Process: 730/2016-T

Date: July 13, 2017

Tax Type: IVA

Source: Original CAAD Decision

Summary

In this CAAD arbitral decision (Process 730/2016-T), a Portuguese company challenged VAT additional assessments totaling €63,902.67 for the periods of June and August 2015, along with associated late-payment interest. The case arose from discrepancies identified by the Tax Authority through automated cross-checking between VAT amounts declared in periodic returns and those reported in invoices via SAF-T files. The Tax Authority found that for January 2015, the company declared VAT of €48,829.53, while invoices communicated showed €112,619.60, resulting in an assessed difference of €63,790.07. The taxpayer argued three main grounds for illegality: (1) the administrative claims decisions suffered from insufficient investigation, violating constitutional principles of good administration and proper instruction of procedures; (2) the VAT assessments constituted erroneous quantification, as the difference allegedly referred to VAT already assessed and paid in prior periods (October-December 2014), not new tax obligations; and (3) compensatory interest should be annulled since the underlying tax was not legitimately due. The Tax Authority rejected the administrative claims, stating the taxpayer failed to provide adequate documentary evidence to substantiate that the reported amounts for October 2014 through June 2015 matched the accounting records. This case illustrates critical issues in Portuguese VAT compliance, particularly regarding electronic invoice reporting obligations, the burden of proof in challenging automated assessments, and procedural rights in administrative claims proceedings.

Full Decision

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Nina Aguiar and Cláudia Rodrigues, appointed by the Ethics Council of the Centre for Administrative Arbitration to form an Arbitral Tribunal, hereby decide:

I – REPORT

On 9 November 2016, A… UNIPESSOAL, LDA., legal person no. …, with registered office at…, Front of the Commercial Area of …, …-… …, filed a petition for the establishment of an arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, with the wording introduced by Article 228 of Law no. 66-B/2012, of 31 December (hereinafter, abbreviated as LRAT), seeking a declaration of illegality of the acts of additional VAT assessment no. 2015…, referring to June 2015, and no. 2015…, referring to August 2015, and against the act assessing late-payment interest no. 2015…, also referring to August 2015, in the total amount of € 63,902.67, and against the acts of administrative claims no. …2015… and …2016…, which had those as their object.

To substantiate its petition, the Claimant alleges, in summary, that:

the decisions rendered in the administrative claims procedure are illegal due to insufficient instruction, having violated the provisions of Articles 266, no. 1, of the Constitution of the Portuguese Republic, 58 and 72 of the General Tax Law, as well as the provisions of Articles 268, no. 3, of the Constitution of the Portuguese Republic and 77 of the General Tax Law, by failing to indicate the reasons that led to the decision not to examine the witnesses cited;

the VAT assessments and compensatory interest are illegal, due to incorrect calculation, since the difference between the amount of VAT assessed in the periodic declaration for the period of January 2015 and the amount of VAT assessed resulting from the invoice report made for the same tax period refers to tax already assessed and paid to the State in previous periods, namely in October, November and December 2014;

the assessment of late-payment interest should be annulled because the tax now contested is not due and because the situation in question does not meet the conditions upon which its assessment depends.

On 12 December 2016, the petition for the establishment of the arbitral tribunal was accepted and automatically notified to the AT [Tax Authority].

The Claimant did not appoint an arbitrator, whereby, pursuant to the provisions of subparagraph a) of no. 2 of Article 6 and subparagraph a) of no. 1 of Article 11 of the LRAT, the President of the Ethics Council of CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable period.

On 03 February 2017, the parties were notified of these appointments, and neither manifested any intention to challenge any of them.

In accordance with the provisions of subparagraph c) of no. 1 of Article 11 of the LRAT, the collective Arbitral Tribunal was constituted on 20 February 2017.

On 24 March 2017, the Respondent, duly notified for this purpose, filed its reply defending itself solely through objection.

Pursuant to the provisions of subparagraphs c) and e) of Article 16, and no. 2 of Article 29, both of the LRAT, the holding of the meeting referred to in Article 18 of the LRAT was dispensed with.

At the same time, the Claimant was notified to, if willing, submit to the file the analytical trial balances, as well as other accounting documentation that it considered relevant, in light of what was alleged in points 60 to 63 of the Respondent's reply.

In light of the documentation submitted, the Respondent was afforded the opportunity to exercise the right to respond, which it did.

Having been granted a period for the presentation of written submissions, these were presented by the parties, commenting on the evidence produced and reiterating and developing their respective legal positions.

A period of 45 days was set for the rendering of a final decision, following the submission of submissions by the AT.

The Arbitral Tribunal is materially competent and is regularly constituted, pursuant to Articles 2, no. 1, subparagraph a), 5 and 6, no. 1, of the LRAT.

The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to Articles 4 and 10 of the LRAT and Article 1 of Ordinance no. 112-A/2011, of 22 March.

The case does not suffer from nullities.

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

All matters having been duly considered, it is incumbent to render

II. DECISION

A. MATTERS OF FACT

A.1. Facts Established as Proven

1. The CLAIMANT is, and was at the date of the tax facts, a company whose activity consists of the purchase, sale and operation of real property.

2. In the context of cross-checking information at the level of the value of VAT assessed declared in the Periodic Declarations and in invoices communicated by the Claimant, via the standardized SAF-T file, the AT found discrepancies for the periods of October 2014 to August 2015, whereby the Claimant was subject to a discrepancy analysis originating from E-Invoice Anomalies – Issuer – VAT assessed in invoices higher than VAT assessed in the periodic declaration (reason F 02).

3. The Claimant was notified, via CTT mail, to exercise the right to be heard on the draft additional VAT assessment, referring to the period of January 2015.

4. From the grounds stated in said notification, it resulted that the additional assessment to be issued, with reference to such period of January 2015, was based on a discrepancy between the value of tax reported in the periodic declaration referring to January 2015, where an amount of tax of € 48,829.53 was assessed, and the value of € 112,619.60 contained in the invoices communicated, with reference to the same period, resulting in a value of tax owed, in the amount of € 63,790.07 (€ 112,619.60 - € 48,829.53).

5. The Claimant did not exercise the right to be heard nor carried out any correction and did not request in the E-Counter system the acceptance and replacement of the SAF-T files for the periods in question.

6. Following the submission of the Claimant's periodic declaration relating to June 2015, it was notified of the act of VAT assessment no. 2015…, in the amount of € 10,187.15, relating to the period of June of the year 2015, with a deadline for voluntary payment on 12 October 2015.

7. Following the submission of the Claimant's periodic declaration relating to August 2015, a new tax assessment was issued, with the no. 2015…, in the amount of € 53,602.93 and the assessment of late-payment interest no. 2015…, in the amount of € 112.59, both relating to the period of August of the year 2015, with a deadline for voluntary payment on 23 December 2015.

8. The Claimant filed administrative claims regarding those referred to assessments, which were the subject of rejection orders, notified by letters dated 25 August 2016, sent via CTT mail.

9. In said rejection orders, it is stated, among other things:

i. "upon analysis of the petition and the attached elements, it is found that the request is not adequately supported by the documentary evidence presented (...) since there are no documents in the file that allow us to ascertain whether the values referred to by the Claimant for the periods of October 2014 to June 2015 are in accordance with its accounts";

ii. "from the analysis of the same, we find that it reiterates the initial request, and attaches the documents – copies of invoices nos. 18, 19, 20, 21, 22, 23, 2014…/…, credit note no. …, all from 2014, invoice 1 and 3 from 2015, as well as documents identified as the AT notification A… – extract of assessed VAT account.

However, it appears to us that the documents now presented are incapable of demonstrating conclusively the request, because, as far as the alleged extracts are concerned, they do not reflect the global/annual situation, only individually report the monthly movements of the corresponding periods, appearing only to be a list made in Excel, with the history of movements not being extracted therefrom, whereby, by itself, they are insufficient for the verification of what is sought, since the values recorded in the periodic declarations must reflect the values of the accounts, which remains unknown.

Pursuant to the provisions of Article 29, no. 1, subparagraph g), combined with Article 44, both of the VAT Code, taxpayers, in addition to the obligation of payment of tax, must have accounting suited to the calculation and inspection of tax, which must be organized in such a way as to enable clear and unequivocal knowledge of the elements necessary to the calculation of tax, as well as to permit its control, comprising all data necessary for the completion of the periodic declaration.";

iii. "there is no indication of the reason for the alleged early payment of tax to the State in the periods from October to December 2014, nor what caused such fact, and the claimant clarifies nothing about this";

iv. "the Claimant should have presented the monthly analytical trial balances, as well as the account extracts and supporting documents for the facts it seeks to regularize for the periods under analysis and failed to do so"

v. "not having done so, it is considered that sufficient proof was not made for the analysis of the matter in question, which is deemed essential, and whose presentation is the responsibility of the Claimant, pursuant to the provisions of no. 1 and 2 of Article 74 of the General Tax Law".

10. The assessment acts that constitute the object of the present arbitral action were not paid.

11. Fiscal enforcement proceedings no. …2015… and …2015… were instituted against the present Claimant, for the coercive collection of the debt assessed by those.

12. To suspend the above-referred fiscal enforcement proceedings, the Claimant provided bank guarantee no. …, issued by B…, in the amount of € 68,196.34, pursuant to and for the purposes of the provisions of Articles 169, 183 and 199 of the Code of Tax Procedure and Process and Article 52 of the General Tax Law.

13. In the period of October 2014, the amount of VAT assessed by the Claimant, in the corresponding periodic declaration, was € 50,354.88.

14. The value of invoices issued and communicated to the AT by the Claimant, with reference to the same period, amounted to € 46,034.16.

15. In the period of November 2014, the amount of VAT assessed by the Claimant, in the corresponding periodic declaration, arising from the active operations carried out by it, was € 54,516.91.

16. The value of invoices issued and communicated to the AT by the Claimant, with reference to the same period, amounted to € 48,935.90.

17. With regard to the period of December 2014, the amount of VAT assessed by the Claimant, in the corresponding periodic declaration, net of the amount of VAT regularized in its favour resulting from the issuance of a credit note, was € 56,514.45.

18. The value of invoices issued and communicated to the AT by the Claimant, with reference to the same period, amounted to € 2,626.11.

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. Grounds for the Matters of Fact Proven and Not Proven

Regarding the matters of fact, the Tribunal does not need to pronounce itself on everything that was alleged by the parties; rather, it has the duty to select the facts that matter for the decision and to distinguish the proven from the unproven matters (see Article 123, no. 2, of the Code of Tax Procedure and Process and Article 607, no. 3 of the Code of Civil Procedure, applicable ex vi Article 29, no. 1, subparagraphs a) and e), of the LRAT).

Thus, the facts relevant for the judgment of the case are chosen and delimited according to their legal relevance, which is established in view of the various plausible solutions of the question(s) of Law (see former Article 511, no. 1, of the Code of Civil Procedure, corresponding to current Article 596, applicable ex vi Article 29, no. 1, subparagraph e), of the LRAT).

Thus, taking into account the positions assumed by the parties, in light of Article 110/7 of the Code of Tax Procedure and Process, the documentary evidence and the procedural file attached to the case, the facts listed above were considered proven, with relevance to the decision.

In particular, as regards the facts established as proven in points 13 to 18, the following documents were considered:

- Copies of periodic VAT declarations submitted;
- Copies of invoices issued;
- Extract of assessed VAT account;
- Extract of the Invoice Consultation from e-invoicing;
- Monthly analytical trial balances before VAT calculation;
- Summary table of the detail of assessed VAT values;
- Monthly analytical trial balances after VAT calculation.

B. ON THE LAW

As stated in the Decision of the Supreme Administrative Court of 18 May 2016, rendered in case 0100/16[1], "Pursuant to the provisions of no. 2 of Article 124 of the Code of Tax Procedure and Process, one must first address the vices of violation of law stricto sensu (except in cases where the content of the act cannot be grasped), thereby ensuring more effective protection of the taxpayer's rights."

Accordingly, we will begin by examining the alleged illegality of the VAT assessments and late-payment interest, due to incorrect calculation.

From the analysis of the documentation available in the file, it is possible to ascertain that:

a) With regard to October 2014:

i. The amount of VAT assessed reported in the periodic declaration (€ 50,354.88) corresponds to the value contained in the extract of assessed VAT account, as well as in the monthly analytical trial balance;

ii. The amount of VAT assessed resulting from the invoice report in e-invoicing amounts to € 46,034.16 and corresponds to the sum of the copies of invoices attached to the file;

iii. The difference between the two amounts – which amounts to € 4,320.72 of VAT assessed that was paid to the State but was not reported in e-invoicing – represents what the Claimant called "Rent Provision … (Shop…)" – value that was paid to the State but does not have documentary support (invoice);

iv. In this tax period, the Claimant paid to the State an amount of VAT higher by € 4,320.72 in relation to the amount that would have been due with reference to the invoices that it reported in the e-invoicing system;

b. With regard to November 2014:

i. The amount of VAT assessed reported in the periodic declaration (€ 107,645.06) corresponds to the value contained in the extract of assessed VAT account, as well as in the monthly analytical trial balance;

ii. The amount of VAT assessed resulting from the invoice report in e-invoicing amounts to € 48,935.90 and corresponds to the sum of the copies of invoices attached to the file;

iii. Of the amount of VAT assessed in the periodic declaration, € 53,128.15 will relate to self-assessed VAT (copies of the invoices supporting this self-assessment were not presented, but appear in the extract of assessed VAT);

iv. The difference between the two amounts of VAT (excluding self-assessed VAT, which is not subject to reporting in e-invoicing) – which amounts to € 5,581.01 of VAT assessed that was paid to the State but was not reported in e-invoicing – represents what the Claimant called "Rent Provision …" – value that was paid to the State but does not have documentary support (invoice);

v. In this tax period, the Claimant paid to the State an amount of VAT higher by € 5,581.01 in relation to the amount that would have been due with reference to the invoices that it reported in the e-invoicing system;

c. With regard to December 2014:

i. The amount of VAT assessed reported in the periodic declaration (€ 56,515.40) is higher by € 884.19 than the value contained in the extract of assessed VAT account, as well as the value in the monthly analytical trial balance;

ii. The difference identified above corresponds to the amount of VAT assessed in invoice no. 2014…/…, of 31 December 2014, which was not accounted for in the period in question (which is why it does not appear in either the extract of assessed VAT or the monthly analytical trial balance);

iii. The amount of VAT assessed resulting from the invoice report in e-invoicing amounts to € 2,626.11 and corresponds to the sum of the copies of the three invoices attached to the file.

iv. The difference between the two amounts of VAT – which amounts to € 53,888.34 of VAT assessed that was paid to the State but was not reported in e-invoicing – represents what the Claimant called "Rent Provision" – values that were paid to the State but do not have documentary support (invoice);

v. In this tax period, the Claimant paid to the State an amount of VAT higher by € 53,888.34 in relation to the amount that would have been due with reference to the invoices that it reported in the e-invoicing system.

From the accounting records of the Claimant, which are presumed to be true, pursuant to Article 75/1 of the General Tax Law, and from the documentation attached to the case, it is therefore concluded that in the periods of October to December 2014 the Claimant assessed and paid to the State an amount of VAT higher than that resulting from the analysis of the invoices reported in e-invoicing, with this difference amounting to € 63,790.07.

The amount mentioned above corresponds to the difference identified by the AT between the amount of VAT assessed in the periodic declaration of January 2015 (€ 48,829.53) and the value reported in the e-invoicing of the same tax period (€ 112,619.60), and which constituted, as results from the proven facts, the grounds for the assessment acts in issue in the present arbitral process.

Thus, with the grounds on which the aforementioned assessment acts rest being undermined, it must be concluded that the alleged illegality due to incorrect calculation of the tax obligation has occurred, and therefore the arbitral petition formulated must be entirely granted.

*

The Claimant also petitions for the recognition of the right to indemnification for costs incurred with the guarantee provided.

The arbitral decision on the merits of the claim, which shall not be subject to appeal or objection, binds the tax administration from the expiration of the period provided for appeal or objection, and this must, in the exact terms of the granting of the arbitral decision in favour of the taxpayer, and until the expiration of the period provided for the voluntary execution of the sentences of tax courts, restore the situation that would exist if the tax act subject to the arbitral decision had not been carried out, adopting the necessary acts and operations for this purpose, as expressly results from subparagraph b) of Article 24 of the LRAT.

In the same provision, "the legislator made clear that the effects provided therein are 'without prejudice to the other effects provided for in the Code of Tax Procedure and Process'. It is considered in this regard that the legislator is here referring to all effects that result from the Code of Tax Procedure and Process for the taxpayer, and which are applicable after the consolidation in the legal order of a certain tax legal situation, resulting from a final decision, whether administrative or judicial."[2]

Notwithstanding the judicial review process being essentially a process of mere annulment, condemnation of the Tax Administration to the payment of indemnification for unjustified guarantee may be rendered therein, as results from Article 171 of the Code of Tax Procedure and Process.

As stated in the decision rendered in Arbitral Case no. 28/2013-T[3]:

"it is unequivocal that the judicial review process covers the possibility of condemnation to the payment of unjustified guarantee and is indeed, in principle, the appropriate procedural means to formulate such claim, which is justified by obvious reasons of procedural economy, since the right to indemnification for unjustified guarantee depends on what is decided about the legality or illegality of the assessment act. The petition for the establishment of the arbitral tribunal has as a corollary that it is in the arbitral process that the 'legality of the enforceable debt' will be discussed, whereby, as results from the express wording of that no. 1 of the referred Article 171 of the Code of Tax Procedure and Process, the arbitral process is also the appropriate means to examine the claim for indemnification for unjustified guarantee."

It is therefore concluded that this tribunal is competent to examine the claim for indemnification for an unjustifiably provided guarantee.

The regime for the right to indemnification for unjustified guarantee is set out in Article 53 of the General Tax Law, which provides as follows:

"1. The debtor who, to suspend execution, offers a bank guarantee or equivalent shall be indemnified fully or partially for the prejudices resulting from its provision, if it has maintained it for a period exceeding three years, in proportion to the outcome in administrative appeal, judicial review or opposition to execution that have as their object the debt guaranteed.

2. The period referred to in the preceding number does not apply when it is verified, in administrative claim or judicial review, that there was error attributable to the services in the assessment of the tax.

3. The indemnification referred to in number 1 has as its maximum limit the amount resulting from the application to the value guaranteed of the rate of indemnificatory interest provided for in this law and may be requested in the very process of administrative claim or judicial review, or autonomously.

4. Indemnification for the provision of unjustified guarantee shall be paid by reduction to the revenue of the tax of the year in which payment was made."

In the case at hand, it is manifest that the error from which the assessment acts suffer is attributable to the respondent entity, since the assessments were made at its initiative and the Claimant contributed in no way to that error being committed.

Thus, the Claimant is entitled to indemnification for the guarantee provided.

Since the costs incurred by the Claimant with the provision of the guarantee intended to suspend the fiscal enforcement proceedings have not been proven, the corresponding value, if necessary, should be determined in execution of the judgment.

*

C. DECISION

Wherefore, this Arbitral Tribunal decides to render the arbitral petition formulated wholly granted and, consequently,

a) Annul the acts of additional VAT assessment no. 2015…, referring to June 2015, and no. 2015…, referring to August 2015, and the act assessing late-payment interest no. 2015…, also referring to August 2015, in the total amount of € 63,902.67, as well as the acts of administrative claims no. …2015… and …2016…, which had those as their object;

b) Condemn the Respondent to the payment of indemnification for unjustified guarantee, in the amount that is subsequently demonstrated as incurred, if necessary in execution of the judgment;

c) Condemn the Respondent in the costs of the process, in the amount of € 2,448.00.

D. Value of the Case

The value of the case is set at € 63,902.67, pursuant to Article 97-A, no. 1, a), of the Code of Tax Procedure and Process, applicable by virtue of subparagraphs a) and b) of no. 1 of Article 29 of the LRAT and no. 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The amount of the arbitration fee is set at € 2,448.00, pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the petition was wholly granted, pursuant to Articles 12, no. 2, and 22, no. 4, both of the LRAT, and Article 4, no. 4, of the aforementioned Regulation.

Notice to be served.

Lisbon, 13 July 2017

The Presiding Arbitrator

(José Pedro Carvalho)

The Arbitrator Member

(Nina Aguiar)

The Arbitrator Member

(Cláudia Rodrigues)

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

[2] Carla Trindade – Legal Regime for Arbitration in Tax Matters – Annotated, Coimbra, 2016, p. 122.

[3] Available at www.caad.org.pt.

Frequently Asked Questions

Automatically Created

What is erroneous quantification in Portuguese VAT additional assessments?
Erroneous quantification (errónea quantificação) in Portuguese VAT additional assessments refers to incorrect calculation of tax due, typically arising from discrepancies between amounts declared in periodic VAT returns and amounts reported in electronic invoicing systems (SAF-T files). It occurs when the Tax Authority assesses additional VAT based on system-detected differences without properly accounting for VAT already paid in other periods, timing differences in invoice registration, or accounting errors that do not reflect actual tax liability. Taxpayers can challenge such assessments by proving the tax was correctly calculated and paid, often through analytical trial balances and detailed accounting documentation.
Can a taxpayer challenge IVA additional assessments through tax arbitration at CAAD?
Yes, taxpayers can challenge VAT (IVA) additional assessments through tax arbitration at CAAD (Centro de Arbitragem Administrativa) under the Legal Regime for Arbitration in Tax Matters (LRAT - Decree-Law 10/2011). This arbitration provides an alternative to judicial courts for contesting tax assessments, offering a faster resolution process. Taxpayers may request arbitration to declare the illegality of VAT assessments, compensatory interest, and prior administrative claim decisions. The arbitral tribunal has jurisdiction to review both substantive and procedural legality issues, including challenges based on erroneous quantification, double taxation, and violations of procedural rights during administrative proceedings.
What happens when VAT was already paid in prior periods but reassessed by the Portuguese Tax Authority?
When VAT was already paid in prior periods but is reassessed by the Portuguese Tax Authority, the taxpayer faces the burden of proving the prior payment to avoid double taxation. The taxpayer must demonstrate through accounting records, analytical trial balances, invoices, and payment receipts that the VAT amount now being assessed was already included in declarations and paid for previous tax periods. If automated cross-checking systems detect discrepancies between SAF-T invoice data and periodic declarations, the Tax Authority may issue additional assessments without recognizing prior payments unless the taxpayer provides conclusive documentary evidence. Failure to substantiate prior payment may result in enforcement of the additional assessment, even if it constitutes de facto double taxation.
What are the legal grounds for annulling compensatory interest on contested IVA assessments?
Legal grounds for annulling compensatory interest (juros compensatórios) on contested VAT assessments include: (1) the underlying tax debt is not legally due, either because of erroneous quantification or because the tax was already paid in prior periods; (2) the conditions for assessing compensatory interest under Article 35 of the General Tax Law are not met; (3) procedural irregularities in the assessment process that invalidate the principal tax debt automatically invalidate the accessory interest obligation. Since compensatory interest is an accessory obligation dependent on a valid principal tax debt, if the VAT assessment is declared illegal and annulled, the associated compensatory interest must also be annulled. Taxpayers challenging the principal assessment should simultaneously contest the interest to ensure comprehensive relief.
How does insufficient investigation in a tax complaint (reclamação graciosa) affect the legality of the decision?
Insufficient investigation (insuficiente instrução) in a tax complaint (reclamação graciosa) affects the legality of the decision by violating constitutional and statutory procedural guarantees. Under Article 268(3) of the Portuguese Constitution and Article 77 of the General Tax Law, administrative decisions must be properly reasoned and based on adequate investigation of the facts. When the Tax Authority rejects a complaint without properly examining evidence, refusing to hear cited witnesses, or failing to conduct necessary inquiries to establish the truth, the decision is procedurally defective and subject to annulment. This violation of the duty to investigate undermines the taxpayer's right to administrative due process (Article 266(1) of the Constitution and Articles 58 and 72 of the General Tax Law) and constitutes grounds for declaring the administrative decision illegal in arbitration or court proceedings.