Process: 699/2014-T

Date: June 30, 2015

Tax Type: IABA

Source: Original CAAD Decision

Summary

This CAAD arbitration case (699/2014-T) concerns a challenge by a Portuguese wine cooperative against an IABA (Tax on Alcohol and Alcoholic Beverages) assessment resulting from fortified wine shortages detected during fiscal warehouse inventory checks. The petitioner, an authorized depositary operating a fiscal warehouse of production, was assessed €65,331.69 in IABA following two inventory inspections (varejos) conducted in February and September 2009. The first inspection recorded 562,724.25 liters of fortified wine, while the second found only 119,241.50 liters. After accounting for authorized releases of 331,440.96 liters, customs authorities identified a shortage of 112,041.79 liters. The cooperative argued that the shortage resulted from measurement errors rather than unauthorized releases. Specifically, it claimed that the second inspection omitted two tanks containing 11,064 liters, and the first inspection incorrectly measured tank 11 as containing 149,452 liters when it actually held only 45,563 liters—a discrepancy of 103,889 liters. The cooperative also noted it was experiencing labor difficulties and had not properly updated its 2008 vintage inventory records. The customs authority partially accepted the cooperative's gracious objection, acknowledging the omission of the two tanks and reducing the assessed shortage to 101,357.79 liters and the tax to €59,107.56. However, it rejected the measurement error argument regarding tank 11. The cooperative sought arbitration to challenge the remaining assessment, invoking the principle of material truth under Article 58 of the General Tax Code, arguing that the tax authority should have conducted further investigation into the alleged measurement discrepancies before maintaining the assessment.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case no. 699/2014-T

1. - REPORT

1.1. - A A..., CRL, taxpayer no. ..., petitioner in the above tax proceedings and hereinafter referenced (hereinafter Petitioner), having invoked the provisions of subsection a) of no. 1 of article 2 and article 10 of Decree-Law no. 10/2011, of 20 January (hereinafter RTAT), requested the constitution of an arbitral tribunal, with a view to:

  • The declaration of illegality of the order of 10/07/2014 of the Director of the Customs Authority of ..., issued in Proc. NJ/RECL GR/…/09, in the part in which it partially dismissed the Gracious Objection to the assessment of the Tax on Alcohol and Alcoholic Beverages (hereinafter designated TAAB), subject of the Assessment Registration no. B – 2009/... of 26/10/2009, of the Customs Authority Branch of ..., as well as of the assessed tax claimed, in the part in which it was dismissed.

1.2. - Pursuant to the provisions of no. 1 of art. 6 and subsection a) of no. 1 of art. 11 of Decree-Law no. 10/2011, of 20 January, the Deontological Council of CAAD designated the undersigned, on 18-11-2014, as sole arbitrator António Correia Valente, who communicated acceptance of the appointment.

  • On 18-11-2014 the Parties were notified of this designation, in accordance with the combined provisions of art. 11, no. 1, subsection b) of RTAT, as amended by art. 228 of Law no. 66-B/2012, of 31 December, and in articles 6 and 7 of the Deontological Code, having manifested no will to refuse the designation of the arbitrator.

  • In these circumstances, in conformity with the provisions of subsection c) of no. 1 of art. 11 of Decree-Law no. 10/2011, of 20 January, as amended by art. 228 of Law no. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 03/12/2014.

  • On 5 May, the Arbitral Tribunal, under art. 16, subsection c) of RTAT, dispensed with the meeting referred to in article 18 of RTAT, and scheduled for 27 May 2015, the meeting for hearing of the witnesses indicated by the Parties.

On the meeting held on 27 May 2015, of which minutes were drawn up and are attached to the case file, the witnesses indicated by the Parties were heard, and oral arguments were then produced.

1.3. - The Petitioner, in the substantiation of its request for an arbitral decision, asserts, in summary, the following:

  • That it is a cooperative of limited liability belonging to the agricultural sector, whose principal object is the manufacture of wine, from grapes sourced from the holdings of its members.

  • That it is holder of the Status of Authorized Depositary with no. PT..., as well as holder of the Fiscal Warehouse of Production (FWP) with no. PT..., subject to the control of the Customs Authority Branch of ....

  • That on 10-02-2009 it was subject to an ANF (Control Action), of Retail type, in the FWP of which it is holder, executed by the services of the Customs Authority Branch of ..., which took the no. .../2009 and in which was noted the total existence of 562,724.25 l of fortified wine, being 410,599.25 of White Fortified Wine (WFW) and 152,125.00 l of Red Fortified Wine (RFW).

  • That on 17-09-2009 it was subject to another ANF, of the same type, in the same FWP, identified by no. .../2009, executed by the services of the said Customs Authority Branch, and then quantities of 41,194.50 l of WFW and 78,047.00 l of RFW were noted, totaling 119,241.50 l of fortified wine.

  • That, subsequent to the first of the said retails, the quantity of 331,440.96 l of fortified wine was released on suspension and introduced into consumption, and therefore it was to be expected that there would be in the FWP the quantity of 231,283.29 l of fortified wine.

  • That in the retail initiated on 17-09-2009 the quantities of 41,194.50 l of WFW and 78,047.00 l of RFW were found, which totals 119,241.50 l of fortified wine, which, compared to the quantity of 231,283.29 l of fortified wine that supposedly should be in the FWP, evidenced to the customs services an existence short of 112,041.79 l of fortified wine.

  • That it was notified by letter no. ..., of 27-10-2009, of the Customs Authority Branch of ..., of the assessment of TAAB, registered under no. B-2009/..., of 26-10-2009, in the amount of € 65,331.69 resulting from the shortages in the FWP.

  • That, following that notification it presented a Gracious Objection in which it alleged, essentially, on the one hand, that in the retail initiated on 17-09-2009 the existence of 10,684.00 l of WFW contained in the concrete vats nos. 55 and 75 was not quantified and, on the other hand, that in the retail initiated on 10-02-2009 the quantity of 442,270.00 l of fortified wine from the 2008 harvest was quantified, corresponding to 149,452.00 l deposited in tank no. 11; 74,021.00 l in tank 12 and 218,797.00 l in tank 13, and there was an error in the accounting of the said quantities.

  • That the aforementioned error stems from the fact that the fortified wine released from the three said tanks, from 10-02-2009 until 17-09-2009, totaled the quantity of 339,945.00 l, which does not correspond to the 442,270.00 l of fortified wine considered in the first retail.

  • That the error in question relates specifically to tank no. 11, in which the customs officials responsible for the retail considered there to be the quantity of 149,452.00 l, when in fact the same contained only 45,563.00 l, which resulted in a measurement error of 103,889.00 l.

  • That, in the framework of assessment of the Gracious Objection, the services of the Customs Authority Branch of ... accepted, on the one hand, as possible and involuntary, the omission, in the retail initiated on 17-09-2009, of the vats nos. 55 and 75 containing the quantity of 11,064.00 l of WFW, and, on the other, that such quantity be deducted from the shortage found in the said retail, thus reducing the said shortage to 101,357.79 l, which resulted in the reduction of the assessed TAAB from € 65,331.57, to € 59,107.56.

  • That the measurement of the stainless steel tanks in which the fortified wine was located was carried out by insertion of a probe from the top of the tanks, and there may have been some error in the transmission of the reading or in the conversion to liters of the measured level.

  • That, at the time of carrying out the retail initiated on 10/02/2009, it was in a situation of labor shutdown, not maintaining properly organized accounts of the stocks of products it held, nor had it yet proceeded to enter the quantities of fortified wine produced in the 2008 vintage.

  • That in the calculation of the shortage of 101,367.79 l, a fortified wine stock was used that included that from the 2008 vintage stored in tanks 11, 12 and 13, in a quantity greater than that which could have been produced.

  • That, in these circumstances, the Customs Authority of ... should have, in deciding on the gracious objection, also revoked the assessment as to the 101,367.79 l of fortified wine, in view of the principle of material truth that informs the tax procedure and which is addressed in art. 58 of the General Tax Code.

  • That the order of 01/07/2014 of the Director of the Customs Authority of ..., issued in Proc. .../09, should be annulled, in the part in which it partially dismissed the gracious objection to the assessment subject of Assessment Registration no. B – 2009/..., of 26/10/2009, of the Customs Authority Branch of ..., also annulling, in that part, the assessed tax.

  • That the TAAB assessed, relating to the differences in shortage, of 21.20 HL of fortified wine, ascertained and unjustified, in the framework of ANF no. .../2009, in the amount of € 1,236.29, was paid by the Petitioner, without the same having pronounced itself in a prior hearing, in the framework of the control procedure or the presentation of a gracious objection to the assessment made, and the results of this ANF were consolidated in the legal order, being, in fact, the result/stocks of this ANF - of retail type that embody the initial stocks of the subsequent retail, in this case the ANF no. .../2009.

  • That the fine associated with the notice of violation raised, in the framework of the difference of 21.20 HL of fortified wine, found in shortage during ANF no. .../2009, was duly paid.

1.4. - The Respondent, Tax and Customs Authority, (hereinafter designated AT), proceeded, on 03-02-2015, to attach the Administrative Process and presented a response, in which it asserts, in summary, the following:

  • That the Petitioner bases its request on the fact that there was no introduction into consumption capable of making the tax subject of assessment exigible, insofar as there would have been an error on the part of the services of the AT, during ANF no. .../2009, beginning on 10-02-2009, which would have influenced the results of subsequent retails.

  • That, in the framework of the control to which Fiscal Warehouses of products subject to special taxes on consumption are subjected, three ANF of retail type were carried out by the Customs Authority Branch of ..., identified with nos. .../2009; .../2009 and .../2009 to the FWP no. PT..., of the authorized depositary no. PT....

  • That, in the framework of Control Actions - of retail type, control of goods on suspension of tax was carried out through physical counting of intermediate products (WFW and RFW and Port wine) existing in the FWP and verification of the respective documents and records.

  • That, in the framework of ANF no. …/2009, the Petitioner, faced with the shortages ascertained in the FWP, paid the TAAB assessed in the amount of € 1,236.29, as well as the corresponding compensatory interest.

  • That, in the framework of ANF no. .../2009, it was concluded that the ascertained results indicated that 1,120.42 hectoliters of fortified wine were irregularly introduced into consumption, which gave rise to a debt of Tax on Alcohol and Alcoholic Beverages in the amount of € 65,331.69, concerning which assessment the Petitioner presented a gracious objection.

  • That, following the said gracious objection, an order was issued on 01-07-2014, by the Director of the Customs Authority of ..., of partial approval of the Petitioner's claim, accepting, as possible and involuntary, the omission, in the retail initiated on 17-09-2009, of the vats nos. 55 and 75 containing the quantity of 11,064.00 l of WFW, which resulted in a reduction of the debt amount to € 59,107.56.

  • That, in view of the provisions of subsection b) of no. 2 of art. 24 of the Code of Special Consumption Taxes (CSCT) approved by Decree-Law no. 566/99 of 22 December, in force at the date of the facts, the authorized depositary was obliged to maintain updated an inventory of stocks in a perpetual inventory system, with indication of its origin, destination and the elements relevant for the calculation of the tax.

  • That the authorized depositary is, equally and namely, obliged to present the products whenever requested to do so and to make themselves available for retails and other controls determined by the customs authority, as is established, respectively, in subsections c) and d) of art. 24 of the said CSCT.

  • That under subsection f) of no. 1 of art. 22 of the Code of Special Consumption Taxes, the authorized depositary has the obligation to maintain an inventory of stocks, organized in a perpetual inventory system, with current balance.

  • That, taking into account the provisions of no. 1 of art. 6 and nos. 1 and 2 of art. 7, both of the CSCT, alcohol and alcoholic beverages are subject to tax from their production, with the same being exigible, namely, at the moment of their introduction into consumption, which occurs as soon as the products leave the suspension regime.

  • That the control/inspection of fiscal warehouses is carried out, essentially, through retails which are intended to verify the physical accounting of stocks and the analysis of the accounts, which should always be presented updated and organized in a perpetual inventory regime with current balance, so that, at any moment, the quantities of product held in the warehouse, that entered it and that left it can be determined with accuracy.

  • That, as was decided in the Judgment of the TCAS, of 21/10/2003, Case no. .../03, "Given the legal obligation to maintain updated accounts of stocks that rests on authorized depositaries, if, at the moment of the retail, any accounting errors that could be regularized are not detected, the depositary cannot afterwards invoke accounting errors, nor prove […] that the results then ascertained by the inspection were not correct […]".

  • That, to admit the possibility of later calling into question the results of the retail, invalidates the entire system of inspection of fiscal warehouses, since after the moment of physical accounting it will be impossible to ascertain with certainty whether a given quantity of product was or was not in the warehouse.

  • That, if the current accounts of the warehouse are not updated in the manner legally required, the authorized depositary, holder of the warehouse, cannot claim to later invoke that incorrectness or lack of updating for its own benefit, at a moment when it is no longer possible for the services of the AT to determine whether such incorrectnesses exist or not, by comparison with the physical stocks, and furthermore, after the end of the retail, products may be placed in or removed from the warehouse, possibly irregularly.

  • That, having carried out the retail in question in the fiscal warehouse of the Petitioner, and having accounted for certain stocks of fortified wine and brandy in a tax suspension regime, which coincided with the balance of the respective current accounts, which were not contested at that moment by the Petitioner, who in the respective proceedings was represented by one of its employees, it should be understood that, if subsequently, such stocks are not found in the warehouse, nor is their regular introduction into consumption documented, nor their regular release on tax suspension, it should be presumed, pursuant to the provisions of nos. 1 and 2 of art. 7 of the CSCT, that the same were introduced into consumption, and the respective tax is exigible.

  • That the Petitioner failed to produce proof capable of rebutting the presumption aforementioned, neither during the control procedure, nor in the gracious objection, nor in the framework of the present proceedings, limiting itself, on the contrary, as it does in arts. 60 to 62 of its request for an arbitral decision, to acknowledging the lack of updating of the current accounts, which it was obliged to maintain updated.

  • That the TAAB assessed, relating to the differences in shortage, of 21.20 HL of fortified wine, ascertained and unjustified, in the framework of ANF no. .../2009, was paid by the Petitioner, without the same having pronounced itself in a prior hearing, in the framework of the control procedure or the presentation of a gracious objection to the assessment made, and therefore the results of this ANF were consolidated in the legal order, being, in fact, the result/stocks of this ANF - of retail type that embody the initial stocks of the subsequent retail, in this case the ANF no. .../2009.

  • That the Petitioner centers its arguments on the yield rates considered in production, which is not at issue in the proceedings, nor are any allowances for losses in production, since what is at issue is the irregular release of already produced fortified wine from the warehouse, which had previously been ascertained as being in the warehouse in a tax suspension regime.

  • That, for all the aforementioned reasons, the assessment act in question does not merit any censure, and should remain in the legal order.

2. - QUESTION TO BE DECIDED

In view of the above, concerning the positions of the parties and the arguments presented, the question to be decided is as follows:

To determine the legality of the order of 01/07/2014, of the Director of the Customs Authority of ..., issued in Proc. .../09, concerning the assessment subject of Assessment Registration no. B – 2009/..., of 26/10/2009, of the Customs Authority Branch of ..., resulting from the quantity of 101,367.79 l of fortified wine, ascertained in shortage, in the retail carried out under no. .../2009, of 17-09-2009, to the Fiscal Warehouse of Production with no. PT..., of which the Petitioner is holder.

3. - PROCEDURAL REQUIREMENTS

  • The Tribunal is materially competent and is regularly constituted, in accordance with articles 2, no. 1, subsection a), 5, no. 2, subsection a), 6, no. 1, 10, no. 1, subsection a) and no. 2 of RTAT;

  • The parties enjoy legal personality and capacity, are legitimate and are legally represented (See articles 4 and 10, no. 2, of RTAT and art. 1 of Ordinance no. 112-A/2011, of 22 March);

  • The proceedings do not suffer from vices that would invalidate them;

  • There are no incidents to be resolved, nor are there any preliminary questions on which the Tribunal should pronounce itself.

Taking into account the administrative tax proceedings, the documentary evidence attached to the case file, the testimony of the witnesses and the arguments produced, it now falls to present the factual matter relevant to the understanding of the decision, which is established as follows.

4. - FACTUAL GROUNDS

4.1. - PROVEN FACTS

In matters of fact, relevant to the decision to be rendered, this tribunal considers as established, in view of the elements in the case file and the testimony of the witnesses, the following facts:

  • The Petitioner is a cooperative of limited liability belonging to the agricultural sector, whose principal object is the manufacture of wine, from grapes sourced from the holdings of its members.

  • The Petitioner is holder of the Status of Authorized Depositary with no. PT..., as well as holder of the Fiscal Warehouse of Production (FWP) with no. PT..., subject to the control of the Customs Authority Branch of ....

  • On 10-02-2009, the Petitioner was subject to an ANF (Control Action), of Retail type, in the FWP of which it is holder, executed by the services of the Customs Authority Branch of ..., retail which took the no. .../2009 and in which was noted the total existence of 562,724.25 l of fortified wine, being 410,599.25 of White Fortified Wine (WFW) and 152,125.00 l of Red Fortified Wine (RFW).

  • In the said retail (ANF no. .../2009) was ascertained as being in shortage the quantity of 21.20 hectoliters of fortified wine - shortage that was not justified by the Petitioner - and the respective tax (TAAB), in the amount of € 1,236.29, was paid by the Petitioner without the same having pronounced itself in a prior hearing.

  • The fine associated with the notice of violation raised, in the framework of the said difference of 21.20 HL of fortified wine found in shortage, during ANF no. .../2009, was duly paid by the Petitioner.

  • On 17-09-2009, the Petitioner was subject to another ANF of the same type, in the same FWP, identified by no. .../2009, executed by the services of the said Customs Authority Branch, and then the quantities of 41,194.50 l of WFW and 78,047.00 l of RFW were ascertained, totaling 119,241.50 l of fortified wine.

  • Following the carrying out of the first of the said retails, the quantity of 331,440.96 l of fortified wine was released on suspension and introduced into consumption, and therefore, during the 2nd retail, identified by no. .../2009, the quantity of fortified wine that should be in storage (stock quantity) should be 231,283.29 l.

  • During the retail no. .../2009, carried out on 17-09-2009, the quantities of 41,194.50 l of WFW and 78,047.00 l of RFW were, as aforementioned, ascertained as existing products, totaling 119,241.50 l of fortified wine.

  • The comparison of the quantity of fortified wine existing in the FWP in the retail carried out on 17-09-2009 - in the total of 119,241.50 liters - with the quantity that in that FWP should exist - 231,283.29 liters - evidences an existence short of 112,041.79 liters.

  • Thus, the Petitioner was notified by letter no. ... of 27-10-2009, of the Customs Authority Branch of ..., of the assessment of TAAB, registered under no. B-2009/..., of 26-10-2009, in the amount of € 65,331.69 resulting from the shortages in the FWP ascertained in the retail of 17-09-2009.

  • The Petitioner, following the notification of the assessment of TAAB, registered under no. B-2009/..., of 26-10-2009, presented a Gracious Objection in which it alleged, essentially, on the one hand, that in the retail initiated on 17-09-2009 the existence of 10,684.00 l of WFW contained in the concrete vats nos. 55 and 75 was not quantified and, on the other hand, that in the retail initiated on 10-02-2009, 442,270.00 l of fortified wine from the 2008 harvest was, erroneously, quantified, corresponding to 149,452.00 l deposited in tank no. 11; 74,021.00 l in tank 12 and 218,797.00 l in tank 13.

  • The Petitioner invokes the occurrence of a measurement error, as aforementioned, in the retail no. .../2009, initiated on 10-02-2009, related to the accounting of the quantities then ascertained, alleging that the fortified wine released from tanks nos. 11, 12 and 13 aforementioned, from 10-02-2009, date of retail no. .../2009, until 17-09-2009, date of retail no. .../2009, totaled the quantity of 339,945.00 l, resulting from production from the 2008 vintage.

  • The services of the Customs Authority Branch of ... accepted, in the framework of assessment of the Gracious Objection, on the one hand, as possible and involuntary, the omission, in the retail initiated on 17-09-2009, of the vats nos. 55 and 75 containing the quantity of 11,064.00 l of WFW, and, on the other, that such quantity be deducted from the shortage found in the said retail, thus reducing the said shortage to 101,357.79 l, which resulted in the reduction of the TAAB assessed from € 65,331.57, to € 59,107.56, having been in this sense that, on 01-07-2014, the order of the Director of the Customs Authority of ..., relating to the assessment of this latter amount, was issued.

  • Mr. B, who accompanied, in representation of A.., CRL, the carrying out of retail no. .../2009, initiated on 10-02-2009, was an experienced employee, with 27 years of work within the said A..., having, among other functions, those related to the management of the current accounts of the Fiscal Warehouse.

  • The disorganization and deficient functioning of A..., CRL reached its principal stage, between mid-2008 and mid-2009.

  • The deficient functioning of A..., CRL manifested itself, namely, in the non-existence of records of entries and exits of products in the Fiscal Warehouse, and in the non-existence of accounts organized in a perpetual inventory system with current balance.

  • The measurements of the stainless steel tanks nos. 11, 12 and 13, were, in themselves, carried out, objectively, with caution and rigor.

  • There did not exist, as provided in subsection b) of no. 2 of art. 24 of the CSCT, an inventory of stocks in a perpetual inventory system, for each product, with indication, regarding the various movements, of its origin, destination and the elements relevant for the calculation of the tax.

  • There was no full control in the circulation of products within the Fiscal Warehouse, with the internal Service Orders, concerning the movements of products between the various deposits making up the said Warehouse, not being fully updated.

4.2. - UNPROVEN FACTS

In matters of fact, with relevance to the decision, this tribunal considers as unproven the following facts:

  • That the stainless steel tank no. 11, at the moment of the retail of 10-02-2009, contained the quantity of 45,563.00 l, of FW, from the 2008 vintage.

  • That tank no. 11, during retail no. .../2009, had less quantity of wine than that which was verified by the persons intervening and responsible for such retail.

  • That the measurement mechanism used in the stainless steel tank no. 11, during retail no. .../2009, had failures that would distort the results that were then obtained.

  • That there existed a risk/band/signal/mark inside the stainless steel tank no. 11, indicative that the same, on 10-02-2009 (date of the retail), would contain only the quantity of 45,563.00 l of FW.

4.3. - FOUNDATION OF THE FACTUAL MATTER

  • The foundation of the factual matter was based on the documents attached to the case file, concerning each of the facts, and on the testimony of the witnesses.

  • The witnesses showed to have knowledge of the facts on which they testified and there was no fact that justifies suspicions about their impartiality.

  • The factual matter given as unproven stems from the absence or insufficiency of proof produced in its respect.

5. - LEGAL GROUNDS

5.1. - To determine the legality of the order of 01/07/2014, of the Director of the Customs Authority of ..., issued in Proc. .../09, which supports the assessment subject of Assessment Registration no. B – 2009/..., of 26/10/2009 of the Customs Authority Branch of ..., in the amount of € 59,107.56, resulting from the quantity of 101,367.79 l of fortified wine ascertained in shortage, in the retail carried out under no. .../2009, of 17-09-2009, to the Fiscal Warehouse of Production with no. PT..., of which the Petitioner is holder.

5.2. - The factual matter is established, as appears from no. 4 above, and it now falls to determine the law applicable to the underlying facts, in accordance with the question to be decided identified in no. 2 above, and it is certain that the central question at issue in the present proceedings, regarding which there are absolutely opposed understandings between the Petitioner and the AT, consists in determining the legality of the order of 01/07/2014, of the Director of the Customs Authority of ..., issued in Proc. .../09, concerning the assessment subject of Assessment Registration no. B – 2009/..., of 26/10/2009 of the Customs Authority Branch of ....

Having considered all matters, and taking into account, on the one hand, the positions of the parties in opposition, mentioned and arising from points 1.3 and 1.4 above, and considering, on the other hand, that the central question to be decided, as aforementioned, is inseparable from the occurrence, or not, of an error in the measurement of the stainless steel tank no. 11, it now falls, in this framework, to assess and render a decision.

6. - OF THE DEFICIENT FUNCTIONING OF THE WINERY AND OF THE FISCAL WAREHOUSE

6.1. - The deficiencies in functioning and near paralysis in which A..., CRL found itself, at the time of carrying out the retail of 10-02-2009, reached, as results from the documents forming part of the proceedings and from the witness testimony, its most critical stage between mid-2008 and mid-2009.

The deficient functioning of the said A... reflected itself, immediately, in the non-existence of records of entries and exits of products in the Fiscal Warehouse of which it is holder and in the non-existence of accounts organized in a perpetual inventory system, despite such information being legally mandatory, in view of what is provided in subsection b) of no. 2 of art. 24 of the CSCT.

On the other hand, and in line with such disorganization, there was no full control in the circulation of products within the Fiscal Warehouse, with the internal Service Orders, concerning the movements of products between the various deposits making up the said Warehouse, not being fully updated.

6.2. - In this regard, it should be noted that it will not be possible to control, with certainty and rigor, anything whatsoever within Fiscal Warehouses and, particularly, in the Fiscal Warehouse referenced in the proceedings, in a framework of functioning characterized by the general non-updating of the inventory of stocks.

Rigor in this domain, that is, regarding the entries and exits of products in the Fiscal Warehouse in question, is essential. Indeed, the entire system of control/inspection of FW is fundamentally grounded in two distinct components: one, of documentary/accounting nature; another, of an inspection/retail nature. It is from the confrontation and analysis of the information revealed by these two components that any differences between the quantities accounted for and those physically verified can be found and the corresponding taxes assessed, and therefore, there cannot, consequently, exist a credible and reliable control system, in the absence of information revealed by any of the mentioned components, under penalty of the said system becoming, in these circumstances, totally devoid of credibility and confidence, which, given the propensity for evasion and tax fraud of the taxes in question, would not, at all, be acceptable nor comprehensible.

7 - OF THE MEASUREMENT ERROR

7.1. - It is important, first of all, to note the two theses referenced in the proceedings: one, defended by the Respondent, translated in the measurement of the deposit no. 11, carried out during the retail carried out on 10-02-2009 and in which was verified, specifically, the quantity of 149,452.00 of FW; another, relating to the understanding of the Petitioner, sustained in the existence of an error in the measurement of the said deposit, in that the quantity of wine produced, resulting from the grape purchased by A..., relating to the 2008 vintage, would only allow the tank no. 11, aforementioned, to contain 45,563.00 l of FW.

The error alleged by the Petitioner can only be asserted effectively in the framework of the present proceedings, if the concrete and actual existence of errors committed in the measurement carried out to the stainless steel deposit no. 11 comes to be proven.

Thus, the very first question that falls to be determined, because it conditions the other questions, is whether, in reality, errors were, or were not, committed in the carrying out of the said measurement, since it is in that measurement that the order of 01/07/2014, of the Director of the Customs Authority of ..., is sustained, and in which is found the direct and immediate cause of the assessment of Tax on Alcohol and Alcoholic Beverages, in the amount of € 59,107.56, corresponding to the 101,367.79 l of FW considered in shortage.

7.2. - In the context of the aforementioned functional disorganization and near paralysis in which A..., CRL found itself, at the time of carrying out the retail carried out on 10-02-2009, the measurements in question to the deposits/tanks of stainless steel nos. 11, 12 and 13, assumed a configuration that does not fit, nor is in line with the said disorganization, in that such measurements were, in themselves, carried out, objectively, in a framework of caution and rigor that is fully credible and acceptable, having been ensured by three persons, with distinct functions: one, representative of A..., with functions as head of service and responsible for the management of the current accounts of the Fiscal Warehouse, of which the said A... is holder, and the two remaining representatives of the Tax and Customs Authority, entrusted with the carrying out of the retail.

7.3. - It results, indeed, proven from the testimony of the witnesses that the measurements in question had the active involvement of the three said persons, whose purpose and attention converged in the sense of verifying the quantities of fortified wine existing in the deposits aforementioned.

The methodology used, for the purposes of the said measurements, consisted of the ascent to the top of the deposits of two persons: the representative of A.., Mr. B, and Mr. C, auxiliary customs verifier, employee of the Tax Administration, with Mr. D, technical verifier, responsible for the carrying out of the retail, positioned at the base of the deposits. The two persons positioned at the top of the deposits had a Sounding Tape, with a "plumb bob" at the end, which, once introduced into the deposits, allows, as soon as the plumb bob touches its bottom, which is ascertained, both by the persons positioned at the top of the said deposits and by the person positioned at their base, to observe, to the millimeter, the level of wine existing in the deposits - considering the wet part of the tape - which by means of its conversion, reveals, with rigor, the quantities of product contained therein. We have thus, in these circumstances, measurements that render, objectively, the occurrence of any errors implausible.

7.4. - As regards particularly the stainless steel deposit no. 11, which, in the understanding of the Petitioner, contained only 45,563.00 l, and which, given the measurement actually carried out, during the retail of 10-02-2009, allowed the verification of the existence of 149,452.00 l of FW, we are faced with a situation that would consist of an incorrect measurement, which approaches a percentage of 330%, which, in light of the circumstances that surrounded the measurement in question, as aforementioned, reinforces the implausibility of the error alleged by the Petitioner.

Moreover, faced with all the legal obligations that rest on A..., CRL, as holder of the Fiscal Warehouse of Production with no. PT... at issue in the proceedings, is it not possible to later reanalyze the results ascertained, namely, in retail no. .../2009, and as such contained in the corresponding Final Report, when the respective Retail Report was closed and, after being read and found to be correct, was duly signed by all who intervened in it, that is, by Mr. B and by the two employees of the Tax and Customs Authority, responsible for the retail.

8 - OF THE RETAILS

8.1. - On 17 September 2009, following retail no. .../2009, another ANF, of the same type, to A..., CRL was initiated, which took the no. .../2009.

As preparatory elements for this latter retail, the results of the last control action carried out to the Petitioner were, naturally, taken into account, that is, the stocks ascertained in retail no. .../2009, which resulted in the quantity of 231,283.29 l of fortified wine, in that, on the one hand, at this action, the total existence of 562,724.25 liters of fortified wine was noted, of which 368,249.00 liters were White Fortified Wine (WFW) and 74,021.00 liters of Red Fortified Wine (RFW), totaling 442,270.00 liters, deposited in stainless steel tanks nos. 11, 12 and 13, which contained respectively, the quantities of 149,452.00 l of WFW, 74,021.00 l of RFW and 218,797.00 l of WFW, and, on the other hand, that, between the first retail and retail no. .../2009, quantities of 331,440.96 l of fortified wine were, as appears in the proceedings, released on suspension and introduced into consumption.

It was, therefore, to be expected, in these circumstances, taking into account the said total existence of 562,724.25 liters of fortified wine ascertained in retail no. .../2009, that, during retail no. .../2009, the stocks in the FWP in question corresponded to the quantity of 231,283.29 l of fortified wine.

In this context, it should be noted that, given the documents forming part of the proceedings, corresponding to the current accounts of finished product, relating to the deposits/stainless steel tanks nos. 11, 12 and 13, identified at pages 202, 203 and 204, it is noted that, on 31-01-2009, that is, some time before retail no. .../2009 was carried out, which occurred on 10-02-2009, quantities of 149,452 l; 74,021.00 l and 218,797.00 l of FW respectively entered the said deposits/stainless steel tanks, originating from the 2008 vintage, as is expressly mentioned in the said documents.

8.2. - Regarding the said retail no. .../2009, carried out by the Customs Authority Branch of ... and in which a representative of the Petitioner participated, it is important to take into account that it was notified of the draft report of that retail, for the purposes of exercising the right of prior hearing, a right which it did not exercise, thus accepting its conclusions, having been, subsequently, notified of the final report of the ANF in question, which, for all legal purposes, is here given as fully reproduced, in which a difference in shortage of 2,120.205 l of FW is identified, and it is certain that in the final report of retail no. .../2009, the aforementioned quantity of 231,283.29 l of fortified wine is indicated, as corresponding to the existence of FW expected in the Fiscal Warehouse in question.

8.3. - The said quantity of 2,120.205 l of FW, ascertained in shortage and unjustified, to which corresponded a debt of TAAB in the amount of € 1,236.26, plus the sum of € 23.85 of compensatory interest, was paid by the Petitioner.

In this framework, the competent administrative infraction proceedings were instituted, the fine for which was, equally, paid by the Petitioner.

8.4. - During retail no. .../2009, initiated on 17-09-2009, the stocks of 41,194.50 l of WFW and 78,047.00 l of RFW were, as aforementioned, identified, totaling 119,241.50 l of fortified wine, which, given the quantity of 231,283.29 l of fortified wine that supposedly should be in the FWP, evidenced a shortage of 112,041.79 l of fortified wine.

8.5. - The Petitioner, by letter no. ..., of 27-10-2009, of the Customs Authority Branch of ..., was notified, taking into account the said shortage of 112,041.79 l of fortified wine, of the assessment of TAAB, registered under no. B-2009/..., of 26-10-2009, in the amount of € 65,331.69, and, following that notification, presented a Gracious Objection, in which it alleged, essentially, on the one hand, that in the retail initiated on 17-09-2009 the existence of 10,684.00 l of WFW contained in the concrete vats nos. 55 and 75 was not quantified and, on the other hand, that in the retail initiated on 10-02-2009, 442,270.00 l of fortified wine from the 2008 harvest was, erroneously, quantified, corresponding to 149,452.00 l deposited in tank no. 11; 74,021.00 l in tank 12 and 218,797.00 l in tank no. 13.

8.6. - The services of the Customs Authority Branch of ... accepted, in the framework of assessment of the Gracious Objection, not only, as possible and involuntary, the omission verified in the retail initiated on 17-09-2009, of the quantity of 10,684.00 l of WFW contained in the vats nos. 55 and 75, but also, that to the shortage of 112,041.79 l of fortified wine, be deducted the quantity of FW contained in the said vats, thus reducing the said shortage of 112,041.79 l of fortified wine, to 101,357.79 l, which resulted in the reduction of the TAAB assessed from € 65,331.57, to € 59,107.56, having been in this sense that, on 01-07-2014, the order of the Director of the Customs Authority of ..., relating to the assessment of this latter amount, was issued.

9 - OF THE RESPONSIBILITY OF THE WAREHOUSE HOLDER

9.1. - The legislation in force at the date of the facts, CSCT approved by Decree-Law no. 566/99, of 22 December, imposed on authorized depositaries, namely, the maintenance of an inventory of stocks, and of the movement of products, in a perpetual inventory system with indication of its origin, destination and elements relevant for the calculation of the tax, and it is therefore important to take into account that when applying for the Grant of the Status of Authorized Depositary and constitution of Fiscal Warehouse and the corresponding authorization, that is, in the framework of the status in which the economic agent/applicant is invested, it can be said that the same assumed obligations/responsibilities, which go beyond those directly and strictly fiscal, in that, namely, in the framework of the proper management of the Warehouse that it is incumbent upon it to ensure, such obligations cannot fail to be situated, also, at the level of all procedures inherent to the regular functioning of the Warehouse.

Indeed, the grant of this status and the obligations associated with it, arising, namely, from articles 21 to 26 of the CSCT, impose on the economic agent in question a cautious and diligent conduct, which obliges it to respect the technical and procedural rules adjusted to the adequate control of the storage and handling of products in a tax suspension regime.

9.2. - In the framework of the grant of the status of authorized depositary and the constitution of a fiscal warehouse there are, in truth, various obligations and legally foreseen requirements, among which are highlighted those of an objective character, oriented especially towards the control of the quantities of products, as occurs, namely, in the case of the requirement relating to the requirement of presentation of an annual foreseeable production plan, with indication of yield rates, or in that concerning the declaration of commitment to maintain organized an inventory of stocks, organized in a perpetual inventory system, with current balance, as is established in subsections f) and g) of no. 1, of art. 22 of the CSCT.

On the other hand, with respect to the obligations imposed on the authorized depositary, as provided in subsections c) and d) of no. 2, of art. 24 of the said Code, those should be noted which refer to the obligation to present the products to the customs authority whenever requested to do so, or to maintain updated an inventory of stocks in a perpetual inventory system, with indication of its origin, destination and the elements relevant for the calculation of the tax.

All such obligations and requirements aim at and converge in the sense of ensuring the proper use of the regime of production, transformation, detention and circulation of products subject to special taxes on consumption in a tax suspension regime, while facilitating, on the other hand, the control procedures and safeguarding, simultaneously, the occurrence of any situations conducive to evasion and tax fraud.

9.3. - In this framework, it is worth recalling the preamble text of the legal instrument that approved the CSCT then in force, when it there refers that the fundamental principle of the management of special taxes on consumption is the circulation of goods in a tax suspension regime, which embodies a suspension mechanism intended to permit the circulation of products without the previously supported burden of the tax, so as to avoid excessive financial charges for taxpayers.

It is a regime that has, however, as a counterpart, as is also referred to in the said preamble, the assignment of significant cooperation duties to taxpayers, and it falls to these, namely, to provide the Administration with the elements on which the assessment and collection of the tax is based as soon as the goods are introduced into consumption.

The proper management of Fiscal Warehouses embodies a general principle, which should be regarded as a procedure prescribed by the tax and customs authority, when, to the authorized depositary, it grants the necessary authorization to proceed with the operation and management of the Fiscal Warehouse. Only in this way, moreover, will it be possible to confer coherence and unity to the body of regulations forming part of the regime and to achieve a logical and rational understanding of what is established in it. Indeed, it would make no sense that, on the one hand, such a robust list of requirements and obligations for the grant of the status of authorized depositaries and for the constitution of fiscal warehouses be legally fixed, as appears, namely, in arts. 22, 23 and 24 of the CSCT, and, on the other hand, a management of these same warehouses, careless and not far-seeing as to the risks associated with the control of the quantities of products which, under a tax suspension fiscal regime, are there economically moved, whether at the level of production, transformation or detention, be tolerated.

In short, the person to whom the status of authorized depositary is granted and to whom authorization is granted to operate a Fiscal Warehouse assumes, for all purposes, the responsibility for the proper management of that Warehouse, management which, in the case at bar, did not stand out for its quality, in that it was marked by quite notable failures and deficiencies.

9.4. - It is also the responsibility of the authorized depositary, as subject of the special taxes on consumption, in this case the TAAB, as provided in no. 1 of art. 3 of the CSCT, to proceed with the payment of the tax owed.

Regarding the exigibility of the tax in question, it should be stated that, under the provisions of no. 1 and no. 2, subsection a), of art. 7 of the CSCT, the same is exigible at the moment of introduction into consumption of the respective products.

As has already been stressed, in the framework of retail no. .../2009, beginning on 17-09-2009, carried out to the Fiscal Warehouse of Production of which the Petitioner is holder, a shortage of 101,357.79 l of fortified wine subject to TAAB was ascertained, which gave rise to the assessment of tax, in the amount of € 59,107.56, determined in the order of the Director of the Customs Authority of ..., issued on 01-07-2014.

The fortified wine ascertained in shortage corresponds to an objective ascertainment resulting, as has already been stressed, from the difference between the quantities of 231,283.29 l expected as stocks in the Fiscal Warehouse, and as such, which should be recorded in the inventory of stocks, in a perpetual inventory system, with current balance, and the quantity of 119,241.50 l of WFW and RFW, which, in reality, was ascertained.

It is a difference founded, first and foremost, on the alleged measurement error that occurred, during the carrying out of retail no. .../2009, that is, some months before retail no. .../2009, initiated on 17/09/2009, where the difference in question was ascertained. The alleged error, which possibly would have occurred on 10/02/2009 in the measurement carried out to the stainless steel tank no. 11, is not considered proven, and it is necessary to conclude that the said difference in shortage left the suspension regime in which it was, and therefore, taking into account the provisions of subsection a), of no. 2, of art. 7 of the CSCT, the same should be presumed to have been introduced into consumption.

In these circumstances, in view of what is provided in art. 10 of the CSCT, it was necessary to proceed with the official assessment of the corresponding tax, which means that the Director of the Customs Authority of ... did what he was obliged to do, and therefore, neither his order, issued on 01-07-2014, nor the said assessment of TAAB, which supports it, merit censure.

10 - From all that is aforementioned, it is particularly important to highlight:

The disorganization existing in A..., CRL and the deficient functioning of the Fiscal Warehouse of Production of which it is holder, which reached their height between mid-2008 and mid-2009;

The control deficiencies in the internal circulation of products within the said Fiscal Warehouse, with the internal Service Orders concerning the movements of products between the various deposits making up the said Warehouse, not being properly updated;

The caution, rigor and credibility that surrounded the carrying out of the measurements carried out to the stainless steel tanks nos. 11, 12 and 13, which did not appear to be in line with the disorganization then prevailing in A..., CRL and in the mentioned Fiscal Warehouse;

The manifest implausibility of the occurrence of an error in the measurement of the WFW existing in the stainless steel tank no. 11, not only, because of the magnitude of the error in question, which approaches a percentage approaching 330%, but also because of the circumstances that surrounded the said measurement;

The presumption of introduction into consumption of the quantity found in shortage, during retail no. .../2009, in view of what is provided in subsection a), of no. 2, of art. 7 of the CSCT.

11 - DECISION

In these terms, and with the grounds that are herein set out, this Arbitral Tribunal decides:

  • To judge as unfounded the request for annulment of the order of 01/07/2014, of the Director of the Customs Authority of ..., issued in Proc. .../09, concerning the assessment subject of Assessment Registration no. B – 2009/..., of 26/10/2009, of the Customs Authority Branch of ....

  • To judge as unfounded the request for annulment of the assessment associated with the aforementioned order of the Director of the Customs Authority of ..., in the amount of € 59,107.56, resulting from the quantity of 101,367.79 l of fortified wine ascertained in shortage, in the framework of the retail carried out under no. .../2009, of 17-09-2009, to the Fiscal Warehouse of Production with no. PT..., of which the Petitioner is holder.

  • To condemn the Petitioner to pay the costs of the present proceedings.

Value of the case: In conformity with the provisions of articles 306, no. 2 of CPC (ex-315, no. 2) and 97-A, no. 1, subsection a) of CPPT, applicable by force of subsections a) and b) of no. 1 of art. 29 of RTAT, and in article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 59,107.56.

Costs: In accordance with no. 4 of art. 22 of RTAT, the amount of costs is fixed at € 2,142.00, charged to the Petitioner, in accordance with art. 4 of the Regulation of Costs in Tax Arbitration Proceedings and Table I, which is attached thereto.

Let it be notified.

Lisbon, 30 June 2015

The Arbitrator

António Correia Valente

(The text of this decision was prepared using a computer, in accordance with article 131, no. 5 of the Code of Civil Procedure (ex-138, no. 5), applicable by referral of article 29, no. 1, subsection e) of Decree-Law no. 10/2011, of 20 January (RTAT), its drafting being governed by old spelling conventions.)

Frequently Asked Questions

Automatically Created

What is IABA tax and how does it apply to fortified wine (vinho generoso) production in Portugal?
IABA (Imposto sobre o Álcool e as Bebidas Alcoólicas) is Portugal's excise tax on alcohol and alcoholic beverages, including fortified wine (vinho generoso). For fortified wine production, IABA applies when products are released for consumption from fiscal warehouses. Wine producers operating as authorized depositaries must maintain fiscal warehouses of production where fortified wine is stored under tax suspension. The tax becomes due when products leave the suspension regime and enter into consumption. The tax rate varies by alcohol content and product type, with fortified wines taxed based on their volume in hectoliters. Authorized depositaries are liable for IABA on any fortified wine that cannot be accounted for during inventory checks (varejos), as unexplained shortages are presumed to have been irregularly released into consumption without tax payment.
Can a wine cooperative challenge an IABA tax assessment through CAAD tax arbitration?
Yes, wine cooperatives and other taxpayers can challenge IABA tax assessments through CAAD (Centro de Arbitragem Administrativa) tax arbitration pursuant to Decree-Law 10/2011 of January 20. The cooperative must first exhaust administrative remedies by filing a gracious objection (reclamação graciosa) with the tax authority. If the decision on the gracious objection is unfavorable, the cooperative may request constitution of an arbitral tribunal under Article 2(1)(a) and Article 10 of the RTAT (Tax Arbitration Legal Regime). The arbitration request must be filed within 90 days of notification of the administrative decision. CAAD arbitration provides an alternative to judicial courts for resolving tax disputes, offering a faster and more specialized forum. The arbitral tribunal has jurisdiction to declare the illegality of tax assessments and administrative decisions, and its awards are binding on both parties.
What happens when a fiscal warehouse inventory check (varejo) reveals missing quantities of fortified wine?
When a fiscal warehouse inventory check (varejo) reveals missing quantities of fortified wine, Portuguese customs and tax authorities presume that the missing products were irregularly released into consumption without payment of the applicable IABA tax. This triggers a tax assessment for the shortage amount, calculated by applying the IABA rate to the volume of missing product. The authorized depositary is liable for the tax unless it can demonstrate that the shortage resulted from authorized releases that were properly documented, natural losses within acceptable limits, measurement errors, or other legitimate causes. The depositary has the right to file a gracious objection challenging the assessment, presenting evidence such as production records, release documentation, tank calibration certificates, or proof of measurement errors. The tax authority must investigate the objection according to the principle of material truth under Article 58 of the General Tax Code, which requires administrative bodies to seek the true facts rather than relying solely on formal presumptions.
What are the legal obligations of an authorized depositary (depositário autorizado) regarding alcohol tax liability in Portugal?
An authorized depositary (depositário autorizado) in Portugal has several critical legal obligations regarding alcohol tax liability. First, they must maintain accurate records of all alcohol products received, produced, stored, and released from their fiscal warehouse, with entries made in real-time in the electronic system. Second, they are strictly liable for IABA tax on any products that cannot be accounted for during inventory inspections, regardless of whether the shortage resulted from theft, evaporation, measurement error, or other causes—unless they can prove the shortage falls within authorized natural loss limits or resulted from force majeure. Third, they must facilitate and cooperate with customs authority inspections and varejos, providing access to facilities and documentation. Fourth, they must maintain their fiscal warehouse in compliance with technical specifications and security requirements. Fifth, they are responsible for ensuring that all releases from the warehouse are properly documented with accompanying administrative documents (DAAs) when moving products under suspension. Failure to meet these obligations can result not only in tax assessments but also in suspension or revocation of authorized depositary status.
How does the CAAD arbitration process work for disputes over IABA liquidation resulting from stock discrepancies?
The CAAD arbitration process for IABA liquidation disputes arising from stock discrepancies follows a structured procedure under Decree-Law 10/2011. First, the taxpayer must file an arbitration request within 90 days of the unfavorable administrative decision, typically after a gracious objection has been decided. Upon receiving the request, CAAD's Deontological Council designates an arbitrator (or panel) within specific timeframes. The parties are notified and may refuse the designation within 10 days. Once constituted, the arbitral tribunal manages the proceedings, which may include document submission, witness hearings, expert evidence on technical matters (such as tank calibration or measurement methodologies), and oral arguments. The tribunal evaluates whether the tax assessment complies with legal requirements and the principle of material truth, examining evidence of actual stock movements, measurement accuracy, and proper application of tax rules. The tribunal may annul assessments found to be illegal, reduce tax amounts, or confirm the tax authority's position. The process typically concludes within six months, and the arbitral award is enforceable like a court judgment, subject to limited grounds for annulment in judicial courts.