Process: 692/2016-T

Date: May 29, 2017

Tax Type: IVA

Source: Original CAAD Decision

Summary

CAAD Process 692/2016-T addresses a critical issue in Portuguese VAT law: whether VIES (VAT Information Exchange System) registration is mandatory for applying the intra-community supply exemption under RITI (Regime das Transações Intracomunitárias). The case involved A... S.A., an aluminum manufacturer that sold goods to Spanish customers between 2013-2015, applying the VAT exemption under Article 14(a) of RITI. The Portuguese Tax Authority conducted an inspection and assessed €214,089.54 in VAT plus interest, arguing that the Spanish customers were not registered in VIES on the invoice issuance dates. According to Article 14(a) of RITI, intra-community supply exemptions require the purchaser to be a taxable person registered for VAT purposes in another Member State and subject to a system of taxation of intra-community acquisitions. The Tax Authority's position was that absence of VIES registration at the time of invoice issuance disqualifies the transaction from exemption, making it subject to the standard 23% VAT rate under Articles 1(1)(a), 2(1)(a), 6(1), and 18(1)(c) of the VAT Code. The company challenged this assessment through arbitration, arguing that VIES registration status should not be determinative. The arbitral tribunal, composed of three arbitrators including Prof. Clotilde Celorico Palma, Prof. António Carlos dos Santos, and Dr. Jorge Manuel Lopes de Sousa as president, was constituted on February 22, 2017, to resolve this dispute. This case has significant implications for Portuguese businesses engaged in intra-community trade, particularly regarding timing of VIES verification, burden of proof, and reliance on EU VAT registration systems.

Full Decision

ARBITRAL DECISION

The arbitrators Dr. Jorge Manuel Lopes de Sousa (arbitrator-president, designated by the other Arbitrators), Prof. Clotilde Celorico Palma and Prof. António Carlos dos Santos, designated, respectively, by the Applicant and the Respondent, to constitute the Arbitral Tribunal, constituted on 22-02-2017, hereby agree as follows:

1. REPORT

A…, S.A., a legal entity and tax payer number …, of the Tax Office of … (…), with registered office at …, Lot …-…, …, …-… …(hereinafter "Applicant" or "A…"), came, under the terms of Articles 2.º no. 1 letter a) and 10.º, nos. 1, letter a) and no. 2, of the Legal Regime for Arbitration in Tax Matters, approved by Decree-Law no. 10/2011, of 20 January ("RJAT"), to file a request for an arbitral decision, with a view to the declaration of illegality of the following VAT assessments relating to the years 2013, 2014 and 2015, in the total amount of € 214,089.54, and respective compensatory interest:

The AUTHORITY FOR TAX AND CUSTOMS is the Respondent.

The Applicant designated as Arbitrator Prof. Clotilde Celorico Palma, under the provisions of Article 6.º, no. 2, letter b), of the RJAT.

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 07-12-2016.

Under the terms of the provision in letter b) of no. 2 of Article 6.º and no. 3 of the RJAT, and within the period provided for in no. 1 of Article 13.º of the RJAT, the chief executive of the Tax Administration service designated as Arbitrator Prof. António Carlos dos Santos.

The Arbitrators designated by the Parties agreed to designate Counsellor Jorge Lopes de Sousa as arbitrator-president, who accepted the designation.

Under the terms and for the purposes of the provision in no. 7 of Article 11.º of the RJAT, the President of CAAD informed the Parties of this designation on 07-02-2017.

Thus, in accordance with the provision in no. 7 of Article 11.º of the RJAT, the period provided for in no. 1 of Article 13.º of the RJAT having elapsed without the Parties making any submissions, the Collective Arbitral Tribunal was constituted on 22-02-2017.

The Authority for Tax and Customs filed a response in which it argued that the request for an arbitral decision should be judged as unfounded.

By order of 30-03-2017 the holding of a meeting was waived and it was decided that the case would proceed with written submissions.

The Parties filed submissions.

The Arbitral Tribunal was properly constituted and is competent.

The parties are duly represented, enjoy legal personality and capacity and are legitimate (Articles 4.º and 10.º, no. 2, of the same diploma and Article 1.º of Administrative Order no. 112-A/2011, of 22 March).

2. FACTUAL MATTERS

2.1. Proven Facts

The following facts are considered proven:

The Applicant is engaged in the activity of obtaining and transforming aluminium, carrying out exclusively operations that confer the right to VAT deduction;

In the context of its activity, the Applicant proceeded, in the years 2013 to 2015, to sell aluminium to customers established in Spain, registered for VAT purposes in that country, having applied the tax exemption provided for in letter a) of Article 14.º of the Intra-Community VAT Transaction Regime;

The Authority for Tax and Customs ("AT") carried out a general external inspection action on the Applicant's accounts, with a view to monitoring compliance with its tax obligations in the years 2013, 2014 and 2015;

In the context of the said inspection, the AT found that the Applicant carried out the following transfers of goods with VAT exemption;

In the Tax Inspection Report, which is part of the administrative case file, the contents of which are reproduced, the following is stated, among other things:

III. Description of the facts and grounds of purely arithmetic corrections to the taxable matter.

1. Failure to assess VAT

In the years 2013 to 2015, the taxable person carried out the following transfers of goods to various companies established in Spain (As per copies of invoices attached to Annex 1 to this report), having failed to proceed with the respective assessment of VAT (Value Added Tax), claiming exemption from this tax under Article 14º, a) of the Intra-Community VAT Transaction Regime:

Now, in accordance with Article 14º, a) of the Intra-Community VAT Transaction Regime, the following are exempt from VAT: "transfers of goods, carried out by a taxable person as referred to in letter a) of no. 1 of Article 2.º, dispatched or transported by the seller, the purchaser or on account of these, from national territory to another Member State with destination to the purchaser, when the latter is a natural or legal person registered for value added tax purposes in another Member State, who has used the respective identification number to carry out the acquisition and is subject there to a system of taxation of intra-community acquisitions of goods".

From a query to the AT database (Authority for Tax and Customs), it is verified that, on the date of issue of each of the invoices listed above, the respective customer was not registered for purposes of intra-community acquisitions of goods, the situation of each one being as follows (As per "prints" attached to Annex 2 to this report):

In this way, the customers in question not being, on the date of issue of the invoices in question, the date on which the tax obligation arises under Article 8º, no.1, letter a) of the VAT Code (Value Added Tax Code), covered by a system of taxation of intra-community acquisitions of goods, the exemption contained in Article 14º, letter a) of the Intra-Community VAT Transaction Regime does not apply to the same, being therefore operations subject to and not exempt from VAT under Article 1º, no. 1, letter a), Article 2º, no. 1, letter a), Article 6º, no. 1 and Article 8º, no.1, letter a), all of the VAT Code, whereby VAT shall be assessed at the standard rate (23%) under Article 18º, no. 1, letter c) of the VAT Code.

From this result the following amounts of VAT in arrears, which should have been assessed and paid into the State coffers under Article 27º of the VAT Code:

(...)

IX. Right to be heard.

Notified to exercise the right to be heard under Article 60º of the General Tax Law (LGT) and Article 60º of the Complementary Tax Inspection Procedure Regime and Customs (RCPITA), on 07/06/2016, a document was received at this Tax Office relating to the exercise of this right by the taxable person (7 pages) and respective annexes (99 pages), to which entry number 2016… was assigned.

As regards what was alleged by the taxable person at each point of the exercise of the right to be heard, the following is to be noted:

Points 1 to 9, 15, 20, 26 A, 26 B and 26 C:

Contrary to what was stated by the taxable person, the VAT assessments contained in Chapter III of this inspection report are not due to the fact that the customers in question have outdated registrations in the VIES system.

As already mentioned in the draft inspection report, the VAT exemption provided for in Article 14º, letter a) of the Intra-Community VAT Transaction Regime does not apply to the invoices in question due to the fact that the Spanish customers in question, on the dates on which the same were issued, were not, according to the data contained in VIES, registered for purposes of intra-community acquisitions.

As regards what was stated by the taxable person in the first part of point 5, it is to be noted that none of the customers indicated in this report were, on the dates of issue of the invoices listed in this report, valid for purposes of intra-community acquisitions of goods.

Also in the context of point 5, and in relation to customer F…, Tax Number ES…, it is to be noted that, according to the VIES system, this customer is now registered for purposes of intra-community acquisitions, but only for transactions carried out from 29/03/2016 (Annex 3 to this report). This situation will have been due to steps taken by this customer with the Spanish tax administration in order to register as an intra-community operator after being alerted to this during the course of this inspection action. However, as the transactions in question in this report are prior to 29/03/2016, the VAT assessments contained in this report are to be maintained.

As regards the remaining customers, the situation described in the table on page 5 of the draft report is maintained.

As regards what was stated by the taxable person in point 15, it is to be noted that VIES is itself a system for Exchange of Information between the Member States, used for many years for monitoring intra-community transfers.

Points 10 to 14, 16 to 19, 21 to 25, 26 D, 26 E and 26 F:

In the context of the exercise of the right to be heard, the taxable person sends as an annex the following documentation of Spanish origin relating to two of the customers in question (E… and B…):

- Model 349 ("INFORMATION ON SUBMISSION OF DECLARATION") -E… - 4th Q of 2013, 1st Q of 2014, 2nd Q of 2014, 3rd Q of 2014, 4th Q of 2014, 1st Q of 2015, 2nd Q of 2015, 3rd Q of 2015 and 4th Q of 2015.

- Model 349 ("INFORMATION ON SUBMISSION OF DECLARATION") -B… - 2nd Q of 2013, 4th Q of 2013, 1st Q of 2014, 2nd Q of 2014, 3rd Q of 2014, 4th Q of 2014, 1st Q of 2015, 2nd Q of 2015, 3rd Q of 2015, 4th Q of 2015 and 1st Q of 2016.

- Model 303 ("VALUE ADDED TAX - SELF-ASSESSMENT") -E… - 1st Q 2014, 2nd Q of 2014, 3rd Q of 2014, 4th Q of 2014, 1st Q of 2015, 2nd Q of 2015, 3rd Q of 2015 and 1st Q of 2016.

- Model 303 ("VALUE ADDED TAX - SELF-ASSESSMENT") -B… - 2nd Q of 2013, 4th Q of 2013, 1st Q 2014, 2nd Q of 2014, 3rd Q of 2014, 1st Q of 2015, 2nd Q of 2015, 3rd Q of 2015, 4th Q of 2015 and 1st Q of 2016.

- "LIST OF CURRENT ACCOUNTS" – E… (30/11/2013 to 17/12/2015),

- "JOURNAL OF ENTRIES" – B… (04/05/2013 to 17/03/2016).

- "INTRA-COMMUNITY VAT - PURCHASES" – B… (04/05/2013 to 17/03/2016),

- "EXTRACT OF ACCOUNTS/LEDGER" – B… (04/05/2013 to 17/03/2016).

However, this documentation does not prove that these two Spanish customers were, on the dates in question in this report, registered in Spain as intra-community operators, for the following reason:

- First of all because it is documentation of Spanish origin whose authenticity we cannot verify.

- Furthermore, even if this documentation is authentic, it does not prove that these customers are registered for purposes of intra-community acquisitions of goods. It only indicates that the invoices in question were recorded in the accounts of these customers and declared in their periodic VAT declarations.

Also in the context of the exercise of the right to be heard, a document is presented in an annex, whose authenticity we could also not verify, entitled "CERTIFICATE OF TAX STATUS", relating to customer E…. However, it is to be noted that, on page 2 of this document, the date of commencement of registration as an intra-community operator of this customer contained in the table displayed on page 5 of this report is confirmed (15/03/2016), thereby corroborating the data contained in VIES (Annex 4 to this report).

In relation to company B…, a document entitled "CERTIFICATE OF STATUS IN THE TAX REGISTRY OF ECONOMIC ACTIVITIES OF THE AEAT" was annexed. This document, whose authenticity we could not verify, contains no reference to the date from which it is registered as an intra-community operator.

In the subpoint IV of point 11, the taxable person states that the registration in VIES of these two companies (E… and B…) was only recently updated. In relation to company B… this statement is incorrect since its situation has not changed since the beginning of this inspection action until now. In a query made on 14/03/2016, this customer already showed a commencement date of 22/07/2015 (Annex 3 to this report). In relation to company E…, before the beginning of this inspection action it was in the state of not registered. As can be seen in the table presented on page 5 of this report, it is now currently registered but only for dates equal to or after 15/03/2016. As with customer F… referred to above, this situation will have been due to steps taken by this customer with the Spanish tax administration in order to register as an intra-community operator after being alerted to this during the course of this inspection action.

In this way, we will proceed with the VAT assessments contained in this report.

Note: Annexes 1 and 2 indicated in Chapter III of this report are not sent as they were already sent when the draft report was sent.

Following the inspection action, the Authority for Tax and Customs issued the following VAT assessments and compensatory interest:

On 05-01-2017, the situations of the Spanish companies referred to, with regard to registration for intra-community transactions, was as follows:

On 26-08-2016, the Applicant paid the amounts assessed (Article 15.º of the request for arbitral decision, whose correspondence to reality is not contested);

On 21-11-2016, the Applicant filed the request for constitution of the arbitral tribunal which gave rise to the present case.

2.2. Facts Not Proven and Grounds for the Factual Decision

There are no facts relevant to the decision of the case that have not been proven.

The factual matter was established on the basis of the administrative case file, specifically on the basis of the Tax Inspection Report.

There is no controversy over the facts on which the Tax Inspection Report is based, which are that the Spanish companies with whom the Applicant carried out the transactions are VAT taxable persons (their respective tax numbers are indicated in the Tax Inspection Report), but were not registered for intra-community transactions at the moments when the transactions were carried out.

3. LEGAL MATTERS

3.1. Legal Framework

Article 138.º, no. 1, of Council Directive no. 2006/112/EC, of 28-11-2006 (VAT Directive), establishes the following rule:

Member States shall exempt supplies of goods dispatched or transported, outside their territory but within the Community, by the seller, the purchaser or on account of these, carried out to another taxable person or to a legal entity not acting as a taxable person in a Member State different from the Member State where the dispatch or transport of the goods begins.

Article 14.º, letter a), of the Intra-Community VAT Transaction Regime (RITI) establishes the following:

The following are exempt from tax:

a) Transfers of goods, carried out by a taxable person as referred to in letter a) of no. 1 of Article 2.º, dispatched or transported by the seller, the purchaser or on account of these, from national territory to another Member State with destination to the purchaser, when the latter is a natural or legal person registered for value added tax purposes in another Member State, who has used the respective identification number to carry out the acquisition and is subject there to a system of taxation of intra-community acquisitions of goods;

As we are dealing with a tax subject to European Union regulation, the case law of the CJEU on this matter must be accepted, which is a corollary of the obligation to make a preliminary reference, provided for in § 3 of Article 267.º of the Treaty on the Functioning of the European Union.

Articles 131º and 138.º, no. 1, of Council Directive no. 2006/112/EC, of 28-11-2006 (VAT Directive), establish the following:

Article 131.º

The exemptions provided for in Chapters 2 to 9 apply without prejudice to other Community provisions and on the conditions laid down by Member States to ensure correct and simple application of the said exemptions and to prevent any possible fraud, evasion or abuse.

Article 138.º

1. Member States shall exempt supplies of goods dispatched or transported, outside their territory but within the Community, by the seller, the purchaser or on account of these, carried out to another taxable person or to a legal entity not acting as a taxable person in a Member State different from the Member State where the dispatch or transport of the goods begins.

As clarified by the CJEU in the recent judgment of 09-02-2017, delivered in case no. C-21/16, these provisions of Directive no. 2006/112/EC must be interpreted to mean that the lack of registration in VIES is not an obstacle to the exemption, if there is no serious evidence suggesting the existence of fraud and the material requirements of the exemption are proven to be met:

Article 131.º and Article 138.º, no. 1, of the Council Directive 2006/112/EC, of 28 November 2006, relating to the common system of value added tax, must be interpreted to mean that they are opposed to the Tax Administration of a Member State refusing to exempt from value added tax an intra-community supply solely on the grounds that, at the moment of that supply, the purchaser, established in the territory of the Member State of destination and holding a valid value added tax identification number for operations in that State, is not registered in the System for Exchange of Information on Value Added Tax nor subject to a system of taxation of intra-community acquisitions, even though there is no serious evidence suggesting the existence of fraud and it is demonstrated that the material requirements of the exemption are met.

Article 8.º, no. 4, of the Constitution (CRP) establishes that "the provisions of the treaties governing the European Union and the norms emanating from its institutions, in the exercise of their respective powers, are applicable in the internal legal order, in the terms defined by Union law, with respect for the fundamental principles of the democratic rule of law".

From this provision flows the supremacy of Union law over national internal law, whereby, in accordance with the aforementioned CJEU case law, Article 14.º, no. 1, of the RITI must be interpreted in the sense of not refusing the exemption "solely on the grounds that, at the moment of that supply, the purchaser, established in the territory of the Member State of destination and holding a valid value added tax identification number for operations in that State, is not registered in the System for Exchange of Information on Value Added Tax nor subject to a system of taxation of intra-community acquisitions".

3.2. Application of the Legal Regime

The tax arbitration procedure, as an alternative means to the judicial impugnation procedure (no. 2 of Article 124.º of Law no. 3-B/2010, of 28 April), is, like the latter, a procedural means of pure legality, which aims at the elimination of the effects produced by illegal acts, annulling them or declaring their nullity or non-existence [Articles 2.º of the RJAT and 99.º and 124.º of the Tax Code, applicable by force of the provision in Article 29.º, no. 1, letter a), of the latter] ( [1] ), whereby the acts must be assessed as they were performed, with the grounds contained therein and only those. ( [2] )

The Customs Administration proceeded to inspections of the Applicant in which it concluded, in sum, that the exemption referred to is not applicable to the transfers of goods carried out by the Applicant to the Spanish companies indicated in the Tax Inspection Report, because these were not registered for the carrying out of intra-community transactions at the moments when these were carried out.

The sole ground for refusing the exemption and for the assessments is that the Spanish companies to whom the Applicant carried out transfers were not registered in VIES for intra-community transactions in merchandise, not being invoked, in particular, that there exists any fraud or that the transfers were not carried out.

In fact, the Authority for Tax and Customs makes no reference to any serious evidence that fraud has occurred, nor that the transfers were not carried out.

On the other hand, the fact that all companies in question have tax identification numbers and have subsequently become registered in VIES on dates after the transfers (as the Authority for Tax and Customs states in Article 17.º of the Response) and the documentation presented by the Applicant in the exercise of the right to be heard and in the present case, which includes documents proving that some of the companies in question complied in Spain with declarative obligations ( [3] ), including with respect to intra-community transactions with the Applicant, corroborates the conclusion that we are only dealing with irregularities relating to the lack of registration or updating in VIES and not with fraud or non-existent transactions.

The credibility of documents issued by Spanish authorities cannot be considered affected, as the Authority for Tax and Customs has at its disposal means of obtaining information, within the scope of intra-community administrative cooperation.

In this context, being the sole ground for the assessments the lack of registration of the Spanish companies in VIES at the moments of the transactions, it must be concluded that the refusal of the exemption is illegal, in light of the provision in Article 14.º, no. 1, of the RITI, in the interpretation compatible with Articles 131.º and 138.º, no. 1, of the Council Directive 2006/112/EC of 28 November 2006, in the interpretation made in the said judgment of the CJEU delivered in case no. C-21/16.

Thus, the assessments impugned suffer from the vice of violation of law, which justifies their annulment [Article 163.º, no. 1, of the Administrative Procedure Code subsidiarily applicable under the terms of Article 2.º, letter c), of the General Tax Law].

3.3. Question of Prejudiced Knowledge

Being the request for the declaration of illegality to be judged as founded, for the reasons indicated, the knowledge of the other questions raised is prejudiced, as it is useless [Article 130.º of the Civil Procedure Code, subsidiarily applicable by force of the provision in Article 29.º, no. 1, letter e), of the RJAT].

4. COMPENSATORY INTEREST

The Applicant requests that compensatory interest be paid from the date of payment of the assessments in question until the date of processing of the respective credit note, under the terms of Articles 43.º, no.1 and 61.º of the Tax Code.

In accordance with the provision in letter b) of Article 24.º of the RJAT, the arbitral decision on the merits of the claim to which no appeal or impugnation lies, binds the tax administration from the end of the period provided for appeal or impugnation, and the latter must, in the exact terms of the procedure of the arbitral decision in favour of the taxable person and until the end of the period provided for spontaneous execution of sentences of the tax courts, "restore the situation that would exist if the tax act that is the subject of the arbitral decision had not been performed, adopting the acts and operations necessary for that purpose", which is in line with the provision in Article 100.º of the General Tax Law [applicable by force of the provision in letter a) of no. 1 of Article 29.º of the RJAT] which establishes that "the tax administration is obliged, in case of full or partial acceptance of a claim, judicial impugnation or appeal in favour of the taxable person, to the immediate and full restoration of the legality of the act or situation that is the subject of the dispute, including the payment of compensatory interest, if applicable, from the end of the period for execution of the decision".

Although Article 2.º, no. 1, letters a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals functioning in CAAD, making no reference to condemnatory decisions, it should be understood that the competences include the powers that in judicial impugnation proceedings are attributed to the tax courts, this being the interpretation that is in line with the sense of the legislative authorisation on which the Government based itself for approving the RJAT, in which is proclaimed, as the first guideline, that "the tax arbitration procedure must constitute an alternative procedural means to the judicial impugnation procedure and to the action for recognition of a right or legitimate interest in tax matters".

The judicial impugnation procedure, although essentially a procedure for annulment of tax acts, permits the condemnation of the Tax Administration to payment of compensatory interest, as can be inferred from Article 43.º, no. 1, of the General Tax Law, which establishes that "compensatory interest is due when it is determined, in gracious claim or judicial impugnation, that there was error attributable to the services resulting in payment of the tax debt in an amount greater than that legally due" and from Article 61.º, no. 4 of the Tax Code (in the wording given by Law no. 55-A/2010, of 31 December, which corresponds to no. 2 in the original wording), which states that "if the decision that recognized the right to compensatory interest is judicial, the period of payment is counted from the beginning of the period for its spontaneous execution".

Thus, no. 5 of Article 24.º of the RJAT in stating that "payment of interest is due, regardless of its nature, in the terms provided for in the general tax law and in the Tax Code" should be understood as permitting the recognition of the right to compensatory interest in the arbitration procedure.

As results from the factual matter established, the Applicant, on 26-08-2016, paid the amounts assessed.

Under the terms of Article 43.º of the General Tax Law, in the part applicable here, "compensatory interest is due when it is determined, in gracious claim or judicial impugnation, that there was error attributable to the services resulting in payment of the tax debt in an amount greater than that legally due".

In the case at hand, the illegality of the VAT assessment acts is attributable to the Tax Administration, which, on its own initiative, performed them without legal support.

We are dealing with a vice of violation of substantive law, embodied in error in the legal assumptions, attributable to the Tax Administration.

Consequently, the Applicant is entitled to compensatory interest, under the terms of Article 43.º, no. 1, of the General Tax Law and Article 61.º of the Tax Code, calculated on the amounts paid unduly, from the date on which the undue payment occurred (26-08-2016) until the date on which the credit note is processed (Article 61.º, no. 5, of the Tax Code).

Compensatory interest is due at the supplementary legal rate for civil debts, under the terms of Articles 35.º, no. 10, and 43.º, nos. 1 and 5, of the General Tax Law, 61.º, of the Tax Code, 559.º of the Civil Code and Administrative Order no. 291/2003, of 8 April (or the diploma or diplomas that succeed it).

5. DECISION

In these terms, this Arbitral Tribunal hereby agrees to:

Render judgment that the request for declaration of illegality of the VAT assessments nos.: 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016… and 2016… is founded;

Render judgment that the request for declaration of illegality of the assessments of compensatory interest nos.: 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016… and 2016… is founded;

Annul the assessments referred to;

Render judgment that the request for payment of compensatory interest is founded and condemn the Authority for Tax and Customs to pay to the Applicant compensatory interest, relating to the amounts paid, from the date on which the payment was made until the date on which the credit note is issued.

6. VALUE OF THE CASE

In accordance with the provision in Article 306.º, no. 2, of the Civil Procedure Code and 97.º-A, no. 1, letter a), of the Tax Code and 3.º, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 214,089.54.

7. After this judgment becomes final, a certified copy of this decision shall be sent to the Honourable Judge of the Public Prosecutor's Office in the 1st Section of Braga of the Department for Investigation and Criminal Action, with reference to case no. …/16… T9BRG.

Lisbon, 29-05-2017

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(Clotilde Celorico Palma)

(António Carlos dos Santos)

( [1] ) Only complemented with the consequences of the annulment decision in terms of the award of compensatory interest and compensation for undue provision of security, if applicable.

( [2] ) Essentially in this sense, the following judgments of the Supreme Administrative Court can be seen, regarding a parallel situation that arises in contentious review proceedings:

– of 10-11-98, of the Plenary, delivered in appeal no. 32702, published in AP-DR of 12-4-2001, page 1207;

– of 19-06-2002, case no. 47787, published in AP-DR of 10-2-2004, page 4289;

– of 09-10-2002, case no. 600/02;

– of 12-03-2003, case no. 1661/02.

In the same sense, the following can be seen:

– MARCELLO CAETANO, Manual of Administrative Law, volume I, 10th edition, page 479 in which he states that it is "irrelevant that the Administration comes, already pending the contentious review, to invoke as determining reasons other reasons, not expressed in the act", and volume II, 9th edition, page 1329, in which he writes that "the authority appealed to cannot (...), in the response to the appeal, justify the performance of the appealed act by reasons different from those contained in its express motivation";

– MÁRIO ESTEVES DE OLIVEIRA, Administrative Law, Volume I, page 472, where it is written that "the reasons objectively existing but which are not expressly adduced, as grounds of the act, cannot be taken into account in assessing its legality".

[3] Documents nos. 6 to 15 joined with the request for arbitral decision.

Frequently Asked Questions

Automatically Created

Is VIES registration mandatory to apply the VAT exemption on intra-community supplies under RITI?
Under Article 14(a) of RITI, VIES registration is a formal requirement for applying the VAT exemption on intra-community supplies. The Portuguese Tax Authority interprets this provision strictly, requiring that the purchaser be registered in VIES on the date of invoice issuance. However, the substantive requirement is that the purchaser must be a taxable person registered for VAT in another Member State and subject to taxation of intra-community acquisitions. CAAD Process 692/2016-T examines whether formal VIES registration at the exact moment of transaction is mandatory or whether subsequent registration or other evidence of valid VAT status suffices.
What are the consequences of not being registered in the VIES system for IVA purposes in Portugal?
When a business is not registered in the VIES system for intra-community transactions, Portuguese suppliers cannot apply the VAT exemption under Article 14(a) of RITI. Consequently, the supply becomes subject to Portuguese VAT at the standard rate (23%). The Tax Authority can assess unpaid VAT retroactively, plus compensatory interest. In Process 692/2016-T, this resulted in assessments totaling €214,089.54. Suppliers bear the burden of verifying VIES registration status before applying the exemption. Failure to do so exposes them to significant tax liabilities, penalties, and administrative costs.
Can the Portuguese Tax Authority deny the intra-community VAT exemption solely based on the absence of VIES registration?
The Portuguese Tax Authority's position in Process 692/2016-T is that VIES registration absence at the time of invoice issuance is sufficient grounds to deny the intra-community VAT exemption. The AT verified through its database that Spanish customers were not registered in VIES on the relevant dates and concluded that Article 14(a) of RITI requirements were not met. The AT's interpretation emphasizes the temporal element: registration must exist at the moment the tax obligation arises under Article 8(1)(a) of the VAT Code (invoice issuance date). This strict interpretation has been challenged by taxpayers who argue that subsequent registration or other evidence of valid VAT status should be considered.
How does CAAD process 692/2016-T interpret the VAT exemption rules for intra-community transactions?
CAAD Process 692/2016-T interprets the VAT exemption rules for intra-community transactions by examining the strict application of Article 14(a) of RITI. The case focuses on whether the requirement that the purchaser be 'registered for value added tax purposes in another Member State' necessitates active VIES registration at the precise moment of transaction. The arbitral tribunal evaluates whether the Tax Authority's reliance solely on VIES database queries is sufficient to deny exemptions, or whether taxpayers should be allowed to present alternative evidence of the purchaser's valid VAT status. The decision addresses the balance between formal registration requirements and the substantive economic reality of legitimate intra-community trade.
What legal remedies are available to taxpayers facing IVA assessments related to RITI and VIES non-registration?
Taxpayers facing IVA assessments related to RITI and VIES non-registration have several legal remedies under Portuguese law. Process 692/2016-T demonstrates the use of tax arbitration under the RJAT (Legal Regime for Arbitration in Tax Matters, Decree-Law 10/2011). Arbitration provides a faster alternative to judicial courts for challenging VAT assessments. Other remedies include: hierarchical administrative appeals to the Tax Authority; judicial appeals to Administrative and Tax Courts; requesting payment suspension with bank guarantee; exercising the right to be heard before final assessment; and presenting evidence of good faith reliance on VIES information. The choice of remedy depends on urgency, costs, complexity, and the specific facts of each case.