Process: 692/2015-T

Date: May 31, 2016

Tax Type: IVA

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 692/2015-T) addresses whether the assignment of a contractual position in a vehicle lease without driver constitutes a taxable supply subject to VAT in Portugal. The taxpayer, A… SA, challenged an additional VAT assessment of €9,977.51 for the second quarter of 2011. The Tax Authority determined that the assignment of the leasing contract position was subject to VAT under Article 4(1) of the VAT Code, applying the normal value rules of Article 16(4)(c) to establish a taxable value of €43,380.47—equivalent to the rental payments already made by the assignor. The taxpayer contested this assessment, arguing that the agreed consideration was €1, as the assignee assumed the remaining debt obligations (€41,094.44) for a vehicle whose market value (€40,029.00) was lower than the outstanding debt. The taxpayer invoked principles of contractual freedom, argued that no service provision occurred since the operation merely transferred contractual obligations, and claimed the assessment constituted double taxation since VAT had already been paid on the rental installments. The case raises fundamental questions about the VAT treatment of leasing contract assignments, the application of normal value rules when symbolic consideration is agreed, and whether assuming debt obligations constitutes consideration for VAT purposes. The tribunal was constituted on February 2, 2016, under the Tax Arbitration Legal Regime (RJAT), providing an alternative dispute resolution mechanism for challenging the legality of tax assessments and potentially obtaining restitution plus compensatory interest.

Full Decision

ARBITRAL DECISION

I. REPORT

  1. Object of the Request

A…, …, SA, NIPC …, with registered office at Quinta …, …, hereby requests, in accordance with the provisions of Decree-Law No. 10/2011, of 20 January, and the Code of Tax Procedure and Process, the establishment of a singular arbitral tribunal, with a view to obtaining a ruling declaring the illegality of the act of dismissal of the hierarchical appeal No. …2014… and the additional VAT assessment in the amount of €9,977.51, relating to the period 2011/6T, with the consequent annulment and restitution of the tax paid plus the respective compensatory interest.

  1. Constitution and Functioning of the Arbitral Tribunal

In accordance with the provisions of Article 6, No. 1 of the RJAT, His Excellency the President of the Deontological Council of CAAD appointed as singular arbitrator the undersigned, Joaquim Silvério Dias Mateus, who accepted the assignment within the legally prescribed period without either party having manifested refusal of his appointment.

The singular arbitral tribunal was constituted on 02-02-16.

By arbitral order of 2016.04.19, it was decided not to proceed with the convocation of the meeting provided for in Article 18, No. 1 of the RJAT as no matters justifying it had been raised, notifying the parties that, should they wish, they could present arguments, a right which they did not exercise.

  1. Basis of the Request

The basis of the request presented by the requesting party is, in summary, the following:

3.1. The additional assessment challenged was issued on the basis of an inspection action relating to the year 2011, whose report considered as a tax event subject to VAT the assignment of the contractual position, in which the requesting party was the assignor (1st contracting party) and B… (2nd contracting party) was the assignee, in two contracts concluded between said requesting party and Bank …, one having as its object the rental without driver of the motor vehicle with registration …-…-…, for the value of €78,850.00, and the other the promise to purchase and sell of the same vehicle, for the amount of €13,141.57, plus VAT at the applicable rate.

3.2. According to the inspection report cited by the claimant, by the assignment of the contractual position in said contracts, the assignor received no consideration whatsoever, with the assignee becoming responsible for any amounts due and not settled by A… and future amounts arising from the motor vehicle rental contract without driver to which the assignment relates, though potentially being able to respond jointly and severally with the 2nd contracting party in case of breach of any of the contracts.

3.3. Thus, continues the requesting party, the Tax Authority considered that in accordance with the provision of Article 16, No. 4, paragraph c) of the VAT Code, the normal value to be considered as the taxable value of the operation cannot be less than the value of the rental payments due and paid by A… (…), concluding thus that the taxable value to be considered for the assignment of contractual position is €43,380.47, originating the assessment of VAT relating to the 2nd quarter of 2011 of €9,977.51 (43,380.47 x 23%), which was notified to the requesting party on 23 December 2013.

3.4. The claimant then proceeds to account for the fact that in disagreement with the position of the Tax Authority it presented a gracious complaint, which was dismissed, against which it presented a hierarchical appeal equally dismissed, then proceeding to develop its own understanding of the tax situation classification in question, saying first and foremost that the price established by the assignment of the contractual position was €1 (one euro) as per the agreement established between the two contracting parties.

3.5. The requesting party then proceeds to allude to the divergences it has with the Tax Authority regarding the legal characterization of the contract, since the Tax Authority considers that the assignment of the contractual position is an "operation subject to VAT and not exempt therefrom, in light of the residual concept established in Article 4, No. 1 of the VAT Code (…) and that the taxable value is determined in accordance with the provision of Article 16, No. 2, paragraph c) of the VAT Code, that is, considering the normal value of the service, as defined in No. 4 of the same article", also disagreeing with the amount €43,380.47 that the Tax Authority considered as taxable value since it was freely agreed between the parties to assign the value of 1 euro as consideration for the assignment.

3.6. The claimant explains the reasons underlying the fixing of the price of 1 euro as consideration for the assignment of the contractual position in question.

For this purpose the requesting party notes that in the rental contract it was agreed that the total value of the 48 rental payments would amount to €71,333.24 and that in light of the promise to purchase and sell contract the vehicle would be sold at the end of the rental contract for €13,141.67, with the total cost of the vehicle amounting to €84,474.91.

Thus, since the now requesting party had paid on the date of the assignment the amount of €43,380.47, the price outstanding was €41,094.44, a value which passed to the burden of the assignee.

3.7. Now, continues the requesting party, since on the date of the assignment of the contractual position an independent valuation considered that the vehicle in question had the market value of €40,029.00, a value which was lower than the debt value, it was for this reason that said price of 1 euro was fixed.

3.8. To support its disagreement with the Tax Authority, the requesting party also appeals to the principle of contractual freedom, extensively discussed in the doctrine it invokes, recalling that it is commercial practice in the assignment of contractual position in leasing contracts for the assignee to assume payment of the remaining debt, paying only a symbolic value to the assignor.

On the civil law plane, adds the requesting party, the assignment of contractual position operates a subjective modification of the relationship, which remains the same only with a new holder, there thus being no consideration whatsoever since the new holder merely assumed to pay the future instalments.

3.9. On the other hand, according to the requesting party, the contract in question does not have the nature of provision of services, given that it does not satisfy the respective concept, furthermore if the challenged assessment were maintained the Tax Authority would charge the same VAT value, that is, what was paid with the instalments due plus what is now sought to be charged with the challenged assessment, which constitutes a duplication of collection and violation of Article 205 of the CPPT.

3.10. The requesting party adds that even if by mere hypothesis it were considered that the contract in question could be characterized as a service provision contract, in light of the doctrine of the Tax Authority and the concept of taxable value provided for in Article 16, No. 1 of the VAT Code, the price of 1 euro fixed between the parties should be accepted as the basis of VAT incidence, even for the reason that the Tax Authority, upon which rested the burden of proof, did not demonstrate that the agreed price was not the one indicated, citing case law in this sense.

3.11. The requesting party then refutes another ground of the Tax Authority relating to the fact that the price of 1 euro was agreed only between itself and the acquirer, without the intervention of the financial institution, saying that nothing in the law obliges acting differently, that is, informing the cedant of the price of the assignment contract, requiring only, without further requirements, that notice of the assignment be given to the cedant and that it give its consent.

3.12. The requesting party concludes by invoking once again the duplication of collection, the violation of Article 16, No. 1 of the VAT Code and Articles 424 and 405 of the Civil Code and consequently requesting the annulment of the additional VAT assessment No. …, the restitution of the tax unduly paid plus the compensatory interest that may be shown to be due.

  1. Position of the Respondent Authority

4.1. The challenged assessment was based on the report of tax inspection action carried out to the company "A… – …, SA" (A), now the requesting party.

4.2. The inspection examination covered, among other tax events, a contract for the assignment of contractual position concluded between said A and B…, which had as its object two contracts previously concluded between the same A and Bank …, namely, a motor vehicle rental contract without driver under the number … for the vehicle with registration …-…-…, mark Audi, model … with the value of €78,850.00; and a promise to purchase and sell motor vehicle contract No. … in which the promising seller Bank … ..., SA, obliges itself to sell to the promising buyer A and the latter to acquire from it the Audi motor vehicle … registration …-…-…, for the price of €13,141.57, plus VAT at the rate in force on the date, and to do so at the end of the rental contract without driver, as per copies attached to the administrative case file.

4.3. The assignment contract did not fix any consideration for the assignment of the contractual position, with assignee B… obliging itself to bear the amounts "eventually due and not settled by assignor A and future amounts arising from the rental contract of motor vehicle without driver to which the assignment relates".

4.4. The inspection report considered that the operation of assignment of the contractual position integrates the concept of provision of services provided for in Article 4 of the VAT Code even if carried out free of charge for purposes unrelated to the enterprise.

4.5. Thus, there being in question a provision of services and no consideration having been fixed, the taxable value should be fixed as a function of the normal value of the service whose legal definition is given by Article 16, No. 4 of the VAT Code as "the price, increased by the elements referred to in No. 5, insofar as they are not included therein, which a buyer or recipient, at the stage of commercialization at which the operation is carried out and in conditions of normal competition, would have to pay to an independent supplier or provider, at the time and place at which the operation is carried out or at the time and place nearest thereto, to obtain the goods or service similar".

The norm described is complemented with the invocation of Article 16, No. 4, paragraph c) of the same article which determines that "in the absence of a similar service, the normal value cannot be less than the cost incurred by the taxable person in the performance of the provision of services" in question.

4.6. Thus, continues the inspection report, "since the cost incurred by A… until the date of assignment of its contractual position consists of the amount of the rental payments due and paid until said date, and since it was this very amount incurred that made it possible to carry out the provision of services (assignment of contractual position) in the conditions in which it was carried out (…), the normal value to be considered as the taxable value of the operation cannot be less than the value of the rental payments due and paid by A… at the date of conclusion of the contract for assignment of contractual position".

4.7. For the purpose of determining the taxable value the inspection report, based on the information gathered, then presents the payments made by assignor A until the date of 17/07/2011 and which were the following:

Initial down payment: €17,500.00;

29 monthly instalments of €892.43 in the amount of €25,880.47.

4.8. Concluding the inspection report that "the total value incurred by A within the scope of the financial leasing contract subject to assignment of contractual position was €43,380.47 (17,500.00 + 25,880.47)", being this the value considered as taxable value for purposes of the challenged additional assessment in the amount of €9,977.51 (43,380.47 x 23%).

4.9. Within the scope of the prior hearing the now requesting party disagreed with the value considered as taxable base for VAT and attached to the inspection case file an agreement, dated 20 June 2011, where it was agreed that the price of assignment of the contractual position was €1.00 (one euro).

The inspection service did not accept said price as taxable value invoking that such agreement was not filed in the accounts, that it was never mentioned by the company in the various contacts held and that, furthermore, if there had been a value for the assignment of the contractual position that value should have been mentioned in the respective contract, which did not happen.

4.10. The requesting party subsequently filed a gracious complaint which was dismissed and a hierarchical appeal which had the same outcome.

4.11. For its part, already within the scope of the present proceedings, the response of the Respondent Authority accepts the characterization of the inspection report which served as the basis for the challenged assessment and supports the decisions of dismissal of the complaint and the hierarchical appeal.

In summary it is alleged in said Response that the transaction of credit assignment operated only a subjective modification of the initial contractual relationship, which remains the same, only with a new holder and, continuing to reassert this idea, adds that the normal effect of the assignment was reduced only to the transmission of the assignor's position to the assignee, which thus proceeded to head the rights and duties inherent in the contractual relationship.

However, continues the allegation, once the assignment of contractual position in a financial leasing contract is a provision of services subject to VAT, the taxable value of this provision must be determined in conformity with Article 16, No. 1 of the VAT Code which establishes that this value is the value of the consideration obtained or to be obtained from the buyer, the recipient or a third party.

But immediately thereafter the learned response adds that the applicable taxable value in the case at hand will be determined in accordance with the provision of Article 16, No. 2, paragraph c) of the VAT Code, that is, considering the normal value of the service, as defined in No. 4 of the same article, thus approving the understanding of the inspection services and of previous information from the VAT Services according to which, in this type of operations, the taxable value should be determined "in accordance with Article 16, No. 2, paragraph c) of the VAT Code, as a function of the normal value of the service defined in No. 4 of the same article", that is, the total amount incurred by the now requesting party within the scope of the financial leasing contract subject to assignment of contractual position given that, it is concluded, in light of Article 16, No. 4, paragraph c) of the VAT Code, the taxable value cannot be less than the value already incurred by the assignee until the date of assignment of contractual position.

The response concludes by defending that the request for arbitral ruling should be judged unmerited with the other legal consequences.

  1. Clarification

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

Since the case is not afflicted by nullities and no questions have been raised which prevent the examination of the merits of the case, it is considered that the conditions for the arbitral decision to be delivered are met.

II. DECISION

II.A. On the Matter of Fact

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

a) The challenged assessment was based on a general external tax inspection action carried out to the company "A – …, SA" (A), beginning on 23.09.2013 and ending on 08-11-2013, covering the year 2011.

b) The tax event consisted of a contract for assignment of contractual position, dated 17 June 2011, concluded between A …, SA, as assignor, B…, as assignee, and Bank … ..., SA, authorizing the assignment.

c) The assignment contract had as its object the two contracts hereinafter identified concluded between the same A and Bank … ..., SA., with copies attached to the administrative case file:

A rental contract for a motor vehicle without driver, beginning on 2009.01.02 and ending on 2013.01.01, identified under the number …, having as its object the vehicle with registration …-…-…, mark Audi, model …, with the value of €78,850.00.

A promise to purchase and sell contract, dated 2009-01-02, having as its object the same motor vehicle, in which the promising seller Bank … ..., SA, obliges itself to sell to the promising buyer A and the latter to acquire from it the Audi motor vehicle … registration …-…-…, for the price of €13,141.57, plus VAT at the rate in force on the date, and to do so at the end of the rental contract without driver.

d) The consideration declared by the now requesting party for said assignment is contained in an agreement, dated 20 June 2011, where it was agreed that the price of assignment of the contractual position was €1.00 (one euro), equally attached to the case file.

e) It was provided in the contract that the assignee obliged itself to bear the amounts eventually due and not settled by assignor A, as well as the future instalments arising from the motor vehicle rental contract without driver to which the assignment relates.

f) A document was attached to the claimant giving account of a "Valuation" carried out on 17.06.2011 by "D… (Portuguesa) Lda", Rua … …, … Lisbon, of a vehicle mark AUDI, Model … (…), version …, engine displacement …, with date of 1st registration in the month 12.2008, with 115,000 effective kilometers, indicating the catalogue price of €75,743.00, indicating the quotation according to D… of €42,850 and the selling price of €40,029.00.

This valuation was presented in Articles 41 et seq. of the claimant as being the justification for the consideration for assignment of the contractual position to be fixed at 1 euro given that the value of the valuation was lower than the amount outstanding to finish paying for the vehicle which was €41,094.44.

It is noted, however, that the valuation document, making reference to a vehicle with the characteristics of the vehicle which was the object of the assignment contract above identified, does not indicate the registration of the vehicle valued.

g) Nothing appears in the case file giving information as to whether the assignee, in the sequence of the contract to which it was bound, paid any instalment already due and which had not been paid by the assignor.

h) For its part, for the purpose of determining the taxable value, the inspection report, based on the information gathered in the inspection action, then presents the payments made by assignor A until the date of 17/07/2011 and which were the following (amounts without VAT):

Initial down payment: €17,500.00;

29 monthly instalments of €892.43 in the amount of €25,880.47.

Thus, the total value incurred by A within the scope of the financial leasing contract subject to assignment of contractual position was €43,380.47 (17,500.00 + 25,880.47).

For its part, the 18 future instalments, assumed by the assignee, amounted to the sum of €16,063.74 (18 x 892.43).

Since the assignee assumed to pay the final residual value of €17,341.67, it is found that its contractual commitment, until acquiring ownership of the vehicle, amounted to €33,405.41 (16,063.74 + 17,341.67), to which VAT at the applicable rate is added.

i) The taxable value considered by the Tax Authority as consideration for the provision of services of the assignment of contractual position was €43,380.47 which, as indicated above, equaled the part of the price that the assignor had paid (excluding VAT) until the date of assignment of its contractual position in said contracts.

j) To the indicated taxable value a rate of 23% was applied generating thus the challenged additional assessment of €9,977.51, notified to the now requesting party on 23 December 2013 and paid on 27.12.2013.

II.A.2. Facts Established as Proven and Not Proven

There are no, with relevance to the decision and in light of the various perspectives of analysis of the legal issues, any other facts proven and/or not proven.

The tribunal's conviction in fixing the factual framework described was based on documentary evidence incorporated into the case file by the requesting party and the respondent.

Notwithstanding, it is kept in mind that the tribunal does not have to pronounce on everything that was alleged by the parties, it being its duty to select the facts relevant to the decision and to discriminate between the matter proven and not proven (cf. Article 123, No. 2, of the CPPT and Article 607, No. 3 of the CPC, applicable ex vi of Article 29, No. 1, paragraphs a) and e), of the RJAT).

II.B. ON THE LAW

The issue is to determine the legal-fiscal nature, in the sphere of VAT, of the contract for assignment of contractual position in a contract which had as its object the rental without driver of a motor vehicle and in another contract which had as its object the promise to purchase and sell of that same vehicle at the end of the rental contract and, on the other hand, to determine what the taxable value that should be fixed for said assignment is.

According to the requesting party not only are the requirements not met to consider the contractual assignment in question as a provision of services but, even if such characterization were accepted, the taxable value should be 1 euro, and not the value which served as the basis for the challenged assessment, given that this was the price which the parties fixed as consideration for that assignment.

For its part, the respondent considers that the assignment of contractual position, even without consideration, integrates the concept of provision of services and the taxable value of this provision must be fixed in accordance with the combined provisions of Article 16, No. 4, paragraphs a) and c) of the VAT Code, that is, it cannot be less than the cost incurred by the taxable person.

Let us see,

The concept of provision of services for purposes of VAT is set forth in Article 4 of the Code being considered as such operations carried out against payment which do not constitute transmissions, intra-Community acquisitions or imports of goods.

It is an indeterminate concept of residual nature which encompasses all onerous operations which satisfy the requirements of VAT incidence which are not qualified as transmissions, as intra-Community acquisitions or as imports of goods.

And, beyond the typical provisions with onerous nature, in the sense that they involve a service and the corresponding consideration, the concept under analysis is broadened so as to encompass the so-called external self-consumption when the goods of the enterprise are utilized by its holder or by its employees without the due consideration or when free services are provided to the same interested parties or for purposes unrelated to the enterprise itself (cf. Article 4, No. 2, paragraphs a) and b) of the VAT Code).

In the case sub judice, without calling into question the validity of the agreement between the assignor and the assignee its administrator which fixed the price of the assignment at 1 euro, the truth is that it is a merely symbolic price which does not alter the characterization of the assignment as an act of external self-consumption which fits within the cited legal provisions.

There will thus be no doubt whatsoever in holding that the assignment for 1 euro of the contractual position which an enterprise held in a contract which had as its object the rental without driver of a motor vehicle and in another contract which had as its object the promise to purchase and sell of that same vehicle at the end of the rental contract, in which already more than 55% of the purchase price of that vehicle had been paid, with an administrator of the assignor appearing as assignee, should be characterized as provision of services which fits within Article 4, No. 2, paragraphs a) and b) of the VAT Code.

As for the taxable value, it must be noted that the issue is not the transmission of the vehicle, since its ownership continues to be of the leasing entity, with instead the transfer of the right to acquire that same vehicle once the remainder of the agreed price has been paid occurring.

This provision, in light of the breadth of the concept already pointed out, can only be characterized as a provision of services. However, its value, the value of this provision of services cannot fail to be associated with the very value of the vehicle reported to the moment in which the right to its acquisition changed holder, since the economic content of that right will result in the acquisition of the vehicle in question.

Article 16, No. 1 of the VAT Code defines the general concept of taxable value as being the value of the consideration obtained or to be obtained from the buyer, the recipient or a third party, specifying then its No. 2 some operations such as, insofar as relevant to the case sub judice, those mentioned in Article 4, No. 2, paragraphs a) and b) of the VAT Code which, as already referred, are equally considered provisions of services subject to VAT whose taxable value is the normal value of the service as defined in its No. 4.

Now, paragraph a) of No. 4 defines that should be considered as normal value of a good or service "the price, increased by the elements referred to in No. 5, insofar as they are not included therein, which a buyer or recipient, at the stage of commercialization at which the operation is carried out and in conditions of normal competition, would have to pay to an independent supplier or provider, at the time and place at which the operation is carried out or at the time and place nearest thereto, to obtain the goods or the service or a good or service similar".

For its part, paragraph c) of this same No. 4 provides that "in the absence of a similar service, the normal value cannot be less than the cost incurred by the taxable person in the performance of the provision of services".

Characterize the assignment of contractual position as transmission of the good, which it is not, or as provision of services which it also is not but which fits within the residual figure of Article 4 of the VAT Code of considering as such what is not transmission, the truth is that, in economic terms, what is always at issue is the transmission/acquisition of the right to continue utilizing the motor vehicle as if one were its owner, paying the future instalments, including in the assignment the right to purchase, at the end of the contract, provided that what was contractually stipulated has been paid.

The normal value, which we could also designate as market value, of a provision of services which is translated into the transfer of said right to acquire a motor vehicle, with determined characteristics and conditions, that is, the mark, the engine displacement, in which part of the price has already been paid and another remains to be paid, with a determined number of kilometers traveled, with a determined age, ultimately comes down to the normal value or market value of motor vehicles with the same characteristics and in the same conditions.

The requesting party, for its part, makes a different interpretation and counterargues that the referred paragraphs are not applicable to it since between the parties was fixed the consideration of 1 euro which, this indeed, should be the taxable base upon which the rate of 23% should apply.

And the requesting party even presents its justification for the fixing of the price of 1 euro agreed, saying that the same was based on an independent valuation which fixed the value of the vehicle at a value lower than what still remained to be paid in the future instalments and in the residual price of the contract.

The position of the requesting party is not accepted.

First and foremost because, as developed above in the matter of fact, said valuation informs that it valued a vehicle with the characteristics of that which was the object of the assignment contract, but it does not even indicate the registration of the vehicle which was valued.

On the other hand, said valuation does not even invoke that it is presenting the normal value or market value of a vehicle which, despite possessing the characteristics of that which was the object of the assignment contract, does not inform whether the vehicle valued is in the same conditions as that one.

To the contrary, if the requesting party had countered, to the taxable value fixed by the respondent, a normal market value of a vehicle with those characteristics and in the same conditions, not being what was fixed for purposes of establishing the price agreed between assignor and assignee, paragraph c) itself of No. 4 of Article 16 determines that this value should prevail over the amount equivalent to the part of the price already paid by the assignor.

In the absence of the presentation of the value of a similar service, which is nothing other than the market value of a vehicle with those characteristics and in those conditions, there must be accepted that the taxable value be fixed in accordance with the terms of the two quoted paragraphs of No. 4 of Article 16 of the VAT Code, that is, the equivalent of the cost incurred by the assignor, integrating the down payment and the 29 instalments paid until the date of assignment, that is, the value of €43,380.47.

It cannot fail to be taken into account that paragraph c) itself above transcribed determines imperatively, not being within the availability of the interpreter to apply it in different terms, that in the absence of a similar service the normal value cannot be less than the cost incurred by the provider of the service.

What means that, regardless of the value and the conditions which the parties may attribute to the transaction of a vehicle or, in the case sub judice, to the provision of services connected with the assignment of the right to its acquisition, the legal criterion prevails and not the autonomy of the will of the parties.

Hence there is no ground to censure the action of the Tax Authority nor the additional VAT assessment which was challenged.

It is true that the rules of the VAT Code may lead to a paradoxical result that the longer the vehicle has been in use and the closer it is to the complete payment of its price, the greater may be the taxable value for purposes of VAT. Think, for example, of the case in which the assignment contract was concluded with only the last instalment remaining to be paid.

In that case we would be faced with a motor vehicle already four years old, with the depreciation inherent to such a time period being that, for purposes of VAT, with application of the rule of paragraph c) of No. 4 of Article 16 of the VAT Code, its taxable value would approach the value of acquisition of the vehicle in the state of new.

Now, it is common sense that the generality of goods depreciates with use and with the passage of time, a fact which, moreover, is reflected in diverse provisions of the tax system which aim to quantify the taxable value of such types of goods, frequently remitting to their normal value or market value.

This is the case, for example, of stamp duty on gratuitous transmissions whose Code, in its Article 14, No. 2, determines that the taxable value of motor vehicles – and of other means of transport – "is the market value or that determined in accordance with No. 7 of Article 24 of the CIRS, whichever is the greater".

For its part, No. 6 of Article 24 of the CIRS addresses the quantification of income in kind which should be considered in cases in which there is acquisition from the employing entity of vehicles by workers or members of the management bodies, providing for in No. 7 of said Article 24 in conjunction with Ordinance 383/2003, of 14.5, how the market value of such goods should be determined which, very simply, takes into account the acquisition price from which is deducted an annual depreciation percentage, which varies depending on the number of years of the vehicle.

However, this is not the solution currently established in the VAT Code and only de lege ferenda and with the necessary adaptations will it be possible to apply equal criteria for purposes of taxable value in the field of VAT.

Until the law is amended it will remain for the interested parties to resort to the appropriate procedural means to assess their compatibility with constitutional law or even with Community law.

II.C. DECISION

In these terms, the arbitral request is judged totally unmerited, both as to the request for annulment of the additional VAT assessment, in the amount of €9,977.51, and as to the assessment of compensatory interest.

II.D. Value of the Case

The case is assigned the value of €9,977.51, in accordance with Article 97-A, No. 1, paragraph a), of the CPPT, applicable by force of paragraphs a) and b) of No. 1 of Article 29 of the RJAT and No. 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

II.E. Costs

The arbitration fee is fixed at €918.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be borne entirely by the Requesting Party, in accordance with Articles 12, No. 2, and 22, No. 4, both of the RJAT, and Article 4, No. 4, of the cited Regulation.

Lisbon, 31 May 2016

Let it be notified.

The Arbitrator,

Joaquim Silvério Mateus

Frequently Asked Questions

Automatically Created

Is the transfer of a contractual position in a vehicle lease without driver subject to VAT in Portugal?
According to the Tax Authority's position in this case, the assignment of a contractual position in a vehicle lease without driver is subject to VAT in Portugal under the residual concept of Article 4(1) of the VAT Code. The Tax Authority classified this operation as a taxable supply subject to VAT at the standard rate. However, the taxpayer contested this classification, arguing that the assignment merely transfers contractual obligations without constituting a service provision, as it involves only a subjective modification of the legal relationship with a new holder assuming payment of future installments. The taxpayer maintained that since the operation does not satisfy the concept of service provision and VAT had already been paid on the rental installments, the assignment should not be subject to additional VAT.
How is the taxable value determined for the assignment of a leasing contract position under Article 16(4)(c) of the Portuguese VAT Code?
Under Article 16(4)(c) of the Portuguese VAT Code, when operations occur between related parties or without consideration, the taxable value is determined using the 'normal value' of the service. In this case, the Tax Authority applied this provision to determine that the taxable value for the assignment of the leasing contract position was €43,380.47—the total amount of rental payments already made by the assignor. The Tax Authority considered that the normal value could not be less than the value of rental payments due and paid. The taxpayer challenged this approach, arguing that Article 16(1) should apply instead, which establishes that the taxable value is everything that constitutes consideration received by the supplier. Since the parties had freely agreed to a consideration of €1, with the assignee assuming the remaining debt obligations (€41,094.44) for a vehicle whose independent market valuation (€40,029.00) was lower than the outstanding debt, the taxpayer maintained that the agreed price of €1 should be accepted as the taxable value.
Can the tax authority assess additional VAT when no consideration is received for a contractual position transfer?
The Tax Authority can assess additional VAT based on normal value rules even when minimal or no monetary consideration is received, if it determines that the operation falls within the scope of VAT and that the agreed consideration does not reflect market value. In this case, despite the agreed consideration of €1, the Tax Authority applied Article 16(4)(c) to assess VAT on €43,380.47. However, the taxpayer challenged this assessment on multiple grounds: (1) the burden of proof rests on the Tax Authority to demonstrate that the agreed price was not genuine; (2) the assignee assumed debt obligations exceeding the vehicle's market value, justifying the symbolic €1 consideration; (3) the assessment creates double taxation since VAT was already paid on the rental installments; and (4) contractual freedom allows parties to freely establish consideration. The taxpayer also argued that the Tax Authority violated Article 205 of the Tax Procedure Code (CPPT) by collecting VAT twice on the same economic value.
What is the role of CAAD arbitration in disputing additional VAT assessments related to vehicle leasing contracts?
The CAAD (Centro de Arbitragem Administrativa - Administrative Arbitration Center) provides an alternative dispute resolution mechanism for taxpayers to challenge tax assessments in Portugal, as established by Decree-Law 10/2011 of January 20. In this case, after the Tax Authority dismissed both the gracious complaint and hierarchical appeal, the taxpayer requested establishment of a singular arbitral tribunal to obtain a ruling declaring the illegality of the dismissal decision and the additional VAT assessment. The CAAD President appointed an arbitrator who constituted the tribunal on February 2, 2016, under the Tax Arbitration Legal Regime (RJAT). The arbitral tribunal has jurisdiction to review the legality of tax acts, including additional VAT assessments related to vehicle leasing contracts, and can order annulment and restitution of illegally collected taxes plus compensatory interest. This mechanism offers taxpayers a faster, more specialized alternative to judicial courts for resolving tax disputes.
Are compensatory interest (juros indemnizatórios) due when an additional VAT assessment is annulled by an arbitral tribunal?
Compensatory interest (juros indemnizatórios) may be due when an additional VAT assessment is annulled by an arbitral tribunal, as they compensate taxpayers for the financial loss caused by the illegal collection of taxes. In this case, the taxpayer specifically requested not only annulment of the €9,977.51 additional VAT assessment but also restitution of the tax paid plus respective compensatory interest. These interests are calculated from the date of payment until restitution and aim to compensate the taxpayer for being deprived of funds that were illegally collected. The legal basis for compensatory interest is found in Article 43 of the General Tax Law (LGT) and Article 61 of the Tax Procedure Code (CPPT), which establish the State's obligation to pay interest when tax is illegally collected and subsequently restituted. However, compensatory interest is only due if the tribunal determines that the assessment was indeed illegal and orders its annulment—if the assessment is upheld as legal, no compensatory interest would be payable.