Summary
Full Decision
ARBITRAL DECISION
The Arbitrators, Counselor Jorge Lopes de Sousa (designated by the other Arbitrators), Prof. Dr. Clotilde Celorico Palma, and Dr. Emanuel Augusto Vidal Lima, designated respectively by the Claimant and the Respondent, to form the Arbitral Tribunal, constituted on 24-02-2016, agree as follows:
1. Report
A..., LDA, NIPC..., with registered office at Rua..., ..., ..., ...-... Sintra (hereinafter referred to as "A..." or "Claimant"), submitted a request for arbitral pronouncement with a view to the annulment of the VAT assessment act forming the subject matter of the assessment statement no. 2015....
The Respondent is the TAX AUTHORITY AND CUSTOMS (AT).
The Claimant designated as Arbitrator Prof. Dr. Clotilde Celorico Palma, pursuant to the provisions of Article 6, no. 2, paragraph b), of the RJAT.
The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax Authority and Customs on 17-12-2015.
Pursuant to the provisions of paragraph b) of no. 2 of Article 6 and no. 3 of the RJAT, and within the period provided for in no. 1 of Article 13 of the RJAT, the head of the Tax Administration service designated as Arbitrator Dr. Emanuel Augusto Vidal Lima.
The Arbitrators designated by the Parties agreed to designate Counselor Jorge Lopes de Sousa as president arbitrator, who accepted the designation.
Pursuant to the terms and purposes of the provisions of no. 7 of Article 11 of the RJAT, the President of CAAD informed the Parties of this designation on 09-02-2016.
Thus, in compliance with the prescriptions in no. 7 of Article 11 of the RJAT, after the period provided for in no. 1 of Article 13 of the RJAT elapsed without the Parties having anything further to say, the Collective Arbitral Tribunal was constituted on 24-02-2016.
The Tax Authority and Customs submitted a Response, in which it raised the exception of material incompetence of the Arbitral Tribunal and defended the rejection of the claim.
By order of 04-04-2016, it was decided to dispense with the meeting provided for in Article 18 of the RJAT and that the proceedings continue with successive written submissions.
The Parties submitted submissions.
The arbitral tribunal was duly constituted and the Parties are properly represented.
The parties have legal personality and capacity and are legitimate (Articles 4 and 10, no. 2, of the same statute and Article 1 of Ordinance no. 112-A/2011, of 22 March) and are properly represented.
The proceedings do not suffer from nullities.
The exception of material incompetence of the Arbitral Tribunal is raised, which must be assessed as a preliminary matter.
2. Facts
2.1. Proven Facts
The following facts are considered proven:
a) The Claimant is a limited liability company, having as its main activity that of "Milk and Dairy Products Industries," CAE..., and secondary activity of "Manufacture of fruit juices and vegetable products" CAE..., being classified for VAT purposes under the normal monthly periodicity regime (Tax Inspection Report, which is fully reproduced herein);
b) Pursuant to service order no. OI2015..., an inspection was carried out on the Claimant, which resulted in the final report dated 2015-09-23, which states that such procedure resulted from the request for VAT refund made by the taxable person pursuant to Normative Dispatch no. 18-A/2010, of 1 July (amended by Normative Dispatch no. 11/2013, of 27 December), in the periodic VAT declaration 201502;
c) The Claimant is a taxable person that is generally in a situation of input tax credit, due to the fact that the majority of its active transactions are subject to the reduced rate, while the inputs with greater relevance in its activity (inventories and acquisition of other goods and services) are subject to the normal rate;
d) The inspection procedure was initiated because the refund request made upon submission of the return for the month of February 2015 was generated entirely in that tax period and presented an amount substantially higher than the previous period due to the regularizations then evidenced of equal high value;
e) In the Tax Inspection Report, the following is stated, among other things:
III.2.3.5.1. – Discount Vouchers
(...)
i. A... sells its products to retailers.
ii. As part of a promotional action for a particular product, A... distributed discount vouchers to end consumers. The discount vouchers, when presented to retailers, grant the end consumer a discount on the purchase of the product in an amount equivalent to the face value of the voucher.
iii. Retailers carry out the sale of the product and charge VAT on the retail sale price.
iv. End consumers hand over the discount voucher to the retailer and the remainder (resulting from the difference between the retail sale price and the discount voucher) in cash.
For example, if the retail sale price charged by the retailer is EUR 123.00 (VAT included at 23%) and a discount voucher of EUR 5.00 is used, the end consumer pays only EUR 118.00 (=EUR 123.00 - EUR 5.00). In the sphere of the retailer, a sale of EUR 100.00 is recorded and VAT charged in the amount of EUR 23.00, receiving EUR 118.00 from the customer while recognizing an amount receivable from A... of EUR 5.00.
v. In order to manage the collection of discount vouchers and certify the value that should be reimbursed to retailers, A... uses an external entity "B..., Lda" (NIF:...).
vi. For this purpose, retailers periodically send the discount vouchers presented by end consumers to B..., so that they can be reimbursed by A....
vii. After verification of the discount vouchers received, B... issues a debit note to A... for the total amount to be reimbursed to retailers, providing a file containing the following information: identification of the retailer, barcode of the voucher, denomination of the product for which the voucher was used, unit value of the voucher, and the total amount to be reimbursed.
viii. The amount in question is then delivered by A... to B... and subsequently by each of the retailers.
Exceptionally, situations occur in which retailers send the discount vouchers directly to A..., together with a debit note indicating the amount to be reimbursed. In these cases, reimbursement of the face value of the discount vouchers is made directly by A... to the retailers. This situation is occurring with Group C... and D....
In the sphere of A..., the value of the discounts is accounted for as a discount on sales value.
The discount vouchers granted are reimbursed upon receipt of debit notes accompanied by the respective vouchers, issued either by B... or by other retailers that debit directly to A.... These vouchers are considered discounts, therefore, in accordance with paragraph b) of no. 6 of Article 16 of the VAT Code, they should be excluded from the taxable value of supplies of goods. The sales of goods to various retailers for which discount vouchers were given for distribution to end customers are not reduced by the value of those vouchers, and VAT charged was based on the entire sale value; therefore, upon reimbursement of the vouchers, in addition to accounting for the discount, a regularization favorable to A... should also be reflected.
In the years 2012 and 2013, with respect to the debit notes issued by B... and other retailers, A... did not recognize any regularization in its favor. In February 2015, it recognized the total tax to be regularized relating to those years, in the amount of EUR 486.75 (EUR 473.56 (2012) and EUR 13.19 (2013)). Considering that the debit notes were incorrectly accounted for, the correction of tax is optional but can only be carried out within a period of two years, in accordance with no. 3 of Article 78 of the VAT Code. Thus, considering that the correction was made in the period of February 2015, we can only accept the regularizations concerning debit notes dated from February 2013 onwards, inclusive. Thus, the regularization of the amount relating to documents from 2012 is not accepted. As for the year 2013, it is verified that all debit notes refer to periods from February 2013 onwards, so the regularization of the total amount is accepted.
In conclusion, with respect to the regularizations made in relation to discount vouchers, the regularization of EUR 473.56 (2012) is not accepted (Annex no. 1).
III.2.3.5.2 – Quantity Bonuses
From the analysis of the documents supporting the supplies of goods, the existence of quantity bonuses granted in those documents is verified. In the years 2012 and 2013, A... treated these quantity bonuses as gifts, and therefore proceeded to charge tax in accordance with paragraph b) of no. 6 of Article 16 of the VAT Code, and as already mentioned in the previous point, discounts, rebates, and bonuses granted should be excluded from the taxable value of supplies of goods. It is thus verified that, when accounting for the invoices, A... should have deducted from the sale value of the products the quantity bonuses granted in order to determine the taxable value of sales, which did not occur.
In February 2015, the correction of the tax amount corresponding to quantity bonuses granted in 2012 and 2013 was made. According to no. 3 of Article 78 of the VAT Code, in the case of inaccurate invoices that have already given rise to the registration referred to in Article 45, the correction is optional when there is tax charged in excess, but can only be carried out within a period of two years. Thus, and given that the correction of the Tax was made in February 2015, and similarly to the previous point, only the regularization concerning invoices with date from the month of February 2013 onwards, inclusive, will be accepted.
Thus, the taxpayer was requested (...) to provide a list of invoices from 2012 and 2013, containing the following information: invoice number (where the quantity bonuses are identified), invoice date, customer identification, description of the goods that constitute the bonuses, value of the goods that constitute the bonuses, and the amount of tax regularized. The taxpayer sent the requested information on 03-08-2015 (...). By analysis of the lists sent, we do not accept the regularizations relating to the year 2012, in the amount of EUR 187,690.17 (as per Annex no. 1), nor those relating to the month of January 2013, in the amount of EUR 7,548.84 (determined from the list sent on 03-08-2015 under entry no. 2015E...).
III.2.4 – Conclusions
The input tax credit arises, on one hand, from the fact that the majority of its active transactions are subject to tax being charged at the reduced rate while the active transactions with greater relevance (inventories at the normal rate and other goods and services) are subject to tax at the normal rate. This difference in rates accounts for part of the input tax credit. On the other hand, in this period there was a regularization favorable to the taxpayer, relating to the correction of tax concerning the years 2012 and 2013.
As stated in points III.2.3.5.1. and III.2.3.5.2., the following corrections are proposed for the period 201502:
The return in which the refund request was made (201502) determined tax in favor of the taxpayer in the amount of EUR 364,595.38. The previously proposed corrections lead to the correction of this amount to EUR 168,882.81, for which full approval is proposed.
f) In a letter dated 10-07-2015, which it sent to the Tax Authority and Customs, which is part of section 4 of the administrative file, whose content is reproduced, the Claimant states, among other things, that:
– "Notwithstanding the Tax Authority and Customs' understanding that quantity bonuses can be anticipated and subsequent, A..., by way of caution, only considered, for purposes of recovering the VAT charged, the bonuses granted in the same year. For this purpose, it conducted an analysis of the bonuses granted per customer and product and the respective sales per customer and product";
– "Given that this analysis was carried out on an annual basis, it is not possible to indicate per month the amount of the VAT regularized nor its respective tax rate, but rather the VAT charged in excess";
– "the total VAT charged by A... is less than the amount of VAT regularized in its favor since, by way of caution, A... only regularized the VAT in situations where the total annual quantity bonuses (per customer and per product) were less than the sales (per customer and per product) made in that same year";
g) Following the inspection, on 22-10-2015, the Tax Authority and Customs issued the document no. 2015..., entitled "VAT Assessment Statement," with the assessment number 2015..., a copy of which was attached with the request for arbitral pronouncement, whose content is reproduced, in which, among other things, it refers to the amount to be refunded of € 168,882.81 and states the following:
You are hereby notified of the VAT assessment relating to the period to which the operations relate, as a result of which there is cause for refund in the amount determined, as per the above demonstration note.
We further inform you that, in accordance with the instructions transmitted to the Institute for Treasury and Public Credit Management, I.P., the refund was carried out by transfer to the account relating to the NIB identified above, contained in the registry, so any clarification regarding such transfer should be requested from the credit institution where the identified bank account is located.
From the assessment made, you may file, with the competent Tax Service, a gracious complaint or judicial challenge in accordance with Articles 70 and 102 of the Code of Tax Procedures.
The Director General,
...
h) On 05-12-2015, the Claimant submitted the request for arbitral pronouncement that gave rise to the present proceedings.
2.2. Unproven Facts
There are no facts relevant to the decision that have not been proven.
2.3. Reasoning for the Determination of Facts
The facts were given as proven based on the documents attached with the request for arbitral pronouncement and the administrative file, with no controversy regarding them.
3. Question of Material Incompetence
3.1. Positions of the Parties
As a preliminary matter to the examination of the merits in the present proceedings, the Tax Authority and Customs raises the partial incompetence of the present arbitral tribunal, on the grounds of subject matter.
The Tax Authority and Customs alleges, in summary, that:
– the Claimant identifies as the object of the request for arbitral pronouncement it formulates, the partial rejection of the refund request in the amount of € 195,712.57, although it formulates the request for annulment of "THE ACT OF VAT ASSESSMENT, FORMING THE SUBJECT MATTER OF THE ASSESSMENT STATEMENT NO. 2015..., BETTER IDENTIFIED IN ARTICLES 54 AND 55 OF THIS PETITION";
– in Articles 54 and 55, the Claimant refers to "the document no. 2015..., dated 23.10.2015, notified A... of the assessment statement no. 2015..." and states that "from the assessment it results that only the right to refund of € 168,882.81 was recognized, which, in the meantime, AT transferred to it", "when it should have been recognized the right to refund of € 364,595.38";
– the object of the present request for arbitral pronouncement translates to the partial rejection of the refund that the Claimant had formulated upon submission of the periodic return for February 2015, in which it requested the refund in the total amount of € 364,595.38;
– Article 2 of the RJAT limits the competence of the arbitral tribunals operating in CAAD to the examination of claims relating to the declaration of illegality of tax assessment acts, of self-assessment, of withholding at source and payments on account, and claims relating to the declaration of illegality of acts determining the taxable matter when not giving rise to the assessment of any tax, of acts determining the taxable amount and of acts fixing patrimonial values;
– we are not, therefore, with respect to this claim of the Claimant, facing a tax assessment act, a self-assessment, withholding at source or payment on account act capable of being examined by this arbitral jurisdiction;
– the assessment statement is nothing more than a demonstration of the quantum of the refund that was rejected.
The Claimant responded to this exception in its submissions, stating, in summary:
– the act attacked is the assessment act to which the Respondent gave the number 2015... and not a simple act of refusal of a refund request;
– the Claimant carried out a self-assessment, from which resulted, for its legal sphere, an input tax credit of 364,595.38 €;
– the refund is, for the taxable person, a way of activating the creditor position arising from the self-assessment, as an alternative to compensation with the amount of which it is a debtor to the State, in the following tax periods;
– while assessment is the act that concludes the constitutive phase of the rights and duties that make up the taxable person's legal sphere, the claim for refund is already in the phase of performance of such rights and duties, in cases where the taxable person assumes, at one time, the active side of the relationship;
– the taxable person may express the claim for refund as soon as the return in which it carries out the self-assessment;
– even though legally they are distinct moments, the self-assessment can coincide temporally with the expression of the claim for refund and, if it encompasses the entirety of the amount of the input tax credit that results from the self-assessment, the amount that results from the assessment coincides with the amount to be refunded;
– as noted by the decision handed down in arbitral case no. 238/2013-T, there are authorized voices observing that "a refund contested by the tax administration is entirely equivalent to an assessment of tax and the means of reacting against that act of the administration, which denies or revokes a refund, are identical to those that the law puts at the disposal of taxpayers to annul, in whole or in part the tax assessment";
– what divides the parties is not the legality of the Claimant's claim for refund – which may prove unfeasible even if the corresponding credit exists, as results from Article 22, no. 11, of the VAT Code – but rather the legality of the tax self-assessment;
– it was on this self-assessment that the Tax Authority and Customs deemed it appropriate to pronounce itself through the (additional) assessment to which it gave the number 2015... and it was because the Claimant understood that it is this (additional) assessment – and not its own – that is tainted with illegality that it sought arbitral pronouncement regarding it.
3.2. Examination of the Exception
As the Claimant notes, an identical situation was examined in case no. 238/2013-T, so, agreeing with that jurisprudence, that decision will be followed closely.
Article 124 of Law no. 3-B/2010, of 28 April, authorized the Government to legislate "in order to establish arbitration as an alternative form of jurisdictional resolution of disputes in tax matters," so that the tax arbitral process would constitute an alternative procedural means to judicial review proceedings and to the action for recognition of a right or legitimate interest in tax matters.
Decree-Law no. 10/2011, of 20 January (RJAT), implemented the aforementioned legislative authorization with a more restricted scope than initially foreseen, not notably contemplating an alternative competence to that of the action for recognition of a right or legitimate interest in tax matters, and "established tax arbitration limited to certain matters, listed in its Article 2," making the binding of the tax administration depend on "ordinance of the government members responsible for the areas of finance and justice, which establishes, in particular the type and maximum value of disputes covered" ([1]).
The scope of tax arbitral jurisdiction is thus delimited, in the first place, by the provisions of Article 2 of the RJAT, which sets forth, in its no. 1, the criteria for material division of competence, encompassing the examination of claims directed at the declaration of illegality of tax assessment acts ([2]).
Given the voluntary nature of submission to arbitral jurisdiction, in a second place, "the competence of arbitral tribunals operating in CAAD is also limited by the terms in which the Tax Administration bound itself to that jurisdiction, concretized in Ordinance no. 112-A/2011, of 22 March, since Article 4, no. 1 of RJAT establishes that "the binding of the tax administration to the jurisdiction of tribunals constituted under the terms of this law depends on an ordinance of the government members responsible for the areas of finance and justice" ([3]).
The aforementioned Ordinance provides, in its Article 2, that "The services and organisms referred to in the previous article bind themselves to the jurisdiction of arbitral tribunals operating in CAAD that have as their object the examination of claims relating to taxes whose administration is their responsibility referred to in no. 1 of Article 2 of Decree-Law no. 10/2011, of 20 January, with the exception of the following: ...", indicated in the subsequent paragraphs of the same article.
There is no express provision for the competence of arbitral tribunals operating in CAAD to examine the legality of acts of rejection of requests for refund of amounts paid.
However, in the case at hand, as seen from the document reproduced in paragraph f) of the facts established, it was the Tax Authority and Customs itself that carried out an operation of accounting for VAT to be refunded which it designated "VAT ASSESSMENT STATEMENT," to which it assigned an "ASSESSMENT NUMBER" and an "ASSESSMENT DATE," and indicated, in the final part, that the Claimant "is (...) hereby notified of the VAT assessment relating to the period to which the operations relate, as a result of which there is cause for refund in the amount determined, as per the above demonstration note" and "From the assessment made, you may file, with the competent Tax Service, a gracious complaint or judicial challenge in accordance with Articles 70 and 102 of the Code of Tax Procedures."
That is: in light of the documentary evidence available, it should be concluded that, in the concrete case, for better or worse, an assessment act was practiced. Such act, embodied in the document notified to the Claimant forming part of the VAT assessment statement no. 2015..., dated 22-10-2015, shall be the object of the present proceedings, which is covered by the provision of paragraph a) of Article 2 of the RJAT.
The RJAT and Ordinance no. 112-A/2011 define the competence of arbitral tribunals operating in CAAD by the type of act and not by the tax questions that must be examined to determine its legality.
The legality of such an act is capable of being examined and falls directly within the scope of the competencies of the arbitral tribunals to operate in CAAD, so the invoked exception of absolute incompetence would have to be dismissed.
In any case, with respect to acts of this type, it is also verified that there is doctrine (JOSÉ XAVIER DE BASTO and GONÇALO AVELÃS NUNES) defending that "a refund contested by the tax administration is entirely equivalent to an assessment of tax and the means of reacting against that act of the administration, which denies or revokes a refund, are identical to those that the law puts at the disposal of taxpayers to annul, in whole or in part the tax assessment" ([4]), a thesis that is in harmony with the application, determined by Article 22, nos. 11 and 13, of the VAT Code, to acts of rejection of requests for refund of the administrative and contentious means of challenge of the acts of assessment of VAT, provided for in Article 93 of the same Code. ([5])
Thus, the exception raised by the Tax Authority and Customs is judged to be dismissed.
4. Law
4.1. Positions of the Parties
The Claimant, in the self-assessment of VAT for the period of February 2015, carried out a correction of tax relating to the years 2012 and 2013, based on excessive assessment of VAT concerning discount vouchers and quantity bonuses.
As to the vouchers, the Tax Authority and Customs accepts that they are considered discounts, therefore, in accordance with paragraph b) of no. 6 of Article 16 of the VAT Code, they should be excluded from the taxable value of supplies of goods.
With respect to quantity bonuses, when it accounted for the invoices, A... should have deducted from the sale value of the products the quantity bonuses granted in order to determine the taxable value of sales, which did not occur.
The Tax Authority and Customs is in agreement with the Claimant as to the excess of the VAT assessment made in those years 2012 and 2013, both as to discount vouchers and as to quantity bonuses, so it accepted the regularization made in February 2015 as to the periods until February 2013, inclusive.
As to the regularization relating to periods prior to January 2013, inclusive, the Tax Authority and Customs did not accept it on the grounds of untimeliness, as it understood that the situation falls under no. 3 of Article 78 of the VAT Code and the two-year period provided for there had already elapsed when the Claimant submitted the return for the period of February 2015.
The Claimant defends in the present proceedings the following, in summary:
– the invoices that included in-kind quantity bonuses do not contain any inaccuracy, as VAT was not charged therein on the products subject to the bonus;
– the registration of such invoices in the accounting of A... was not tainted by inaccuracy;
– there was no inaccuracy in the accounting for the debit notes resulting from the discount vouchers;
– A... incurred, rather, two errors of law, of legal classification, one in treating in-kind quantity bonuses as gifts and another in supposing that the discount that benefited the end consumer, through the discount vouchers, could not be excluded from the taxable value of supplies of goods to retailers;
– in the first case, A... subsumed its promotional actions with in-kind quantity bonuses to the hypothesis of the standard in Article 3, no. 3, paragraph f), of the VAT Code, instead of subsuming them to the hypothesis of the standard in Article 16, no. 6, paragraph b);
– in the second case, it failed to subsume to the hypothesis of the standard in Article 16, no. 6, paragraph b), of the VAT Code, the discounts it granted through the discount vouchers, by erroneously supposing that they did not fall thereunder;
– the situation falls under Article 98, no. 2, of the VAT Code, which establishes the period of 4 years after the overpayment, without prejudice to special provisions;
– special provisions, for purposes of said standard, are those of nos. 3 and 6 of Article 78 of the VAT Code, which restrict the period to two years for cases of correction of inaccurate invoices that have already given rise to the registration referred to in Article 45, and of correction of material errors or calculation errors in the registration referred to in Articles 44 to 51 and 65, in the returns mentioned in Article 41 and in the guides or returns mentioned in paragraphs b) and c) of no. 1 of Article 67;
– the assessment in dispute was based on an error concerning the factual presuppositions, by imputing to the invoices and accounting records of A... inaccuracies from which they did not suffer, or, if otherwise understood, an error concerning the legal presuppositions, by erroneous interpretation of Articles 98, no. 2, and 78, nos. 3, and (perhaps) 6, of the VAT Code.
The Tax Authority and Customs defends the position adopted in the Tax Inspection Report, stating, in summary:
– although no. 2 of Article 98 of the VAT Code establishes that, without prejudice to special provisions, the right to refund of tax paid in excess can be exercised until the limit of four years, the VAT taxable person does not have freedom to determine the moment of exercise of this right, that standard limiting itself to fixing, only, a general maximum limit, from which this right cannot be exercised;
– otherwise, the standards providing for special periods would have no useful meaning, as they would always be overridden by the standard establishing the general four-year period;
– the question of the speciality of Article 78 of the VAT Code vis-à-vis Article 98 of the VAT Code does not appear to be, even, controversial for the present Tribunal (case no. 117/2013-T, of 06-12-2013) and is accepted by the Supreme Administrative Court (decision of 18-05-2011, case 0966/10).
4.2. Object of the Proceedings and Powers of Cognition of the Arbitral Tribunal in Annulment Disputes
The tax arbitral process, as an alternative means to judicial review proceedings (no. 2 of Article 124 of Law no. 3-B/2010, of 28 April), is, like the latter, a procedural means of mere legality, in which the purpose is to eliminate the effects produced by illegal acts, by annulling them or declaring their nullity or non-existence [Articles 2 of the RJAT and 99 and 124 of the Code of Tax Procedures, applicable under the provisions of Article 29, no. 1, paragraph a), thereof].
For this reason, the reasoning given a posteriori is irrelevant, and the acts whose legality is questioned must be assessed as they were practiced, and the tribunal cannot, upon finding that an illegal ground is invoked as the basis for the administrative decision, assess whether its action could be based on other grounds. ([6])
In the case at hand, the Tax Authority and Customs carried out an assessment in which the non-satisfaction of the Claimant's claim to deduct VAT in the period of February 2015 had the following grounds, in summary:
– as relevant factual grounds were stated the fact that some of the debit notes relating to discount vouchers and invoices relating to quantity bonuses were dated more than two years ago (with dates prior to February 2013) and the fact of being faced with "inaccurate invoices that have already given rise to the registration referred to in Article 45" with dates prior to February 2013;
– as a ground of law for not accepting the Claimant's claim, exclusively no. 3 of Article 78 of the VAT Code was invoked.
Thus, it is in light of these grounds that the legality of the challenged act must be assessed, being, in particular, irrelevant the Claimant's suggestion that there will be in the challenged act erroneous interpretation, beyond Articles 98, no. 2, and 78, no. 3, of the VAT Code, also "(perhaps) no. 6" of this article.
In fact, the "VII – Violations Found" section of the Tax Inspection Report expressly refers to "regarding VAT, Article 78 – no. 3 of the VAT Code was violated" and in the Opinion of the Team Chief, it is stated that "I confirm the proposed corrections, pursuant to no. 3 of Article 78 of the VAT Code," so there is no textual support to understand that perhaps no. 6 of Article 78 or no. 2 of Article 98 of the VAT Code was applied.
4.3. Examination of the Question of Legality of the Act Forming the Object of the Request for Arbitral Pronouncement
Nos. 1 to 6 of Article 78 of the VAT Code establish the following:
1 - The provisions of Articles 36 and following must be observed whenever, after an invoice is issued, the taxable value of an operation or the respective tax should be corrected for any reason.
2 - If, after the registration referred to in Article 45 is made, the operation is cancelled or its taxable value is reduced as a result of invalidity, termination, rescission or reduction of the contract, by return of merchandise or by the granting of rebates or discounts, the supplier of the good or provider of the service can effect the deduction of the corresponding tax until the end of the tax period following that in which the circumstances that determined the cancellation of the assessment or the reduction of its taxable value occurred.
3 - In the cases of inaccurate invoices that have already given rise to the registration referred to in Article 45, the correction is mandatory when there is tax charged in less, and can be made without any penalty until the end of the period following that to which the invoice to be corrected relates, and is optional when there is tax charged in excess, but can only be made within a period of two years.
4 - The purchaser of the good or recipient of the service who is a VAT taxable person, if already made the registration of an operation regarding which the supplier or provider of the service proceeded to cancel, reduce its taxable value or correct for less than the value invoiced, corrects, until the end of the tax period following that of receipt of the corrective document, the deduction made.
5 - When the taxable value of an operation or the respective tax is corrected for less, the regularization in favor of the taxable person can only be made when the latter has in its possession proof that the purchaser became aware of the correction or that it was reimbursed the tax, without which the respective deduction is considered improper.
6 - The correction of material errors or calculation errors in the registration referred to in Articles 44 to 51 and 65, in the returns mentioned in Article 41 and in the guides or returns mentioned in paragraphs b) and c) of no. 1 of Article 67, is optional when it results in tax in favor of the taxable person, but can only be made within a period of two years, which, in the case of exercise of the right to deduction, is counted from the arising of the respective right under no. 1 of Article 22, being mandatory when it results in tax in favor of the State.
4.3.1. Question Relating to Discount Vouchers
The factual situation is, essentially, as follows:
– the Claimant sells its products to retailers, distributing discount vouchers to end consumers;
– end consumers present the discount vouchers to retailers, benefiting from the respective discount on the purchase, relative to the retail sale price of the product purchased;
– retailers carry out the sale of the product and charge VAT on the retail sale price;
– retailers periodically send to B... the discount vouchers presented by end consumers, which issues a debit note to the Claimant for the total amount to be reimbursed to retailers;
– the Claimant pays to B... the amount of the debit note, which then sends it to the respective retailers;
– the Claimant, in sales to retailers, did not reduce the value of the vouchers, and VAT was charged on the entirety of the sale value;
– when it reimbursed the vouchers, the Claimant accounted for them but did not effect a VAT regularization in its favor.
As results from the text of no. 3, which was the provision on which the Tax Authority and Customs based itself, what is provided therein applies "in the cases of inaccurate invoices that have already given rise to the registration referred to in Article 45."
In the invoices issued by the Claimant to retailers, the value of the discount vouchers was not deducted, nor should it have been, as the vouchers were attributed to end consumers and not to retailers and, at that moment, the realization of the discounts was merely hypothetical, as it would depend on further acts of the end consumers, who could or could not use the discount vouchers that were attributed to them.
Being so, regardless of whether the position adopted by the Tax Authority and Customs could have support in another legal provision (a question that is not relevant to assess in mere annulment proceedings), it must be concluded that we are not faced with a situation of "inaccurate invoices" that falls under no. 3 of Article 78 of the VAT Code.
For this reason, the challenged act is tainted by a vice of violation of law, in this part.
4.3.2. Question Relating to Quantity Bonuses
The Claimant did not exclude from the taxable value the in-kind quantity bonuses it granted and which should be excluded from the taxable value when it accounted for the invoices (which the Tax Authority and Customs accepts).
As the Claimant explained, it only regularized the VAT in situations where the total annual quantity bonuses (per customer and per product) were less than the sales (per customer and per product) made in that same year.
Also here, we are not faced with inaccuracy of invoices, but rather with reduction of the taxable base after its registration.
In truth, as seen from the invoices attached with the request for arbitral pronouncement, the Claimant did not charge VAT with respect to the discounts made.
Thus, also in this case, we are not faced with a situation that falls under no. 3 of Article 78 of the VAT Code, so, regardless of whether the position adopted by the Tax Authority and Customs could have support in another legal provision, it must be concluded that the challenged act is also tainted by a vice of violation of law, in this part, by rejecting the Claimant's claim by applying that no. 3.
5. Decision
For these reasons, the arbitrators agree:
a) To dismiss the exception of material incompetence raised by the Tax Authority and Customs;
b) To grant the request for arbitral pronouncement;
c) To annul the VAT assessment no. 2015....
6. Value of the Proceedings
In accordance with the provisions of Article 306, no. 2, of the Code of Civil Procedure, Article 97-A, no. 1, paragraph a), of the Code of Tax Procedures, and Article 3, no. 2, of the Regulations of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at € 195,712.57.
Lisbon, 23-05-2016
The Arbitrators
(Jorge Manuel Lopes de Sousa)
(Clotilde Celorico Palma)
(Emanuel Augusto Vidal Lima)
([1]) As amended by Law no. 64-B/2011, of 30 December.
([2]) In this sense, the Arbitral Decision, case no. 48/2012.
Article 2 of the RJAT provides that these tribunals are competent to examine the following claims:
"a) The declaration of illegality of acts of assessment of taxes, of self-assessment, of withholding at source and of payments on account;
b) The declaration of illegality of acts determining the taxable matter when not giving rise to the assessment of any tax, of acts determining the taxable amount and of acts fixing patrimonial values;
c) repealed (by Article 160 of Law no. 64-B/2011, of 30 December, which approved the Budget of the State for 2012)."
([3]) Excerpt from the Arbitral Decision, case no. 48/2012.
([4]) In "What is the 'adequate guarantee' for purposes of VAT refund?", published in Studies in Memory of Prof. Doctor J. L. Saldanha Sanches, volume IV, pages 276-277.
([5]) Nos. 11 and 13 of Article 22 of the VAT Code, as amended by Law no. 2/2010, of 15 March, establish the following:
"11 - Refund requests are rejected when the taxable person does not provide elements that allow assessment of the legitimacy of the refund, as well as when the deductible tax relates to a taxable person with a non-existent or invalid tax identification number or who has suspended or ceased its activity in the period to which the refund relates.
(...)
13 - Against the decision referred to in no. 11, hierarchical appeal, complaint or judicial challenge is available, under the terms provided for in Article 93."
([6]) Essentially in this sense, the following decisions of the Supreme Administrative Court may be seen, regarding a parallel situation that arises in contentious appeal proceedings:
– of 10-11-98, of the Plenary, handed down in appeal no. 32702, published in AP-DR of 12-4-2001, page 1207.
– of 19/06/2002, case no. 47787, published in AP-DR of 10-2-2004, page 4289.
– of 09/10/2002, case no. 600/02.
– of 12/03/2003, case no. 1661/02.
In a similar sense, the following may be seen:
– MARCELLO CAETANO, Manual of Administrative Law, volume I, 10th edition, page 479, in which he states that it is "irrelevant that the Administration comes, already during the course of contentious proceedings, to invoke other reasons as determining motives, not stated in the act", and volume II, 9th edition, page 1329, in which he writes that the "authority proceeded against cannot (...) justify the practice of the challenged act by reasons different from those that appear in its express reasoning."
– MÁRIO ESTEVES DE OLIVEIRA, Administrative Law, Volume I, page 472, where he writes that "reasons objectively existing but that are not expressly adduced as grounds for the act cannot be taken into account in assessing its legality."
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