Process: 736/2016-T

Date: June 1, 2017

Tax Type: IVA

Source: Original CAAD Decision

Summary

In CAAD Arbitral Decision 736/2016-T, a Portuguese taxpayer challenged an additional VAT assessment of €4,552.25 arising from an invoice correction dispute under Article 78 of the VAT Code (CIVA). The claimant, A... Lda., had issued an invoice to customer C... but mistakenly entered the VAT identification number of B... CRL, a company whose business activity had ceased in 2009. Upon discovering the error, the taxpayer properly annulled the incorrect invoice via credit note and issued a corrected invoice, with both parties making appropriate VAT regularizations in their periodic declarations. The Tax Authority (AT) rejected the taxpayer's gracious complaint, arguing that the conditions of Article 78 CIVA were not met, specifically claiming insufficient proof that the purchaser (which AT incorrectly identified as B... CRL) was notified of the correction as required by Article 78(5) CIVA. The taxpayer argued the AT committed a factual error by misidentifying the purchaser - the actual buyer was always C..., not B... CRL. The only mistake was entering the wrong VAT number on the original invoice. The taxpayer contended it had fulfilled all legal requirements: issuing proper documentation, obtaining the buyer's signed acknowledgment on the credit note duplicate, and both parties filing appropriate regularizations (Annex 40 for the supplier, Annex 41 for the buyer). Critically, the taxpayer argued the assessment constituted illegal duplicate collection (duplicação de coleta), as it had already paid VAT on the transaction in the period following invoice issuance and was now being required to pay again despite proper correction procedures. The case illustrates the strict formalities required for VAT regularizations and the importance of accurate factual determinations in tax disputes.

Full Decision

ARBITRAL DECISION

I – Report

1.1. A…, Lda., holder of tax identification number …, with registered office at … no…, …, …-… …, having been notified – by means of a Ruling issued on 9/9/2016, by the Illustrious Head of the Division of Management and Tax Assistance of the Large Taxpayers Unit, in the exercise of delegated competence – of the ruling dismissing the gracious complaint no. …2016…, presented against the VAT assessment no. 2016…, submitted on 12/12/2016 a request for constitution of an Arbitral Tribunal, in accordance with the provisions of articles 2, no. 1, paragraph a), and 10 of Decree-Law no. 10/2011, of 20/1 (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as "RJAT"), in which the Tax and Customs Authority (TA) is the Respondent, with a view to "the annulment of the ruling dismissing the gracious complaint no. …2016…, of the VAT assessment no. 2016…, relating to the VAT taxation period of December 2015, and of the assessment of default interest and compensatory interest no. 2016…, also relating to the period of December 2015, as well as the refund to the now Claimant of the amounts of VAT, default interest and compensatory interest paid through payment documents no. … and no. …."

1.2. On 23/2/2017 the present Singular Arbitral Tribunal was constituted.

1.3. In accordance with article 17, no. 1, of the RJAT, the TA was cited, as Respondent party, to present its response. The TA submitted its response on 31/3/2017, having argued, in summary, towards the total dismissal of the Claimant's request.

1.4. By ruling of 22/5/2017, the Tribunal considered, in accordance with article 16, paragraphs c) and e), of the RJAT, and article 19 of the RJAT, that the production of witness evidence and the meeting referred to in article 18 of the RJAT were dispensable, and that the case was ready for decision. The date of 1/6/2017 was further set for the pronouncement of the arbitral decision.

1.5. The Arbitral Tribunal was regularly constituted, is materially competent, the case does not suffer from vices that would invalidate it, and the Parties have legal personality and capacity, being properly legitimated.

II – Allegations of the Parties

2.1. The now Claimant alleges, in its initial petition, that: a) "according to the TA, the dismissal of the gracious complaint in the amount of € 4,552.25 is justified by the non-fulfilment of the 'conditions for the operation of the mechanism provided for in article 78 of the VAT Code'"; b) "the TA bases the essential part of its ruling dismissing the gracious complaint and, consequently, the additional VAT assessment in the amount of € 4,552.25, on the fact that A… allegedly failed to comply with the obligation provided for in article 78, no. 5, of the VAT Code"; c) "as results from the understanding advocated by the TA, since the now Claimant did not attach to the gracious complaint procedure sufficient evidence proving that the purchaser to whom the invoice was incorrectly issued became aware of the tax adjustment – which, in the opinion (incorrect!) of the now Respondent, would be B…, CRL, with the VAT identification number … – the same cannot regularize the tax incorrectly paid to the State in the amount of € 4,552.25"; d) "the TA may have erred in the factual assumptions on which the Claimant's right to the regularization of VAT in its favour is based and, likewise, may have erred in interpreting and applying the norms relating to the procedure for regularization of VAT and its respective formalities. It is further added that the additional assessment issued by the now Respondent suffers from illegality due to duplication of collection, in that it implies the duplication of payment, by the Claimant, of VAT with respect to the same tax fact"; e) "the Respondent errs regarding the factual assumptions of the application of the Claimant's right to regularization in its favour of the VAT assessed in the initial invoice no. …. In effect, the Respondent presupposes that the purchaser, in the transfer of goods supported by the initial invoice no. …, is B… CRL. However, as shown above, the purchaser is C…"; f) "the error committed by the Claimant in the initial invoice was not that of the identity of the purchaser – which is always correctly identified as C… in the initial invoice, in the credit note and in the corrected invoice – but rather that of the VAT identification number entered in the initial invoice, which should have been the VAT number …, of C…, and not the VAT number …, of B… CRL"; g) "the Respondent erred regarding the factual assumptions, by considering that B… CRL would be the purchaser of the operation of transfer of goods supported by the invoice (initial) no. …, an error which led the Respondent to the wrong conclusion that the 'conditions for the operation of the mechanism provided for in article 78 of the VAT Code' were not met [...] and to the consequent acts of dismissal of the gracious complaint, of additional VAT assessment and of assessment of default interest and compensatory interest, which are tainted by the vice of violation of law, in particular the provision of article 78 of the VAT Code, due to error in the factual assumptions"; h) "this [error in the factual assumptions] constitutes, in itself, more than sufficient reason to determine the illegality of the dismissal of the gracious complaint and, in that sense, the additional VAT assessment and the assessment of default interest and compensatory interest here contested should be annulled"; i) "articles 78 and following of the VAT Code provide for a regime in which taxable persons may carry out regularizations of the tax, assessed or deducted, in favour of the State or in favour of taxable persons. In the present case, the Claimant incorrectly included, in the invoice issued to C…, the VAT identification number of a taxpayer whose activity had ceased since February 2009 (VAT number …) (see document no. 7), instead of including the VAT identification number of the purchaser, C… (VAT number …). It is emphasized that, as already results from the facts described above, A… included the VAT assessed to client C… in the periodic declaration of the period following that of the issuance of the invoice and paid the corresponding VAT to the State. [...]. Only through [the] e-mail sent by its client C… [on 2/12/2015], that A… became aware that it had issued the invoice with an incorrect tax identification number, a number that belonged to B… CRL, with business activity ceased since February 2009. On 11 December 2015, A… annulled the incorrectly issued invoice through credit note no. … and the issuance of invoice no. … (see documents no. 8 and no. 9, respectively)"; j) "as results from the evidence attached to the present proceedings, all procedures [relating to the 'rectification, or annulment, of an invoice issued with an incorrect VAT identification number'] were complied with[:] [...] On 11 December 2015, A… annulled the incorrectly issued invoice through credit note no. … and the issuance of invoice no. … (see documents no. 8 and no. 9, respectively). As a result of the annulment of the incorrectly issued invoice by A…, C…, as purchaser of the goods transferred by A…, regularized the VAT deducted in favour of the State in 'Annex 41 – Regularizations in favour of the State' (see document no. 5). In exchange, A… regularized the VAT paid to the State in its favour in 'Annex 40 – Regularizations in favour of the taxable person' of the periodic declaration relating to the period of December 2015 (see document no. 11). Finally, [...] A… has in its possession the duplicate of the credit note signed by the purchaser, evidencing that this – C… – became aware of the correction of the invoice (see document no. 10)"; l) "in the case under analysis, based on the jurisprudence of this Arbitral Tribunal and the doctrine set forth above, there is no doubt that the VAT regularization to be carried out by the Claimant should be done under article 78, no. 3 [of the VAT Code]"; m) "the TA bases the essential part of its ruling dismissing the gracious complaint and, consequently, the additional VAT assessment in the amount of € 4,552.25, on the fact that A… allegedly failed to comply with the obligation provided for in article 78, no. 5, of the VAT Code. That is, according to the TA, A… would have to have proof that the purchaser – who, in the opinion (incorrect!) of the now Respondent, would be B…, CRL, with the VAT number … – became aware of the tax adjustment"; n) "as such, as results from the understanding advocated by the TA, since the now Claimant did not attach to the gracious complaint procedure sufficient evidence proving that the purchaser to whom the invoice was incorrectly issued became aware of the tax adjustment – which, in the opinion (incorrect!) of the now Respondent, would be B…, CRL, with the VAT number … – the same cannot regularize the tax incorrectly paid to the State in the amount of € 4,552.25. Now, the Claimant cannot accept this decision because it is based on an incorrect factual assumption: the TA considered (it is reiterated, incorrectly!) that the purchaser of the transfer of goods carried out and contained in the invoice no. … was B…, CRL, with the VAT number …, and not C…, with the VAT number …. In effect, as shown above, the Claimant attached to the gracious complaint procedure sufficient evidence that the purchaser of the transferred goods – C… – became aware of the correction made to the invoice no. … (carried out through the issuance of credit note no. … and invoice no.…) (see results from paragraph 74, page 10/10 of document no. 2). In fact, the Claimant attached the duplicate of the credit note signed by the purchaser – C…, reiterate – evidencing that this became aware of the correction of the invoice (see document no. 10)"; o) "being proven that the Claimant attached to the proceedings the credit note stamped and re-sent by the purchaser of the goods (D… S.A.), proving that it became aware of the credit note issued to annul invoice no. …, it is undeniable that there is no reason for the TA to continue to deny the right to regularization of the VAT assessed in invoice no. …, subsequently corrected through credit note no. … and invoice no. …"; p) "article 78, no. 5, configures a limitation to the right to deduction of tax that is justified in the strict measure of prevention of the risk of tax evasion. It is therefore evident that the acts of dismissal of the gracious complaint, of additional VAT assessment and of assessment of default interest and compensatory interest are tainted by the vice of violation of law, in particular the provision of article 78 of the VAT Code, due to error in the factual assumptions of law"; q) "it is indisputable that all the formalities necessary for the correction of this invoice were fully observed by the now Claimant, and the additional VAT assessment and the assessment of default interest and compensatory interest here contested should be annulled, which is hereby requested on the basis of illegality due to duplication of collection"; r) "concluding that A… is correct and that the VAT assessment and default interest correspond to illegal acts, the TA should pay compensatory interest [...] on the amount of tax and interest here contested wrongfully assessed and paid by it."

2.2. The now Claimant, in summary, requests the Arbitral Tribunal to determine "the annulment of the ruling dismissing the gracious complaint no. …2016…, of the VAT assessment no. 2016…, relating to the VAT taxation period of December 2015, and of the assessment of default interest and compensatory interest no. 2016…, also relating to the period of December 2015, as well as the refund to the now Claimant of the amounts of VAT, default interest and compensatory interest paid through payment documents no. … and no. …."

2.3. For its part, the TA alleges, in its response: a) that "the additional VAT assessment object of the gracious complaint resulted from automatic validation, carried out using the information contained in the TA database, of the VAT identification numbers contained in the Annex 'Regularizations of Field 40', which is an integral part of the periodic VAT declaration relating to period 1512, submitted in February 2016"; b) that, "on 05-01-2015, the Claimant issued the invoice no. …, to client E…, with the VAT number …, with a VAT value of € 4,552.88, recorded accountingly, on 01-07-2015, as credit to account #24331100 - VAT Assessed. If we look carefully at the elements of this invoice, exhibited by the Claimant as document no. 4 of the arbitral petition, it is verified that this is addressed to the client indicated above, with the client no. …, with registered office at …, …, in ..., relating to request no. …, of 30-12-2014. Eleven months later, on 11-12-2015, the Claimant, intending to annul the invoice, proceeded to issue credit note no. …, for the same value of the invoice subject to annulment, having recorded accountingly, on 13-12-2015, the VAT as debit, to account #24331100 - VAT Assessed. This credit note (cf. document no. 8 of the arbitral petition) was issued to client no. …, E…, with address on Street …, …, in ..., and refers to request no. … of 11-12-2015"; c) that "the Claimant did not attach, in the gracious complaint procedure, any elements that would allow proving that the client E…, with the VAT number …, became aware of the issuance of the credit note in question, as stipulated by article 78, no. 5, of the VAT Code"; d) that "the Claimant, in the scope of the right to be heard exercised in the gracious complaint procedure, presents the duplicate of the credit note signed and stamped, not by the entity to whom it is intended, but by D… S.A., with the VAT number …. That is, it was not the acquiring entity that recognized the adjustment of the tax"; e) that, "coming now, in the arbitral pronouncement petition, the Claimant to explain that, on the one hand, E… does not correspond to the company's commercial designation and that, on the other hand, the change of address between the initial invoice and the credit note issued is due to the fact that, in these eleven months, the designation of the address has been changed"; f) that, "consulting the Portal of Justice, online publication of the corporate act, with respect to the VAT number … - which corresponds to B…, CRL -, it is verified that already on 03-03-2008 (by force of submission 94/…) and, as well, on 27-02-2009 (date on which it ceased activity), the address of the registered office of that entity was on Street …, no. …, in ... (see documents nos. 1 and 2, which are attached). In this way, it is completely devoid of sense the allegation made by the Claimant (cf. article 18 of the arbitral petition) that the address would have been changed between January and December 2015"; g) that "it is verified that, as mentioned above, the debit note/invoice no. …, of 14-12-2015 (cf. document no. 8 [9] of the arbitral petition), was issued to the taxable person D… S.A., with the VAT number … (allegedly, according to the Claimant, the true recipient of the invoice), to Avenue …, …, in Lisbon. Now, as verified by consulting the mentioned Portal of Justice, D… S.A. had not had its registered office in that location since September 2012, that is, more than three years before the issuance of that document, being listed as registered office Street …, no. …, in ... (see documents nos. 3 and 4, which are attached)"; h) that, "in the case at hand, the inaccuracy of the invoice initially issued does not respect to the taxable value of the operation nor to the amount of tax in question, so, in this case, the correction should not be made by means of a credit note"; i) that "the Claimant does not demonstrate that there has been, on the part of D… S.A., any deduction of VAT at an initial moment, when the alleged receipt of the invoice in January 2015"; j) that, "moreover, the Claimant does not prove, above all, that the regularization indicated in annex 41 of the DP of February 2016, delivered by D… S.A (attached by it as document no. 5 of the arbitral petition), is based on that specific invoice. First of all, because, quite simply the VAT value of the invoice in question is € 4,552.88 and the amount contained in mod. 41 is € 4,920.92"; l) that, "just as the right to deduction, also the right to regularization is formalistic. [...]. [...] it was incumbent on the Claimant to prove that the acquiring entity, or by whom it may have succeeded in legal terms, had been notified of the intended rectification. [...]. [...] not having the Claimant complied with the essential requirement for the acceptance of the regularization, it cannot be accepted, so the decision to dismiss the gracious complaint must be maintained and the arbitral pronouncement petition now presented judged dismissed"; m) that, "by force of the application of the principle of neutrality underlying VAT, the regularization carried out shall only be admissible if the Claimant comes to present the accounting elements that support annex 41 of the DP delivered by D… S.A. (VAT number …), in order to ensure that the value of the invoice here scrutinized is included therein, given the divergence of values mentioned above"; n) that, "in view of all the above, it is thus verified that the assessment in question in the proceedings results strictly from what was self-declared by the Claimant, with no error attributable to the services of the TA [and, consequently,] no error attributable to the services in terms of article 43, no. 1, of the General Tax Law."

2.4. The TA concludes that the present petition should be "judged dismissed [...] and the Respondent absolved from the petition, all with the due and legal consequences."

III – Proven Facts, Unproven Facts and Respective Justification

3.1. The following facts are considered proven:

i) The now Claimant is a limited liability company with registered office in national territory that exercises, as principal activity, the business of wholesale trade in perfumes and hygiene products, registered with CAE 46450. It is a taxable person for VAT purposes in terms of paragraph a) of no. 1 of article 2 of the VAT Code, being subject to the normal monthly regime, and must therefore submit monthly periodic declarations, in accordance with the provisions of article 41, no. 1, paragraph a), of the VAT Code.

ii) On 11/12/2015, the Claimant annulled the incorrectly issued invoice through credit note no. … and the issuance of invoice no. … (see, respectively, Docs. 8 and 9). As a result of the said annulment, C…, as purchaser of the goods transferred by the now Claimant, regularized the VAT deducted in favour of the State in 'Annex 41 – Regularizations in favour of the State' (see Doc. 5). For its part, the Claimant regularized the VAT paid to the State in its favour in 'Annex 40 – Regularizations in favour of the taxable person' of the periodic declaration relating to the period of December 2015 (see Doc. 11). The now Claimant further attached to the present proceedings the duplicate of the credit note signed by the purchaser, as evidence that this – C… – became aware of the correction of the invoice (see Doc. 10). The authenticity of this document was not questioned in these proceedings.

iii) On 5/2/2016, the Claimant submitted electronically the periodic VAT declaration no. …, relating to the period of December 2015, within the deadline established in article 41, no. 1, paragraph a), of the VAT Code, the amount of VAT to be assessed being € 760,017.97 (see Doc. 11) – an amount entirely paid to the State on 10/2/2016 (as evidenced by the payment receipt attached as Doc. 13).

iv) On 12/2/2016, the Claimant was notified, through its electronic mailbox, that "inaccuracies were verified in the tax identification numbers (VAT numbers), indicated in the Annex 'Regularizations of Field 40'" (see Doc. 14). It further results from the said notification that the error in question was verified in Line 17 and regarding the client with the VAT number …, because this VAT number appears as ceased for VAT purposes. According to the TA, the inaccuracy relates to VAT regularized in favour of the taxable person, under article 78, no. 2, of the VAT Code, in the amount of € 4,553.88.

v) Recognizing that it had erred in the justification of the VAT regularization in the amount of € 4,553.88, the Claimant submitted electronically, on 16/2/2016, a replacement periodic declaration, no. …, relating to the same period and with the same amount of VAT assessed (see Doc. 16), an amount that had already been paid to the State on 10/2/2016. In annex 40 of the said replacement periodic declaration, the Claimant corrected the justification of the VAT regularization carried out in its favour, in the amount of € 4,553.88, identifying that the same regularization was being carried out under article 78, no. 3, of the VAT Code.

vi) The now Claimant was notified of the additional assessment no. 2016…, in the amount of € 4,553.25 (see Doc. 1). On 4/5/2016, the Service of Oeiras … notified the Claimant that "with respect to the information request submitted on 2016-02-19, to the electronic counter, not being the proper means, the same was ordered to be converted into a gracious complaint." (see Doc. 19).

vii) On 10/5/2016, the now Claimant presented a gracious complaint against the VAT assessment no. 2016…, relating to the period of 201512 (see Doc. 20). The dismissal of the said complaint was notified to the Claimant on 12/9/2016 (see Doc. 25).

viii) Dissatisfied, the now Claimant deduced, on 12/12/2016, the present arbitral pronouncement petition.

3.2. There are no material unproven facts relevant to the decision of the case.

3.3. The facts considered pertinent and proven (see 3.1) are justified in the analysis of the positions exposed by the parties and the documentary evidence attached to the present proceedings.

IV – On the Law

In the present case, the essential questions that arise are whether: 1) the now Claimant complied with the obligation provided for in article 78, no. 5, of the VAT Code and, also, whether the VAT regularization to be carried out by the Claimant should be done under article 78, no. 3, of the VAT Code; 2) as alleges the now Claimant, the assessments in question suffer from "illegality due to duplication of collection"; and 3) whether the requested compensatory interest is due.

Let us then see.

  1. The Claimant alleges that error occurs in the factual assumptions because "the Respondent [considered] that B… CRL would be the purchaser of the operation of transfer of goods supported by the initial invoice no. …, an error which led the Respondent to the wrong conclusion that the 'conditions for the operation of the mechanism provided for in article 78 of the VAT Code' were not met [...] and to the consequent acts of dismissal of the gracious complaint, of additional VAT assessment and of assessment of default interest and compensatory interest". The Claimant further adds that "the Respondent presupposes that the purchaser, in the transfer of goods supported by the initial invoice no. …, is B… CRL. However, [...] the purchaser is C…".

The Claimant recognizes "the error committed [...] in the initial invoice", but emphasizes that that error "was not that of the identity of the purchaser – which is always correctly identified as C… in the initial invoice, in the credit note and in the corrected invoice – but rather that of the VAT identification number entered in the initial invoice, which should have been the VAT number …, of C…, and not the VAT number …, of B… CRL".

Observing the documentary elements that were brought to the proceedings, it is verified that the now Claimant is correct, since it complied with the obligation established in article 78, no. 5, of the VAT Code.

As can be read above, in point ii) of the proven facts: a) on 11/12/2015, the Claimant annulled the incorrectly issued invoice through credit note no. … and the issuance of invoice no. … (see, respectively, Docs. 8 and 9); b) as a result of the said annulment, C…, as purchaser of the goods transferred by the now Claimant, regularized the VAT deducted in favour of the State in 'Annex 41 – Regularizations in favour of the State' (see Doc. 5); c) the Claimant regularized the VAT paid to the State in its favour in 'Annex 40 – Regularizations in favour of the taxable person' of the periodic declaration relating to the period of December 2015 (see Doc. 11); and d) the Claimant further attached to the present proceedings the duplicate of the credit note signed by the purchaser, as evidence that this – C… – became aware of the correction of the invoice (see Doc. 10).

As also referred above, in point iii) of the proven facts, the Claimant, on 5/2/2016, submitted electronically the periodic VAT declaration no. …, relating to the period of December 2015, within the deadline established in article 41, no. 1, paragraph a), of the VAT Code, the amount of VAT to be assessed being € 760,017.97 (see Doc. 11), an amount that was entirely paid to the State on 10/2/2016 (as evidenced by the payment receipt attached as Doc. 13).

Recognizing that it had erred in the justification of the VAT regularization in the amount of € 4,553.88, the now Claimant submitted electronically, on 16/2/2016, a replacement periodic declaration, no. …, relating to the same period and with the same amount of VAT assessed (see Doc. 16), an amount that had already been paid to the State on 10/2/2016. In annex 40 of the said replacement periodic declaration, the Claimant corrected the justification of the VAT regularization carried out in its favour, in the amount of € 4,553.88, identifying that the same regularization was being carried out under article 78, no. 3, of the VAT Code. [See above, point v) of the proven facts.]

It is thus concluded that the now Claimant carried out all the procedures necessary for the recognition of the right to regularization of the VAT assessed in the invoice no. …, subsequently corrected through credit note no. … and invoice no. …. Being also evident that the omission relating to the VAT identification number entered in the initial invoice (… instead of …, this being the exact VAT number of the there identified C…) configures a case of inaccuracy of the invoice, in accordance with (and for the purposes of) the provision of no. 3 of article 78 of the VAT Code.

The TA alleges, however, in its response, that: a) while the invoice no. … "is addressed to the client indicated above [C…], with the client no. …, with registered office at …, …, in ..., relating to request no. …, of 30-12-2014", "on 11-12-2015, the Claimant, intending to annul the invoice, proceeded to issue credit note no. …, for the same value of the invoice subject to annulment, having recorded accountingly, on 13-12-2015, the VAT as debit, to account #24331100 - VAT Assessed. This credit note (cf. document no. 8 of the arbitral petition) was issued to client no. … [C…], with address on Street …, …, in ..."; b) "it is verified that [...] the debit note/invoice no. …, of 14-12-2015 (cf. document no. 8 [9] of the arbitral petition), was issued to the taxable person D… S.A., with the VAT number … (allegedly, according to the Claimant, the true recipient of the invoice), to Avenue …, …, in Lisbon. Now, as verified by consulting the mentioned Portal of Justice, D… S.A. had not had its registered office in that location since September 2012, that is, more than three years before the issuance of that document, being listed as registered office Street …, no. …, in ..."; c) "in the case at hand, the inaccuracy of the invoice initially issued does not respect to the taxable value of the operation nor to the amount of tax in question, so, in this case, the correction should not be made by means of a credit note"; d) "the Claimant does not prove [...] that the regularization indicated in annex 41 of the DP of February 2016, delivered by D… S.A (attached by it as document no. 5 of the arbitral petition), is based on that specific invoice. First of all, because, quite simply the VAT value of the invoice in question is € 4,552.88 and the amount contained in mod. 41 is € 4,920.92."

The TA is not correct, however, since: a) the difference in addresses does not prevent it from being considered that the rectification was correctly made, given that it is merely a lapse without determinant influence in the identification of the client mentioned above (as rightly emphasizes the Claimant, in point 18 of its initial petition, "[despite that lapse] both documents [were] received [...] by C…, which recorded them in its accounting and gave them the appropriate classification in VAT purposes"); b) despite the lapse in addresses mentioned by the TA, it should be noted that such lapse relates to the billing address and not to the shipping address; c) the inaccuracy of invoices, referred to in no. 3 of article 78 of the VAT Code, respects all elements or requirements comprised in the same and not only, as the TA alleges, "the taxable value of the operation [or] the amount of tax in question" (for there are no reasons to depart from the maxim where the law does not distinguish nor should we distinguish); d) the divergence of values referred to does not prevent it from being considered that the amount contained in mod. 41 includes the value of the VAT invoice in question, given that that amount is greater than this (moreover, no element was brought to the proceedings in such a way that one can reasonably doubt the inclusion of that value in the amount referred to in mod. 41).

It is further added, finally, that, as already stated before, having the now Claimant presented the duplicate of the credit note signed by the purchaser, it is concluded that sufficient evidence was presented that the purchaser, C…, became aware of the correction of the invoice (see Doc. 10) – thus complying with the provision of article 78, no. 5, of the VAT Code. It should further be noted, in this regard, that in these proceedings the authenticity of the said document was not questioned.

In view of the above, it is concluded that the tax acts now in question are illegal, due to error in the factual and legal assumptions – which determines the annulment thereof and the refund of the amounts wrongfully paid.

  1. Having been concluded, in 1), that the allegation of the now Claimant was well-founded, it becomes unnecessary to analyze the other allegations made by the same.

  2. In light of what is provided in no. 5 of article 24 of the RJAT – "payment of interest, regardless of its nature, is due, in accordance with the terms provided for in the general tax law and in the Code of Tax Procedure and Process" –, it has been understood that this provision allows the recognition of the right to compensatory interest in arbitral proceedings. The analysis of the present petition is thus justified.

Compensatory interest is due when it is determined, in a gracious complaint or judicial challenge, that there has been error attributable to the services from which results payment of the tax debt in an amount higher than legally due (see article 43, no. 1, of the General Tax Law). It is therefore a necessary condition for the attribution of the mentioned interest the demonstration of the existence of error attributable to the services: "The right to compensatory interest provided for in no. 1 of article 43 of the General Tax Law [...] depends on it being demonstrated in the proceedings that that act is affected by error regarding the factual or legal assumptions attributable to the TA." (Decision of the Supreme Administrative Court of 30/5/2012, case 410/12).

Having there been, as results from what was stated in 1), error attributable to the services, such determines the well-foundedness of the petition for payment of compensatory interest.

V – DECISION

In view of the above, it is decided:

– To declare the illegality of the VAT assessment impugned and of the assessment of default interest and compensatory interest no. 2016…, determining its annulment, as well as the refund of the amounts wrongfully paid.

– To judge the petition well-founded also in the part relating to the recognition of the right to compensatory interest in favour of the claimant.

The value of the case is set at € 4,585.27 (four thousand five hundred and eighty-five euros and twenty-seven cents), in accordance with article 32 of the Tax Procedure and Process Code and article 97-A of the Tax Procedure Code, applicable by force of the provision in article 29, no. 1, paragraphs a) and b), of the RJAT, and of article 3, no. 2, of the Regulations on Costs in Tax Arbitration Proceedings (RCPAT).

Costs at the expense of the respondent, in the amount of € 612.00, in accordance with Table I of the RCPAT, and in compliance with the provisions of articles 12, no. 2, and 22, no. 4, both of the RJAT, and the provision in article 4, no. 4, of the said Regulation.

Notify.

Lisbon, 1 June 2017.

The Arbitrator,

(Miguel Patrício)

Document prepared by computer, in accordance with the provision in article 131, no. 5, of the Code of Civil Procedure, applicable by referral of article 29, no. 1, paragraph e), of the RJAT.

The drafting of the present decision is governed by the orthography prior to the Orthographic Agreement of 1990.

Frequently Asked Questions

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What are the requirements for VAT regularization under Article 78 of the Portuguese VAT Code (CIVA)?
Under Article 78 of the Portuguese VAT Code (CIVA), VAT regularization requires: (1) proper documentation including credit notes for invoice annulments and corrected invoices; (2) notification to the affected party with proof they became aware of the correction, as mandated by Article 78(5) CIVA - typically evidenced by a signed duplicate of the credit note; (3) appropriate entries in periodic VAT declarations using Annex 40 for regularizations favoring the taxable person and Annex 41 for regularizations favoring the State; and (4) compliance with timing requirements for when regularizations may be performed. The regularization mechanism allows correction of VAT previously assessed or deducted, whether in favor of the State or the taxpayer.
Can a taxpayer challenge an additional VAT assessment through tax arbitration at CAAD?
Yes, taxpayers can challenge additional VAT assessments through tax arbitration at CAAD (Centro de Arbitragem Administrativa). Under the Legal Framework for Arbitration in Tax Matters (RJAT - Decree-Law 10/2011 of January 20), Article 2(1)(a) and Article 10 provide that taxpayers may request the constitution of an arbitral tribunal to contest VAT assessments. This typically follows the rejection of a gracious complaint (reclamação graciosa) by the Tax Authority. The taxpayer must submit the arbitration request within the legal deadline, and the proceedings offer an alternative to judicial courts for resolving tax disputes with binding decisions.
What constitutes duplicate tax collection (duplicação de coleta) in Portuguese VAT law?
Duplicate tax collection (duplicação de coleta) in Portuguese VAT law occurs when the State collects VAT twice on the same taxable transaction or tax base. This represents an illegal form of taxation as it violates the principle that each taxable supply should be taxed only once. In the context of invoice corrections, duplication can arise when: (1) a taxpayer pays VAT on an original invoice to the State; (2) subsequently corrects the invoice following proper procedures; but (3) the Tax Authority refuses to recognize the regularization and issues an additional assessment, effectively requiring payment of VAT on the same supply twice. Such duplicate collection constitutes a ground for annulment of tax assessments as it lacks legal basis.
What proof must a supplier provide that the buyer was notified of a VAT invoice correction under Article 78(5) CIVA?
Under Article 78(5) of the Portuguese VAT Code (CIVA), a supplier must provide proof that the buyer was notified of and became aware of the VAT invoice correction. Acceptable evidence includes: (1) a duplicate copy of the credit note signed by the purchaser, demonstrating their acknowledgment of the invoice annulment; (2) written correspondence from the buyer confirming receipt of the correction; or (3) the buyer's own VAT regularization in their periodic declaration (Annex 41), which indirectly demonstrates awareness. The Tax Authority requires this proof to prevent fraudulent VAT regularizations and ensure both parties to the transaction make corresponding adjustments. The signed credit note duplicate is considered the most direct and reliable evidence of buyer notification.
What is the procedure for filing a gracious complaint (reclamação graciosa) against a VAT assessment in Portugal?
The procedure for filing a gracious complaint (reclamação graciosa) against a VAT assessment in Portugal involves: (1) submitting the complaint to the competent tax authority within the legal deadline (generally 120 days from notification of the assessment); (2) clearly identifying the contested assessment and stating the grounds for challenging it; (3) presenting supporting documentation and legal arguments; (4) awaiting the Tax Authority's decision, which may uphold or annul the assessment; and (5) if the complaint is dismissed, the taxpayer may escalate to tax arbitration at CAAD under RJAT or pursue judicial review in administrative courts. The gracious complaint is an administrative remedy that must typically be exhausted before accessing arbitration or judicial proceedings for VAT disputes.