Process: 70/2017-T

Date: November 30, 2017

Tax Type: IVA

Source: Original CAAD Decision

Summary

CAAD Process 70/2017-T examines a VAT additional assessment dispute involving alleged personal services rendered by a managing partner using company equipment. The taxpayer company challenged a €45,135.45 VAT assessment for 2012, arguing multiple grounds of illegality: insufficient legal reasoning violating Article 77 LGT and Article 268(3) of the Portuguese Constitution; factual errors as the partner never used company equipment for personal activities; improper concentration of assessment in December rather than distribution across relevant tax periods; violation of the inquisitorial principle through inadequate investigation; incompetence of the assessing authority under Article 87 CIVA; and defective assessment of compensatory interest. The case raises fundamental questions about the Tax Authority's burden to provide adequate factual and legal grounds in VAT assessments, the threshold for determining when a partner's activities constitute taxable supplies subject to VAT, and the procedural requirements for challenging assessments through gracious complaint followed by arbitral proceedings. The tribunal must evaluate whether the Tax Authority met its obligation to substantiate the assessment with congruent reasoning and whether the concentration of multiple periods into a single December assessment violated VAT Code provisions requiring separate assessment acts per tax period.

Full Decision

ARBITRAL DECISION

I - REPORT

  1. A…, LDA., legal entity no. …, with registered office at …Street, no. …, …-… … (hereinafter referred to as the Applicant) submitted on 19-01-2017, a request for the constitution of a single arbitral tribunal, in accordance with the provisions of subparagraph a) of no. 1 of article 2 and article 10, nos. 1 and 2, both of Decree-Law no. 10/2011, of 20 January (hereinafter referred to as RJAT), requesting the Tax and Customs Authority (hereinafter referred to as AT or Respondent), with a view to declaring the nullity of the act of dismissal of the decision of the gracious complaint and consequently declaring the illegality of the acts of additional assessment of VAT [1] and of compensatory interest, with reference to the year 2012, from which resulted a total amount to pay of 45,135.45 €.

  2. The request for the constitution of the Single Arbitral Tribunal was accepted by the Hon. President of CAAD and automatically notified to the Respondent on 31-01-2017.

  3. In accordance with the provisions of subparagraph a) of no. 2 of article 6 of the RJAT, by decision of the Hon. President of the Deontological Council of CAAD, duly notified to the parties, within the prescribed timeframes, was appointed as arbitrator the signatory of this decision who communicated to that Council the acceptance of the task, within the timeframe stipulated in article 4 of the Code of Ethics of the Administrative Arbitration Center.

  4. On 15-03-2017 the parties were notified of this appointment, having not expressed a will to refuse it, in accordance with the combined provisions of article 11, no. 1 subparagraphs a) and b) of the RJAT and of articles 6 and 7 of the Code of Ethics.

  5. The Single Arbitral Tribunal was constituted on 30-03-2017, in conformity with the prescription of subparagraph c) of no. 1 of article 11 of the RJAT, in the wording conferred upon it by article 228 of Law no. 66-B/2012, of 31 December.

  6. To support its request the Applicant invoked in summary, and with relevance to what matters here, the following (which is mentioned mostly by transcription):

6.1. "(…) in the additional VAT assessment notified not all of its grounds are explicitly set out, whether of fact or of law, only resulting from the same that it relates to the VAT of the period of December 2012", (cfr. article 8 of the ppa)

6.2. "(…) the concrete legal provisions on the basis of which the Tax, and the Compensatory Interest are assessed are not identified", (cfr. article 10 of the ppa)

6.3. "not having done so, the assessment in question is illegal, by omission of legally required reasoning, thus resulting in violation of articles 268, no. 3 of the Constitution of the Portuguese Republic and 77 of the LGT", (cfr. article 32 of the ppa)

6.4. "(…) the reasoning of the Conclusions of the Tax Inspection Report that were notified (…) in the event that this constitutes the grounds of the act of assessment of tax and compensatory interest (…) is not, congruent, nor, much less clear", (cfr. article 42 of the ppp)

6.5. "(…) in the case in question, the Tax and Customs Authority merely lists mere conclusive judgments which, as it is pacifically and unanimously stated in doctrine and jurisprudence, do not represent the legally required reasoning", (cfr. article 54 of the ppa)

6.6. "(…) the Tax and Customs Authority admits that the identified bank accounts, without prejudice to their respective holder were affected to the activity of the partner, either through the Author, either through his personal activity as a teacher", (cfr. article 93 of the ppa)

6.7. "(…) the partner, in the development of his activity never used equipment of the Author, maintaining their respective duly separated and autonomous", (cfr. article 96 of the ppa)

6.8. "(…) as results from the very discourse of the Tax and Customs Authority even if there existed a taxable income in the terms intended (….) the truth is that the tax facts would have been distributed throughout the various taxation periods of the civil year", (cfr. article 104 of the ppa)

6.9. "the supposed (but non-existent) taxable services did not occur only in the last taxation period of the respective civil year", (cfr. article 105 of the ppa)

6.10. "(…) the Tax and Customs Authority itself which assumes it in the conclusions report of the inspection action, by stating that the imputation of income to each of the months was complex", (cfr. article 110 of the ppa)

6.11. (…) as has been recognized by the generality of doctrine, the failure to investigate the elements necessary to the discovery of material truth, with the consequent violation of the principle of the inquisitorial, taints with illegality the tax act issued in that sequence", (cfr. article 119 of the ppa)

6.12. "(…) the assessment act which also constitutes the object of the present request for arbitral pronouncement is also illegal by violation of the provision in article 87 of the Value Added Tax Code", (cfr. article 124 of the ppa)

6.13. "(…) the assessment act in question is signed, and therefore deemed practiced by the Ms. Director General of the Tax and Customs Authority from which there is no mention of the existence of delegation or sub-delegation of competencies", (cfr. articles 124 and 125 of the ppa)

6.14. "(…) having Decree Law no. 102/2008, of 20 June, exceeded the terms of the legislative authorization under which it was approved, the same is unconstitutional by violation of the provisions in articles 112 and 165 of the Constitution of the Portuguese Republic, with the necessary inapplicability of the competency rules in question, and should be considered competent for the effect the Mr. Head of the Tax Service or the Mr. Director of Collections of the Value Added Tax, as indeed the original wording of the current article 87 of the Value Added Tax Code", (cfr. article 138 of the ppa)

6.15. "(…) at the date when the assessment acts in question were practiced, the entity competent to practice them, was the Director of Services of the said Collection Services Directorate and not the mentioned Director General of Taxes who, in fact, practiced them", (cfr. article 140 of the ppa)

6.16. "What makes the assessment acts sub judice illegal and voidable by defect of relative incompetence", (cfr. article 141 of the ppa)

6.17. "In view of the provision of article 95 of the Value Added Tax Code: "The assessments referred to in articles 87 and 88 may be aggregated by civil years in a single collection document", (cfr. article 145 of the ppa)

6.18. "However, there shall have to be practiced as many assessment acts as there are tax periods in question, (....) and it appears to result from the VAT assessment act that such did not occur, the Tax and Customs Authority having, it appears, practiced the assessment act only with reference to the month of December, thus resulting in violation of the provisions in the said legal provisions", (cfr. articles 146 and 147 of the ppa)

6.19. "(…) the assessment of Compensatory Interest (…) is also illegal, not only by virtue of its lack of reasoning and violation of law, but also by pretermission of another essential legal formality, namely, by violation of the provisions in articles 267, no. 5 of the Constitution of the Portuguese Republic and 60, no. 1, subparagraph a) and no. 3 of the General Tax Law", (cfr. article 186 of the ppa)

6.20. "In maintaining valid in the legal order, the contested assessment acts, the Ms. Head of Division acted in error about the factual and legal assumptions, being that the defects imputed to the assessment acts are transmitted to the very decision that maintains them", (cfr. article 188 of the ppa)

6.21. "(…) with respect to errors about the factual and legal assumptions, the Ms. Head of Division merely reproduces the elements contained in the tax inspection conclusions report not pronouncing itself circumstantially about the concrete illegalities pointed out", (cfr. article 190 of the ppa)

6.22. "It should therefore, the said Dispatch of the Ms. Head of Division be annulled because practiced with offense to the norms and applicable legal principles", (cfr. article 135 of the CPA), (cfr. article 191 of the ppa)

  1. The AT, duly notified for that purpose, submitted on 12-05-2017 its reply (with attachment of the administrative file) which fundamentally replicates the position already expressed by it in the conclusions of the Tax Inspection Report, as well as in the dismissal of the gracious complaint.

7.1. It also alleges, in very brief summary, in defense of its position, and for what is relevant here the following:

7.2. (…) the factual and legal reasoning of the disputed assessments is contained in the content of the final report of the tax inspection, a fact that the Applicant cannot be unaware of since the notification of the report expressly mentions that it will give rise to the issuance of assessments, against which it may react via administrative (cfr. article 9 of the reply)

7.3. But even if it were not so, that is, even if the Applicant had not been notified of the final report, still it could under article 37 of the CPPT request from the AT that it notify it of the reasoning of the disputed assessments, which it did not (cfr. article 10 of the reply)

7.4. (…) having the now complainant been notified in the tax inspection report, such fact allowed it to have knowledge effectively and exhaustively of the grounds of the assessment, which is inferred from the arguments alleged by the now complainant in the present gracious complaint, (cfr. pages 9, 10 and 11 of the reply)

7.5. (…) the reasoning of the acts of disputed assessment as well as of the tax inspection report, is express, clear, sufficient and congruent (cfr. pages 9, 10, and 11 of the reply).

7.6. (…) should be judged as unfounded the defect of lack of reasoning of the acts of assessment of VAT and compensatory interest (cfr. article 13 of the reply)

7.7. With regard to lessons taught by the managing partner in a personal capacity, according to the understanding of the Tax Administration benefit from exemption provided that there is no intervention of any third party, now the managing partner provides services in the facilities belonging to A… benefiting from all the logistical support of the company, whereby there is effectively the intervention of a third party, and therefore cannot benefit from the exemption (cfr. article 4.4.28 of the reply)

7.8. Furthermore, the company and the managing partner did not maintain patrimonial separation, as bank accounts of private parties were used for the realization of payments and receipts relating to the business activity developed, thus not having complied with the provision in article 63-C of the LGT, (cfr. article 4.4.29 of the reply)

7.9. With respect to the alleged errors about the factual and legal assumptions, it is necessary to clarify, that contrary to what is alleged by the Applicant, the Tax Authority based itself on the elements it had, to from an easily perceptible logic conclude for the proposed corrections (cfr. article 21 of the reply)

7.10. It was assumed by the managing partner B… that the bank account held in the name of his son C…, was moved in the years 2011, 2012 and 2013, by the category B income earned by him and subject to assessment in IRS, as well as by the receipt of invoicing issued by the company A… (cfr. article 22 of the reply)

7.11. (….) from approximately July 2011, C's account (son), came to be moved as if it were the account of the Company, and that, it came to be so because then B… (Father) and spouse, had fear that their personal accounts could be garnished, which also allows concluding that until then these were the accounts that were being used as if they were company accounts (cfr. article 23 of the reply)

7.12. Taking this into account, a simple calculation was made, as described above, in which the declared income, both by the company and by its partner B… (Father), was deducted from the deposits made in the accounts, to conclude, since other income did not exist in the household, whereby they are considered to be the omitted income (cfr. article 25 of the reply)

7.13. And these were imputed to the company, taking into account the aforementioned declarations, the descriptives of the transfers determined in the investigation, the use of the company for the provision of services by its partner B… and the fact that he did not maintain patrimonial separation (cfr. article 26 of the reply)

7.14. (…) the Respondent proceeded throughout the entire inspection procedure, in clear respect for the pursuit of the principle of discovery of material truth by carrying out all necessary steps for the same (cfr. article 32 of the reply)

7.15. The Applicant alleges that throughout the entire inspection procedure always "refuted the accusations and presented successively elements that contradict the understanding of the Tax Authority", however did not result from the same, nor results from the present case records, that the same has logically even invoked an argument, a fact or indicated any evidentiary element that could support the supposed "elements" (cfr. article 33 of the reply)

7.16. Failing to bring the Applicant any means of proof, or any indicator that could sustain its allegations, it is not possible to understand how the principle of the inquisitorial could lead to "investigate", "elements", that found in the facts no support (cfr. article 39 of the reply)

7.17. Thus not being able, to impute to the act the defect of illegality by violation of the principle of the inquisitorial (cfr. article 40 of the reply)

7.18. (…) in the case in question, we are faced with an additional VAT assessment, in accordance with article 87 of the CIVA, and not faced with an official assessment, in accordance with articles 88 and 89 of the same code (cfr. article 42 of the reply)

7.19. Regarding the competence of the assessment act is clear the Decision of the Central Administrative Court South, Case: 01148/06, of 95-96-2007, which clearly determines that: The assessment act is an act of the competence of the central services of the General Directorate of Taxes, being able, in accordance with DL 275-A/93, of 9/8, to be used computer means in which the signature of the respective director general is included (cfr. Ordinance no. 797/99, of 15/9)- (cfr. article 43 of the reply)

7.20. (…) the impugned act was practiced by a competent entity, not being able to impute to it the defect of incompetence (cfr. article 45 of the reply)

7.21. As for the alleged unconstitutionality of Decree Law no. 102/2008, of 20-06 invoked by the now complainant, it is necessary to observe that it is not within the Tax Administration to pronounce itself on the same, such assessment being the competence of the Constitutional Court, in accordance with articles 276 and following of the CRP, the Tax Administration being bound by the Principle of Tax Legality, in accordance with article 8 of the LGT (cfr. article 46 of the reply)

7.22. The Respondent determined and proved, fully, the tax whose assessment is found lacking during the year. Having not been able to impute the portion relating to each of the periods, it would have only two options, to assess or not to assess the missing tax (cfr. article 49 of the reply)

7.23. (…) even if it could not concretize the portions corresponding to each of the periods (cfr. article 54 of the reply)

7.24. (…) the choice for the last taxation period of the year, took into account the interests of the Applicant, which it sought to respect (cfr. article 55 of the reply)

7.25. In truth, if the Respondent made a distribution based on any criterion it determined, it could incur in the imputation to prior periods, of tax that should only be assessed and only would be shown to be due in later periods, creating in the sphere of the Applicant the burden with the payment of interest that would not be due if the periods and their respective portions had been completely determined. (cfr. article 56 of the reply)

7.26. Thus, accepting the forfeiture of some interest to which it might be entitled, the Respondent was cautious, that quite certainly, cannot the Applicant allege with this action any harm, whereby, also by this route there is no reason for the Applicant, (cfr. art 57 of the reply)

7.27. As for the reasoning of the assessment of compensatory interest, it results from the corrections made by the AT that the Applicant assessed tax in an amount lower than that legally due, being imputable to the taxpayer the delay in the delivery of the tax, in accordance with no. 1 of art. 35 of the LGT, (cfr. article 58 of the reply)

7.28. (…) it appears that the now complainant did not comply with the provision in article 27 of the CIVA, given that it was found in the seat of inspection action, there being VAT not assessed and not delivered to the State Coffers; (cfr. page 24 of the reply)

7.29. The Tax Administration is subject to the Principle of Tax Legality, in accordance with article 8 of the LGT, with respect to the rate, the calculation basis and the period of time to which the compensatory interest refers; (cfr. page 24 of the reply)

7.30. (…) it will be necessary to judge as unfounded the illegality of the compensatory interest, in which they were assessed under the provision of article 35 of the LGT (cfr. article 60 of the reply)

7.31. As for the alleged illegality of the decision that dismissed the gracious complaint now in question, should the same be judged unfounded for all the factual and legal reasons to which above was alluded (cfr. article 61 of the reply).

  1. By arbitral order issued on 15-05-2017, and for the reasons set out therein, was waived the holding of the meeting referred to in article 18 of the RJAT.

  2. The Applicant came in a request submitted on 05-06-2017 to justify the interest in the hearing of the witness summoned.

  3. By order of 06-06-2017, the court requested that the Applicant come to indicate the essential facts which by reference to the pleaded arguments of the request for constitution of the arbitral tribunal on which it intended the deposition opportunely requested.

  4. In that same order was disregarded all the pleading submitted by the Applicant that did not have strictly to do with the matter of witness proof.

  5. On 20-06-2017 the Applicant came to proceed with the identification of the matter on which it intended the examination of the witness, reporting that in fact the indicated had provided declarations of party in accordance with the provision of article 466 of the Code of Civil Procedure within the scope of the CAAD process no. 69/2017-T, requesting the use of proof in the present process of that already produced therein.

  6. Notified the AT of the intention of the Applicant came to inform that it has nothing to object to the use of the proof produced in process 69/2017-T, waiving the examination of the witness that it presented with its reply, further arguing for the presentation of submissions.

  7. By order of 18-07-2017 the Court requested from CAAD that it proceed with the sending to the court and to the parties of the minutes of examination and recording of the said deposition, which was obtained that was the authorization for that purpose by the Hon. Mr. Arbitrator holder of the process in question.

  8. By order issued on 02-10-2017 and for the reasons that result from it was extended the deadline for the issuance of the decision.

  9. Having verified that the power of attorney attached by the Applicant with its request for arbitral pronouncement was not granted by it, but by a third party, was notified by order issued on 10-10-2017 to proceed with the attachment of a power of attorney in conformity, with a view to ensuring its representation legitimacy in the proceedings.

  10. As a result, the Applicant proceeded on 16-10-2017, to the attachment of a power of attorney granted by it in favor of its Illustrious attorneys, with ratification of what was done.

  11. The parties did not submit written submissions for which they had been invited within the scope of the order issued on 18-07-2017.

  12. The Single Arbitral Tribunal is materially competent and is regularly constituted, in accordance with articles 2, no. 1, subparagraph a) 5 and 6 of the RJAT.

  13. The parties have personality and legal capacity, are legitimate and are duly and legally represented (article 3, 6 and 15 of the Code of Tax Procedure and Process, ex vi article 29 subparagraph a) of no. 1).

  14. No exceptions were raised and the case does not suffer from nullities.

II - LEGAL GROUNDS

A. MATTER OF FACT

A.1. Facts Established as Proven

a. the Applicant is a limited liability company that started its activity on 08 May 2000 which carries out its economic activity with the CAE 85593 – Other Educational Activities NE, framed in the general corporate income tax regime, being for the purposes of VAT a taxable person in accordance with subparagraph a) of no. 1 of article 2, framed in the normal regime with quarterly periodicity in conformity with the provision of subparagraph b) of no. 1 of article 41, both of the CIVA;

b. it was subject to an inspection action through Service Orders numbers OI 012013…, OI2014… and OI 2014…, with reference to the years 2011, 2012 and 2013, of external nature and general scope;

c. as a result of the inspection action the AT issued the correction document no. … referring to the period of 12-12T;

d. with date of 2016-01-14 the AT proceeded with the issuance of the additional VAT assessment no. 2016…, in the amount of 40,513.58 €, and assessment of compensatory interest no. 2016…, in the amount of 4,621.87 €;

e. the Applicant has a capital of one hundred thousand euros, with the following distribution:

  • B…, with a share of fifty thousand euros;
  • D…, with a share of fifty thousand euros;

f. the management of the Applicant is in the charge of the above mentioned partners;

g. at the date of the facts (2012) the partner B…, in addition to the exercise of the function of manager of the Applicant, provided services that consisted in giving lessons in a personal capacity on matters of secondary and higher education, which he declared as exempt from VAT in accordance with no. 1 of article 9 of the CIVA;

h. having declared for the year 2012 the amount of 32,156.38 €;

i. in the Tax Inspection Report, is contained as relevant, at fl. 70, the following:

  • "(…) it was assumed by the managing partner B… that the bank account held in the name of his son C… was moved in the years 2011, 2012 and 2013, by the category B income earned by him and subject to assessment in IRS, as well as by the receipt of invoicing issued by the company A… .

  • In accordance with no. 12 of article 9 of the CIVA are exempt from the tax" the provision of services that consist of lessons taught in a personal capacity on matters of school or higher education"

  • Taking into account that the activity developed by "A…", consists in accompanying and school guidance, but without recognition by the competent ministry, the lessons taught either individually or in groups, do not benefit from VAT exemption, because they do not have framing in no. 10 nor in no. 12, both of article 9 of the CIVA

  • With regard to lessons taught by the managing partner in a personal capacity, according to the understanding of the Tax Administration benefit from exemption provided that there is no intervention of any third party.

  • Now, the managing partner provides services in the facilities belonging to A…, benefiting from all the logistical support of the company, whereby there is effectively the intervention of a third party, and therefore cannot benefit from the exemption

  • Furthermore, the company and the managing partner did not maintain patrimonial separation, as bank accounts of private parties were used for the realization of payments and receipts relating to the business activity developed, thus not having complied with the provision in article 63-C of the LGT".

j. are further drawn from the Tax Inspection Report at fl. 72 verso, the following considerations authored by the AT in the sequence of the exercise of the right of hearing carried out by the Applicant:

" The taxable person does not invoke facts and much less evidence, that put into question the analysis of income made in the draft report"

" The only argument that at this level, merits reference is that the omitted income should be imputed, in a personal capacity, to the manager of the taxable person and not to the taxable person (with the consequence of if the imputation is made in a personal capacity to the manager there being no place for VAT). However, this argument cannot be accepted, for the truth is that the manager of the taxable person provided the services that generated the income in the framework of the activity of the taxable person, using the means of this"

k. on 2016-07-12, the Applicant filed with the Finance Service of Cascais …, a gracious complaint against the VAT assessments and compensatory interest relating to the year 2012 that were directed to it, to which came to fall the no. …2016…;

m. this complaint dismissed by order issued by the Ms. Head of Division (in replacement) and duly notified to the Applicant, with date of 21-10-2016;

n. on 19-01-2017 the Applicant submitted its request for arbitral pronouncement to the CAAD, which gave rise to the present case;

o. is incorporated in the present case records the minutes of the arbitral meeting held on 06-06-2017, within the scope of process no. 69/2017-T.

A.2. Facts Established as Not Proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Reasoning of the Matter Established as Proven and Not Proven

With respect to the matter of fact, the court does not have to pronounce itself on everything that was alleged by the parties, it being incumbent on it, rather, the duty to select the facts that matter for the decision, to discriminate the proven matter from the not proven [(cfr. article 123, no. 2 of the Code of Tax Procedure and Process and article 697, no. 3 of the Code of Civil Procedure, applicable ex vi of article 29, no. 1, subparagraphs a) and e) of the RJAT)].

In this way, the facts pertinent to the judgment of the case, are chosen and outlined according to their legal relevance which is established in attention to the various plausible solutions, of the question(s) of law, (cfr. article 596 of the Code of Civil Procedure applicable ex vi of article 29, no. 1 subparagraph e) of the RJAT).

Thus, having taken into consideration the positions assumed by the parties, the documents attached to the case records, and the administrative file, are considered proven with relevance to the decision the facts above listed.

The declaration of party provided by the partner of the Applicant, D…, within the scope of process no. 69/2017-T, subject to use of proof in the present case given the provision of no. 1 of article 421 of the Code of Civil Procedure, ex vi, subparagraph e) of no. 1 of article 29 of the RJAT, (there having been no opposition in that sense by the Hon. Mr. Arbitrator to whom such process was assigned), did not prove essential to the fixing of the pertinent facts, which by their nature are demonstrated documentally.

B. OF LAW

PRELIMINARY NOTE

The Applicant in a date contemporary to that of the present case records, invoking essentially, the same arguments and reasoning, submitted to CAAD a request for arbitral pronouncement, which had underlying the same service orders, and the same tax inspection report from which resulted assessments in the seat of VAT, with reference to the year 2013.

To such process came to fall the no. 71/2017-T, whose decision was already published in accordance with the provision of subparagraph g) of article 16 of the RJAT.

It is, therefore, a process in all similar to the present, with the only relevant difference in the fact that in the indicated there are in question the VAT assessments and associated interest, referring to the year 2013, and in the present case records the request for arbitral pronouncement bearing on the VAT assessments and compensatory interest reported to the year 2012, with values of contested assessment obviously different.

Identifying this Court both as to the reasoning, and as to the sense of the arbitral decision pronounced there, to which it adheres entirely, the same shall be followed closely in the present case records, with very slight alterations of detail contributing thus also, (to what modestly judges itself) to a uniform interpretation and application of law (article 8, no. 3 of the Civil Code).

The Applicant, invokes in its request for arbitral pronouncement various defects to wit: lack, incongruity or insufficiency of reasoning of the conclusions report of the inspection action, error about the factual and legal assumptions, violation of the principle of adversarial procedure and pursuit of material truth, incompetence of the author of the act, violation of the provision in article 95 of the VAT Code, illegality of the assessment of compensatory interest, and illegality of the decision of the gracious complaint.

It will be necessary thus, taking into account the issues that were raised by the Applicant throughout its pleaded arguments, that knowledge thereof be had from now on as a result of the provision in articles 124 of the Code of Tax Procedure and Process and article 608 of the Code of Civil Procedure and determine the order of their examination.

Article 124

Order of examination of defects in the judgment

"1. In the judgment, the court shall assess prioritarily the defects that lead to the declaration of non-existence or nullity of the impugned act and, then, the defects argued that lead to its annulment.

  1. In the said groups the assessment of defects is made in the following order:

a) In the first group, that of defects whose procedence determine, according to the prudent discretion of the judge, more stable or effective protection of the offended interests;

b) In the second group, that indicated by the challenging party, always when it establishes between them a relationship of subsidiarity and not other defects are argued by the Public Ministry or, in other cases, that fixed in the preceding subparagraph".

In view of what precedes, the Court shall assess prioritarily the defect of violation of law, specifically by error about the legal assumptions.

In accordance with the formulation of no. 3 of article 18 of the LGT, the taxable person is "natural or legal person, patrimony or organization of fact or of law that, in accordance with the law, is bound to the compliance of the tax obligation, whether as direct contributor, substitute or responsible.

Specifying, for what matters here, the Value Added Tax Code, in its article 2 who are the taxable persons of the tax.

Well;

From the pointed out points that were extracted from the Tax Inspection Report, which are rewritten here, and in large part replicated in the reply from the AT, it results that:

  • "(…) it was assumed by the managing partner B… that the bank account held in the name of his son C… was moved in the years 2011, 2012 and 2013, by the category B income earned by him and subject to assessment in IRS, as well as by the receipt of invoicing issued by the company A… .

  • In accordance with no. 12 of article 9 of the CIVA are exempt from the tax" the provision of services that consist of lessons taught in a personal capacity on matters of school or higher education"

  • Taking into account that the activity developed by "A…", consists in accompanying and school guidance, but without recognition by the competent ministry, the lessons taught either individually or in groups, do not benefit from VAT exemption, because they do not have framing in no. 10 nor in no. 12, both of article 9 of the CIVA

  • With regard to lessons taught by the managing partner in a personal capacity, according to the understanding of the Tax Administration benefit from exemption provided that there is no intervention of any third party.

  • Now, the managing partner provides services in the facilities belonging to A…, benefiting from all the logistical support of the company, whereby there is effectively the intervention of a third party, and therefore cannot benefit from the exemption

  • Furthermore, the company and the managing partner did not maintain patrimonial separation, as bank accounts of private parties were used for the realization of payments and receipts relating to the business activity developed, thus not having complied with the provision in article 63-C of the LGT".

We can only subscribe, with due respect, and as previously referred, to what is said in the decision-making segment of process no. 235/2017-T, to which, without any reservations, we adhere:

"These assertions by the AT (maintained in the Reply), contain, in a clear manner, the assertion that the services in question were provided by the managing partner of the Applicant in an individual capacity, although the AT considers that such services are not exempt from VAT, because there has been the intervention of a third party, in this case the Applicant and further by the fact that the company and the partner do not maintain patrimonial separation.

In the face of the Value Added Tax Code, the taxable person of a concrete legal-tax relationship, emerging from the provision of services subject to the tax, in accordance with articles 1 and 4 of the Code is, except for exceptional situations that in the case do not occur, as it is apodictic, the provider of the said services, with no norm binding to the payment of the tax for such services a legal person by the fact that such services were provided, totally or partially, in its facilities or with use of its equipment [2]

Thus, as is easily seen, cannot the Respondent claim that the services provided by its partner B… should be taxed in the legal sphere of the Applicant, for considering that the services provided by the latter are not exempt from tax. If that is so, should the Respondent promote the taxation in the legal sphere of the latter since, in such a case, it will be he the taxable person of the legal-tax relationship in question. In the case that concerns us, in accordance with the version of the Respondent, the alleged tax fact in question did not occur with the Applicant as taxable person, but rather its partner B…, thus lacking legal basis the assessment of the tax in question, as well as the respective compensatory interest.

We are faced with a defect violating the law, by error in the legal assumptions, understood as verified "whenever in the practice of the act there has been wrong interpretation or application of the legal norms, such as the norms of objective or subjective incidence, those that fix rates or those that confer exemptions or other tax benefits or those that determine the taxable matter" [3], determining the annulment of the assessment acts here in dispute, thus being prejudicial the examination of the other defects invoked by the Applicant.

III - DECISION

In harmony with the foregoing decides this Single Arbitral Tribunal in:

  • To judge as well-founded the requests formulated by the Applicant, annulling, in consequence the VAT assessments and compensatory interest, as well as the decision that bore on the gracious complaint;

  • To condemn the Respondent to the payment of the costs of the proceedings.

IV - VALUE OF THE PROCEEDINGS

In conformity with what is provided for in articles 296, nos. 1 and 2 of the Code of Civil Procedure, approved by Law no. 41/2013, of 26 June, 97-A, no. 1, subparagraph a) of the Code of Tax Procedure and Process, and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at 45,135.45 €.

V - COSTS

In accordance with the provision in articles 12, no. 2, 22, no. 4 of the RJAT, and articles 2 and 4 of the Regulation of Costs in Tax Arbitration Proceedings, and Table I attached thereto, the amount of costs is fixed at 2,142.00 €.

NOTIFY THEREOF

Text elaborated by computer, in accordance with the provision in article 131 of the Code of Civil Procedure, applicable by reference of article 29, no. 1, subparagraph e) of the Legal Regime of Tax Arbitration, with blank verses and revised by the arbitrator.

The writing of this decision, is governed by the previous orthography of the 1990 Orthographic Agreement, except with respect to the transcriptions made.

Thirtieth of November of two thousand and seventeen

The Arbitrator

(José Coutinho Pires)

[1] Certainly by lapsus, the Applicant in the heading of its request for arbitral pronouncement, identifies the assessments here in question as coming from Corporate Income Tax when, in fact, and as results from the pleaded arguments and documentary evidence, one will be faced with assessments in the seat of VAT.

[2] Without prejudice to, if the version of the Respondent is exact, could have occurred the tax fact provided for in article 4, no. 2, al, a) of the CIVA, which establishes as considered provision of services the use of company assets for own use of its holder, of the staff, or in general for purposes alien to the same (with the taxable value provided for in article 16, no. 2, al c) of the code)). However, that was not the tax fact invoked by the Respondent for the practice of the tax act sub judice.

[3] Jorge Lopes de Sousa, in Value Added Tax Code, Annotated and Commented, 6th Edition, Áreas Publisher, 2011, page 114.

Frequently Asked Questions

Automatically Created

Can a managing partner's use of company equipment for personal services trigger additional VAT assessments in Portugal?
Under Portuguese VAT law, a managing partner's use of company equipment for providing personal services can potentially trigger VAT liability under Article 6 CIVA as a deemed supply of services. However, the Tax Authority must substantiate with adequate factual evidence that: (1) company equipment was actually used for the partner's personal professional activities, (2) the services were rendered independently and not as part of management duties, and (3) proper consideration was received. The mere existence of parallel professional activities by the partner does not automatically establish equipment use or VAT liability without documented proof.
What are the grounds for challenging a VAT additional assessment for lack of legal reasoning under Portuguese tax law?
A VAT additional assessment can be challenged for insufficient legal reasoning under Article 77 LGT and Article 268(3) CRP when it fails to: (1) explicitly identify the factual grounds and legal provisions supporting the assessment, (2) provide congruent and clear reasoning beyond conclusory statements, (3) demonstrate the connection between verified facts and the legal classification applied, or (4) specify the tax periods and calculation methodology. The assessment must enable the taxpayer to understand the Tax Authority's reasoning and effectively exercise defense rights. Mere reference to inspection reports without autonomous reasoning constitutes insufficient grounds.
How does the CAAD arbitral tribunal review the legality of additional VAT assessments and compensatory interest?
CAAD arbitral tribunals review VAT assessment legality by examining: (1) formal compliance with reasoning requirements under Articles 77 LGT and 268 CRP, (2) substantive accuracy of factual determinations and legal classifications, (3) competence of the assessing authority under Article 87 CIVA, (4) observance of procedural requirements including investigation duties and the inquisitorial principle, (5) proper temporal allocation of taxable events across relevant tax periods, and (6) legality of compensatory interest assessments. The tribunal exercises full jurisdiction over factual and legal matters, not limited to review of the gracious decision, and may annul assessments for substantive or formal illegalities.
What obligations does the Portuguese Tax Authority have to provide factual and legal grounds in VAT assessments?
The Portuguese Tax Authority must provide in VAT assessments: (1) explicit identification of the legal provisions grounding the tax obligation (Article 77(2) LGT), (2) clear statement of relevant facts with evidentiary support, (3) explanation of the logical connection between facts and legal conclusions, (4) specification of the tax periods covered and amounts per period, (5) identification of the competent authority issuing the assessment, and (6) separate reasoning for compensatory interest under Article 35 LGT. The reasoning must be autonomous and substantive, not merely conclusory or referential to inspection reports. Failure to meet these requirements constitutes grounds for annulment under Article 77(7) LGT.
How can a taxpayer file a gracious complaint and subsequent arbitral claim against a VAT assessment in Portugal?
To challenge a VAT assessment in Portugal, the taxpayer must: (1) file a gracious complaint (reclamação graciosa) within 120 days of notification under Article 70 LGT, directed to the authority that issued the assessment, (2) await the decision or expiry of the statutory decision period (4 months per Article 57 LGT), (3) if denied or tacitly rejected, file an arbitral claim with CAAD within 90 days under Article 10 RJAT, (4) submit the request via CAAD's electronic platform with required documentation including the assessment, gracious decision, and supporting grounds, and (5) pay the arbitration fee. The gracious complaint is a mandatory prerequisite unless waived by request for urgent decision under Article 102(3) CPPT.