acção) in Portuguese tax arbitration proceedings before CAAD. Under Article 10 of the RJAT, taxpayers must file arbitration requests within 90 days from specific triggering events outlined in Article 102 of the CPPT. For tax assessments with a voluntary payment deadline, the 90-day period begins when that deadline expires, not from the notification date. In this case, the AT argued the action had lapsed because the request was filed after 90 days from the alleged notification date (26-08-2018), but the tribunal correctly calculated the period from the voluntary payment deadline expiration (27-09-2018), finding the 25-12-2018 filing timely.
What are the legal grounds for annulling VAT assessments and compensatory interest liquidations under the Portuguese RJAT framework?
Legal grounds for annulling VAT assessments and compensatory interest liquidations under the Portuguese RJAT framework include: (1) lack of reasoning (falta de fundamentação) - failure to provide adequate legal and factual justification; (2) error on factual assumptions (erro sobre os pressupostos de facto) - basing assessments on incorrect or misinterpreted facts; (3) legal error (erro de direito) - misapplication of tax law provisions; (4) procedural violations during inspection or assessment; and (5) violation of fundamental taxpayer rights. The tribunal examines whether the Tax Authority properly substantiated its conclusions, correctly applied VAT exemption provisions, and followed required procedural safeguards. Successful challenges require demonstrating the assessment suffers from defects serious enough to warrant annulment under administrative law principles.