Process: 728/2015-T

Date: June 20, 2016

Tax Type: IVA

Source: Original CAAD Decision

Summary

CAAD Process 728/2015-T addressed whether VAT applies to vocational training services subsidized by the European Social Fund under Portugal's Human Potential Operational Program (POPH). The applicant, A... SA, an accredited training provider, challenged VAT assessments totaling €65,922.31 plus €8,311.15 in compensatory interest for tax years 2011-2013. The company operated dual training activities: subsidized programs funded entirely by POPH and commercial training invoiced directly to companies. Although vocational training services qualified for VAT exemption under Article 9(10) of the Portuguese VAT Code (CIVA), the taxpayer had previously waived this exemption pursuant to Article 12(1)(a) CIVA. The company deducted input VAT on all expenses, including those allocated to subsidized training, but did not charge output VAT on POPH-funded services, arguing these subsidies did not constitute taxable consideration. The Tax Authority contended that POPH subsidies represented compensation for services rendered and therefore fell within the VAT scope. The central legal question concerned interpretation of Article 16(5)(c) CIVA, which addresses when subsidies directly linked to transaction prices constitute taxable consideration. POPH funding was determined based on approved training projects specifying trainee numbers, training hours, and itemized cost categories including trainee payments, trainer remuneration, support personnel costs, and equipment expenses. Recipients were obligated to fully execute approved projects and comply with accounting and technical-pedagogical controls. The arbitral tribunal, composed of three arbitrators appointed by CAAD's Deontological Council, had to determine whether these structured subsidies, linked to specific training deliverables, constituted consideration subject to VAT or represented non-taxable public funding outside the VAT system's territorial scope.

Full Decision

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Arbitrator President), Nuno Cunha Rodrigues and Filipa Barros, appointed by the Deontological Council of the Administrative Arbitration Center to form an Arbitral Tribunal, agree on the following

I – REPORT

  1. On December 3, 2015, A..., SA, NIF ..., with headquarters at Rua ..., No. ..., in ..., filed a request for constitution of an arbitral tribunal, under the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of January 20, which approved the Legal Framework for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of December 31 (hereinafter, abbreviated as RJAT), seeking the declaration of illegality of the following acts of assessment of value added tax, relating to the financial years 2011, 2012, and 2013, issued by the Tax Office of ... ..., in the total amount of €65,922.31 (sixty-five thousand, nine hundred and twenty-two euros and thirty-one cents, plus €8,311.15 (eight thousand, three hundred and eleven euros and fifteen cents) of compensatory interest, in the total of €74,233.46 (seventy-four thousand, two hundred and thirty-three euros and forty-six cents):

  2. To support its request, the Applicant alleges, in summary, that the Tax and Customs Authority (AT) by assuming that the training actions carried out by the Applicant, which are subsidized by the Human Potential Operational Program (POPH), are subject to VAT assessment, even though they do not constitute the existence of any consideration, commits a violation of law that makes the assessment that is the subject of this request illegal.

  3. On December 4, 2015, the request for constitution of the arbitral tribunal was accepted and automatically notified to the AT.

  4. The Applicant did not proceed to appoint an arbitrator, therefore, under the provisions of paragraph a) of Article 6(2) and paragraph a) of Article 11(1) of RJAT, the President of the Deontological Council of CAAD appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of the office within the applicable period.

  5. On January 27, 2016, the parties were notified of these appointments, and neither expressed any wish to refuse any of them.

  6. In accordance with the provision of paragraph c) of Article 11(1) of RJAT, the collective Arbitral Tribunal was constituted on February 15, 2016.

  7. On March 16, 2015, the Respondent, duly notified for this purpose, filed its reply defending itself solely by challenge.

  8. Given that there was no need for production of additional evidence, beyond the documentary evidence already incorporated into the record, nor matters of exception upon which the parties would need to pronounce themselves, and that in arbitral proceedings the general procedural principles of procedural economy and prohibition of useless acts apply under the provisions of paragraphs c) and e) of Article 16 of RJAT, the holding of the meeting referred to in Article 18 of RJAT was dispensed with.

  9. Having been granted a period for the submission of written arguments, the same were not submitted by the parties.

  10. A period of 30 days was set for the issuance of the final decision, after the expiration of the period set for the submission of arguments by the AT.

  11. The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with Articles 2(1)(a), 5, and 6(1) of RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with Articles 4 and 10 of RJAT and Article 1 of Ordinance No. 112-A/2011, of March 22.

The proceedings do not suffer from nullities.

Thus, there is no obstacle to the consideration of the merits of the case.

All things considered, it is necessary to rule

II. DECISION

A. MATTER OF FACT

A.1. Facts established as proven

  1. The Applicant, A..., S.A., commenced its activity on October 30, 2003, in the field of information technology and computer science – CAE 62090 – having as secondary activities vocational training - CAE 85891 - and computer consulting – CAE 62020.

  2. The effective activity of the Applicant, at the date of the tax facts, was reflected in the provision of services in the field of vocational training, being an entity accredited in the field of training, for what is relevant here, since June 6, 2004, by the Ministry of Labor and Social Security.

  3. Of the activity linked to the provision of vocational training services, part was subsidized by the European Union through applications submitted and managed by the Human Potential Operational Program (POPH) and the other part, which corresponds to the majority of services provided, was not financed, having been invoiced and supported mainly by companies.

  4. Although the services provided related to vocational training activity were exempt from VAT in accordance with Article 9(10) of the VAT Code, the Applicant opted, prior to the date of the first tax fact here in question, to waive the said exemption, in accordance with Article 12(1)(a) of the said Code.

  5. The Applicant fully deducted the tax it incurred in the exercise of its activity, including the tax incurred and allocated to the activity related to vocational training but did not charge VAT on active operations, namely on the provision of services related to training that were entirely subsidized.

  6. The Applicant, in the years 2011, 2012 and 2013 and within the scope of its training activity, received from the European Social Fund, within the scope of the Human Potential Operational Program (POPH), the subsidies itemized in the following table:

  7. The subsidies received represented approved financing, determined with reference to the training actions that the beneficiary entity conducted, taking into account the number of trainees and hours of training.

  8. Applications for European Social Fund financing - Human Potential Operational Program (POPH) are submitted through the presentation of a detailed project of the number of training actions and trainees involved, as well as the costs calculated and itemized by categories.

  9. The grant of financing implies full compliance with the approved project by the beneficiary entity, in addition to other accessory obligations intended, namely, for accounting and technical-pedagogical control of the execution of the subsidized training actions.

  10. From the approval of the project by POPH, all information relating to the cost structure of the training is available, equally itemized by categories, as well as the amount requested by the beneficiary entity and the respective amount approved.

  11. In the exercise of its training activity, the Applicant made the following payments in POPH projects:

a. R1 – payment to trainees – expenses with remuneration of active persons undergoing training, allowances, meals, transport and accommodation, as well as other expenses with trainees, namely insurance and expenses for the accommodation of dependents in their charge;

b. R2 – payment to trainers, expenses with remuneration of permanent or occasional internal trainers and external trainers, as well as charges of trainers debited by entities under a service provision contract with the beneficiary and also expenses with accommodation, meals and transport of trainers, when applicable;

c. R3 - payment of other personnel assigned to the project – expenses with remuneration of technicians, management personnel, administrative personnel, as well as consultants, socio-cultural mediators and other personnel bound or in a regime of service provision, involved in the phases of conception, preparation, development, management, monitoring and evaluation of the project, as well as expenses with accommodation, meals and transport with such personnel, when applicable;

d. R4 – rents, leases, and amortizations – expenses with the lease or amortization of equipment directly related to the project, and expenses with the rent or amortization of the facilities where the project takes place, as well as the leases or amortizations of vehicles for the transport of trainees and other project participants, in accordance with the applicable eligibility rules;

e. R5 – other charges – expenses with the preparation of needs assessments, dissemination of the project, selection of trainees and other participants, acquisition, preparation and reproduction of teaching resources, acquisition of books and documentation, expenses with teaching materials, with travel undertaken by the group within the scope of the respective project and also those resulting from the acquisition of specialized services related to the evaluation of the projects and their overall results;

f. R.6 – overhead and general expenses – other expenses necessary for the conception, development and management of projects, namely current expenses with energy, water, communications, consumable materials and non-durable goods, general expenses for maintenance of equipment and facilities, expenses with legal advice and notarial fees and with technical and financial appraisals.

  1. With regard to the expenses referred to in point 2.a. above (R1 - payments to trainees), the POPH subsidy contemplates, among other things, exactly in the same amount, the expenses incurred with trainees.

  2. The said payments apply to the following types of training:

a. Adult education and training courses, (EFA courses);

b. Certified modular training (FMC).

  1. The said modalities of training are intended for persons aged eighteen or over at the date of commencement of training, without adequate qualification for the purposes of insertion or progression in the labor market and, as a priority, without completion of basic education or secondary education.

  2. The training is directed at a profile of persons at risk (unemployed, low technical training), for improvement of qualifications, social insertion, improvement of social conditions, social nature of the services.

  3. These services paid to trainees are indexed to the IAS (Social Support Index), with their nature and values defined in normative dispatch 4-A/2008, of January 24, and are not connected with any commercial product.

  4. Similarly, in EFA courses, and in accordance with a pre-defined contract, the following amounts are paid:

i. Training allowance – training allowances are granted to unemployed persons or to persons in a situation of risk of unemployment, aged twenty-three or over, and the maximum eligible monthly amount cannot exceed 50% of the IAS;

ii. Meal subsidy – the meal subsidy in an amount equal to that granted to civil servants and public administration officials, on days when the training period is equal to or greater than two hours and, in the case of active employed trainees, when such training period, of duration equal to or greater than two hours, takes place outside their normal working period;

iii. Reimbursement of expenses – accommodation, travel and lodging

  1. All expenses are paid to unemployed persons or to persons in a situation of risk of unemployment, aged twenty-three or over.

  2. With regard to Certified Modular Training (FMC), the participation in short-duration training units inserted in basic level pathways is intended, as a priority, for adults with levels of educational attainment below the 3rd cycle of basic education.

  3. Access to short-duration training units inserted in secondary level pathways requires educational attainment of at least the 3rd cycle of basic education.

  4. In these short-term trainings, the payments made by the Applicant are limited to meal subsidies, in an amount equal to that granted to civil servants and public administration officials, on days when the training period is equal to or greater than two hours and, in the case of active employed trainees, when such training period, of duration equal to or greater than two hours, takes place outside their normal working period.

  5. Under the contractual terms, minimum payments are made for 25 or 50 hours.

  6. With regard to the expenses referred to in point 2.b. above (R2, payment to trainers), trainers must have a concluded contract and be equipped with Certification for adequate teaching, and the promoting entity is perfectly covered by Article 3 of Ordinance 230/2008.

  7. The trainers receive from the Applicant, monthly, taking into account their respective tax classification according to the number of hours taught, and these taught hours are not connected with the number of students in the classroom.

  8. The amounts paid by the Applicant to the trainers are also part of the POPH subsidy.

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 established and not established matter of fact

With regard to the matter of fact, the Tribunal does not have to rule on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and to distinguish between established and not established matters (see Article 123(2) of CPPT and Article 607(3) of CPC, applicable by virtue of Article 29(1)(a) and (e) of RJAT).

Thus, the facts relevant to the judgment of the case are chosen and delimited according to their legal relevance, which is established in light of the various plausible solutions of the question(s) of Law (see previous Article 511(1) of CPC, corresponding to the current Article 596, applicable by virtue of Article 29(1)(e) of RJAT).

Thus, taking into account the positions assumed by the parties, in light of Article 110/7 of CPPT, the documentary evidence and the administrative act attached to the file, the facts listed above were considered as established, with relevance for the decision.

Allegations made by the parties, presented as facts consisting of strictly conclusive statements, incapable of proof and whose truthfulness must be assessed in relation to the concrete matter of fact consolidated above, were neither given as proven nor not proven.

B. ON THE LAW

The issue that arises in the present proceedings is whether the subsidies allocated by the Human Potential Operational Program to the Applicant, in the years 2011 to 2013, are, or are not, subject to VAT, by virtue of the provisions of Article 16(5)(c) of CIVA, in the applicable version.

As relevant factual data for the assessment of the issue in question, we have the following:

  • The Applicant, A..., S.A. operated in the field of information technology and computer science – CAE 62090 – having as secondary activities vocational training - CAE 85891 - and computer consulting – CAE 62020, and its effective activity was reflected in the provision of services in the field of vocational training, being an entity accredited in the field of training, for what is relevant here, since June 6, 2004, by the Ministry of Labor and Social Security.

  • The Applicant opted for waiver of the VAT exemption regime;

  • Between 2010 and 2013 the Applicant provided vocational training courses and obtained financing from POPH (Human Potential Operational Program);

  • Applications for POPH financing were submitted through the attachment of a detailed project of the number of training actions and trainees involved, as well as costs calculated and itemized by categories, including, among other things, charges with trainees and trainers;

  • From the approval of the project by POPH, all information relating to the cost structure of the training is available, equally itemized by categories, as well as the amount requested by the beneficiary entity and the respective amount approved;

  • The grant of financing implies full compliance with the approved project by the beneficiary entity, in addition to other accessory obligations intended for accounting and technical-pedagogical control of the execution of the subsidized training actions.

The following is the tenor of Article 16(5)(c) of CIVA, in the applicable version:

"The taxable amount of the supply of goods and the provision of services subject to tax includes: (...)

c) Subsidies directly connected with the price of each transaction, considering as such those that are established based on the number of units supplied or the volume of services provided and are fixed prior to the performance of the transactions."

Having reviewed the facts established as proven and the applicable rule, it is understood that one must conclude in favor of its applicability to the latter.

In fact, what is established is that the subsidies granted to the Applicant are directly connected with the price of each training action, since:

  • they were established based on the volume of services provided; and

  • they were fixed prior to the performance of the transactions.

With regard to this last circumstance, it is clear from the proceedings that the subsidies were fixed, in accordance with the POPH regime, prior to the performance of the transactions.

The subsidy granted is part of a downstream flow, in that its cause – that which justifies its allocation (as will be seen below) – is the production of the Applicant (the provision of training services). The subsidy in question will not be distinguished, therefore, from a price fixed, and even paid, prior to the production of the good or service it is intended to pay. It will not be, obviously, the chronology of the allocation and/or payment of the subsidy that will matter for its qualification as output, but rather its causal relationship with the product of the activity of the taxable person; if the subsidy is allocated with the aim of allowing the taxable person to produce, it will be an input; if the subsidy is allocated as consideration or condition of goods or services that the taxable person is obliged to produce or provide, it will, naturally, be an output.

Moving then to the first of the above-verified assumptions of the rule under analysis, that is, the circumstance that the subsidies in question were established based on the volume of services provided by the Applicant, corroborating that they were allocated as consideration for services that it was obliged to provide, it is verified that, effectively:

o Applications for the financing in question implied the attachment of a detailed project of the number of training actions and trainees involved;

o From the decision approving the subsidized project, there are the start and end dates of the training actions and the number of trainees;

o The grant of financing implies full compliance with the approved project by the beneficiary entity, including the complete execution of the subsidized training actions.

This factual framework leaves no doubt, it is judged, regarding the circumstance that the subsidies allocated to the Applicant, and at issue in the present proceedings, were allocated as specific consideration for the concrete training actions, detailed in the project presented and approved, which amounts to saying that such subsidies were established based on the volume of services provided.

Although it is alleged that, in the case, subsidies are allocated without the existence of any consideration, this cannot, it is judged and with all due respect, result in anything other than a confusion between profits and considerations. That is, and as has just been explained, from the factual framework it results, without doubt, that the subsidies have as consideration the carrying out, in accordance with the contracted terms, of the training actions, so there is effectively consideration. What the Applicant may argue – and fundamentally it is what, truly, it argues – is that it will not have any profit in the operations that it conducts and that places in the present arbitral proceedings in question, since, at least in the items it has identified, the amounts it delivers to third parties – trainees and trainers – do not exceed that which, for that purpose, are part of the subsidy obtained.

However, it does not in any way result from the applicable legal regime that for a subsidy to be allocated with reference to the volume of services provided, it must include profits, noting that, unlike income tax, VAT does not apply to those.

Rather, the object of VAT incidence, as is known, is constituted by the operations listed in Article 1(1) of CIVA, which include, for what is relevant here, "the provision of services carried out in national territory, for remuneration".

Now, and also contrary to what transpires from the Initial Request, there is no doubt that the provisions of training services of the Applicant, which are part of the training actions included in POPH projects, and subsidized by it, are:

§ provision of services;

§ occurred in national territory;

§ for remuneration.

As none of the first two points is, minimally, controversial in the present proceedings, it appears that the Applicant contests the remuneration of the provision of services in question, essentially based on the argument that the amounts granted as subsidy are limited to covering the expenses incurred from the said training actions.

Now, with all due respect, neither one nor the other of the arguments will be capable of removing the remuneration of the provision of services. In fact, as was written, for example, in the Judgment of the Court of Appeal of October 18, 2012, delivered in case 624/06.2TBPRG.P1.S1[1], "remuneration or gratuitousness results from the objective function of the act itself, according to whether or not it is a source of two reciprocal patrimonial attributions, that oppose each other like the pans of a balance.", and there is no doubt that the approval of the Applicant's POPH projects, now in question, is a source, among other things, of the obligation of the Applicant to provide the training actions, and the corresponding obligation of the subsidizing entity to pay it the guaranteed subsidy, thus evidencing, from the outset, the remuneration of the provision of training services in question.

In other words: the Applicant only provided the subsidized training services because the subsidies in question were allocated to it, functioning, thus, those as a consideration (price) for the training services provided by the Applicant.

This conclusion is not opposed by the circumstance that such price is not paid by the beneficiary(ies), but by a third party (the subsidizing entity), just as, for example, the coffee that a friend pays for another, does not cease to be remunerated, because it was not paid by the person who consumed it.

Nor does it, in the same way, oppose the conclusion drawn, the circumstance that the subsidies in question are intended exclusively for the coverage of expenses, with the possible implication that the provisions of training services in question will be characterized by the absence of added economic value, not aiming at the obtaining of any profit. In fact, and from the outset, as has already been mentioned, neither is the object of VAT incidence profit, nor does this (profit) identify with remuneration. Thus, and by another example, a sale (e.g. for the reason of a clearance or liquidation) at cost price or, indeed, at a loss does not cease to be an operation carried out for remuneration, and, as such, subject to VAT, and such subjection, manifestly, contains nothing with the nature of that as a Tax on Added Value, since such nature is ensured by the proper functioning mechanism of such tax, namely by the deduction mechanism, which ensures its neutrality.

Hence, the only way for the operations of provision of training services in question to be exempt is that which results from the exemption referred to in paragraph 10) of Article 9 of CIVA, to which, however, and as is proven, the Applicant waived, noting that currently (and being unaware of whether this occurred at the date of the projects in question in the present proceedings, which is, however, irrelevant), the POPH electronic page itself[2] warns that:

"The entities holding financing requests for the development of vocational training actions subsidized by the ESF are covered by the final part of Article 9(11) of CIVA. Thus, being the activity qualified as exempt, the subsidies associated with it are assimilated to consideration of exempt operation, therefore without right to deduction. This situation justifies the consideration of VAT incurred as an eligible expense for the ESF, in accordance with the Rectification of Regulation (EC) No. 1081/2006 of the Commission, published in OJ L 166, on June 28, 2007. Contrary interpretation should be made for the entities holding financing requests that have waived such exemption, in accordance with Article 12 of CIVA."[3].

In this way, and in the sequence, it will not be possible to conclude otherwise than by the subjection of the subsidized operations to VAT, in accordance with Article 16(5) of CIVA, and by the non-verification of any error in the material basis of the tax acts under challenge, with the consequent legality of the assessments that are the subject of the present proceedings.

The conclusion drawn is not opposed by the circumstance, alleged by the Applicant and established as proven, that the POPH subsidies include the amounts that are paid to trainees, for the attendance of the training actions, and to the trainers who provide them.

In fact, it is not demonstrated, nor is it even alleged, that such portions of the POPH subsidies have constituted autonomous services for that purpose. Rather, the facts established indicate, as has already been seen, that POPH subsidies are a global consideration of the provision of training services by the Applicant, in accordance with the contracted terms, including payment to trainees and trainers, inseparable from the entirety of such provision of services as a whole, including the other items covered by the training programs accepted, such as those contained in point 11 of the facts established as proven.

In this way, the global consideration of the training services provided by the Applicant, which are the POPH subsidies, in that the Applicant waived the VAT exemption it could enjoy, is subject to VAT, even if, in whole or in part, the cost of the services provided by the Applicant is not less than the subsidy in question, the same occurring even if such cost exceeded the subsidy and the Applicant acted at a loss. In fact, and as has been pointed out already, VAT taxation is not conditioned by the existence of profits or revenues, with the adequacy of such taxation to taxpaying capacity being ensured by the deduction mechanism of the tax.

Furthermore, in the present case, the Applicant having, as is natural that it would have done given that it waived the exemption it could enjoy, deducted the tax (VAT) incurred downstream with the costs of the services provided under contract within the scope of POPH (and if it did not, it can only complain of itself), the upstream taxation of the consideration of such services, constituted, in the terms exposed, by the subsidies of that program, will do nothing more than restore the balance inherent to the proper functioning mechanism of the tax in question, it being certain that, if the VAT due as a result of such consideration exceeds that charged (or chargeable) by the Applicant in its downstream costs, the deduction mechanism will ensure the absence of any burden for that.

Thus, and in the sequence of previous arbitral jurisprudence on the matter[4], it is judged that the Applicant's claim in the present arbitral tax proceedings should fail.

C. DECISION

In view of the foregoing, this Arbitral Tribunal decides to rule the arbitral request filed as entirely without merit and, consequently, to absolve the Respondent from the same.

D. Value of the proceedings

The value of the proceedings is fixed at €74,233.46, in accordance with Article 97-A(1)(a) of the Code of Tax Procedure and Process, applicable by virtue of paragraphs a) and b) of Article 29(1) of RJAT and Article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The value of the arbitration fee is fixed at €2,448.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Applicant, since the request was entirely without merit, in accordance with Articles 12(2) and 22(4), both of RJAT, and Article 4(4) of the cited Regulation.

Notify.

Lisbon

June 20, 2016

The Arbitrator President

(José Pedro Carvalho - Rapporteur)

The Arbitrator Member

(Nuno Cunha Rodrigues)

The Arbitrator Member

(Filipa Barros)

(Filipa Barros)

[1] Available for consultation at www.dgsi.pt.

[2] http://www.poph.qren.pt/content.asp?startAt=2&categoryID=393&newsID=1152.

[3] Emphasis ours.

[4] See, e.g., Judgments delivered in arbitral cases 171/2015T, 338/2015T, available at www.caad.org.

Frequently Asked Questions

Automatically Created

Are subsidies received under the POPH program subject to VAT in Portugal?
Subsidies received under the POPH (Human Potential Operational Program) in Portugal are generally not subject to VAT when they constitute public funding for training activities without direct linkage to the price of specific taxable transactions. However, the Tax Authority may argue that subsidies calculated based on training hours, trainee numbers, and specific deliverables constitute consideration under Article 16(5)(c) of the Portuguese VAT Code. The key distinction depends on whether the subsidy is directly linked to the price and constitutes payment for services rendered, or represents general support funding. In Process 728/2015-T, the taxpayer argued that POPH subsidies did not constitute taxable consideration despite being calculated with reference to specific training actions.
How does Article 16(5)(c) of the Portuguese VAT Code apply to subsidized training services?
Article 16(5)(c) of the Portuguese VAT Code (CIVA) establishes that subsidies directly linked to the price of transactions are included in the taxable base for VAT purposes. Application to subsidized training services depends on whether the subsidy functions as compensation for services or as general public support. When POPH subsidies are calculated based on specific training deliverables (trainee numbers, training hours, itemized costs), the Tax Authority may argue these constitute consideration under Article 16(5)(c). However, taxpayers can contend that structured public funding for educational programs, even when performance-based, does not transform into commercial consideration simply because it references project parameters. The critical analysis involves determining whether a direct and inseparable link exists between the subsidy payment and the supply of training services to identifiable recipients.
Can the Portuguese Tax Authority levy VAT on training services that have no direct consideration or payment?
The Portuguese Tax Authority cannot levy VAT on training services that lack consideration or payment unless subsidies or other third-party payments constitute taxable consideration under Article 16(5)(c) CIVA. VAT is a tax on consumption that requires a direct link between payment and supply of goods or services. However, the Tax Authority argued in Process 728/2015-T that POPH subsidies represented such consideration because they were calculated based on training delivered, creating an economic link between funding and services provided. The taxpayer's position was that subsidies for publicly-funded educational programs do not constitute commercial transactions subject to VAT, as there is no direct payment from service recipients and the funding serves public policy objectives rather than representing commercial compensation.
What was the outcome of CAAD arbitration process 728/2015-T regarding VAT on publicly funded training?
Process 728/2015-T challenged VAT assessments totaling €65,922.31 plus compensatory interest on subsidized training services for tax years 2011-2013. The applicant, an accredited vocational training provider, argued that POPH subsidies did not constitute taxable consideration warranting VAT assessment. The case was heard by a three-arbitrator panel at CAAD (Administrative Arbitration Center). While the complete decision text is not fully presented in the excerpt provided, the proceedings established that the taxpayer had waived VAT exemption under Article 12(1)(a) CIVA, deducted input VAT on all expenses, but did not charge VAT on POPH-subsidized training. The arbitral tribunal was tasked with determining whether the Tax Authority's position that subsidies represented taxable consideration under Article 16(5)(c) CIVA was legally sustainable.
What legal grounds can be used to challenge VAT assessments on subsidized vocational training in Portugal?
Legal grounds to challenge VAT assessments on subsidized vocational training in Portugal include: (1) arguing that public subsidies do not constitute consideration under Article 16(5)(c) CIVA because they lack direct linkage to transaction prices and serve public policy rather than commercial purposes; (2) demonstrating that no taxable transaction exists where training recipients make no payment and subsidies flow from government programs rather than service consumers; (3) citing EU VAT Directive principles that distinguish general public funding from subsidies directly linked to supply prices; (4) establishing that educational subsidies for social objectives fall outside VAT scope; and (5) proving that the economic reality shows grants for public training programs rather than commercial compensation. Taxpayers should document that subsidies support general training missions rather than constituting payment for services to specific identified recipients in commercial relationships.