Process: 741/2014-T

Date: June 5, 2015

Tax Type: Valor do pedido:

Source: Original CAAD Decision

Summary

This arbitral decision (Process 741/2014-T) addresses procedural and substantive issues involving both IRC (Corporate Income Tax) and VAT claims filed by A... - ..., LDA. The taxpayer challenged the correction of tax losses for fiscal year 2011 (reducing declared losses from €318,833.54 to €21,561.84) and additional VAT assessments for periods 1103T, 1106T, and 1109T totaling approximately €95,000 plus compensatory interest. The Tax Authority raised two key procedural exceptions: the illegality of cumulating IRC and VAT claims in a single arbitration request, and the untimeliness of the IRC claim. The arbitral tribunal, constituted on 05-01-2015, ruled decisively on the timeliness issue, determining that the taxpayer accessed the IRC tax loss correction notice on 19-05-2014 via electronic mailbox but only filed the arbitration request on 27-10-2014, exceeding the mandatory 90-day period established in Article 10(1)(a) of the LRTA. The tribunal rejected the taxpayer's argument that all inspection-based acts should follow a unified timeline, holding that each independently challengeable act has its own time limit counting from notification. The tribunal also denied the taxpayer's request to substitute the challenged 2011 IRC act with a 2013 correction, ruling that such substitution would constitute a different proceeding under the objective contention model. The substantive issues involve the application of reduced VAT rates to golf sales and VAT treatment of accommodation services, though these merits were not reached given the procedural dismissal of the IRC claim.

Full Decision

ARBITRAL DECISION

The arbitrators Dr. Jorge Manuel Lopes de Sousa (arbitrator-president), Dr. Jaime Carvalho Esteves, and Dr. Filipa Barros, designated by the Deontological Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 05-01-2015, hereby agree as follows:

1. Report

A… - …, LDA., Business Taxpayer Registration Number …, submitted a request for the constitution of a collective arbitral tribunal, pursuant to the combined provisions of Articles 2, 3, and 15 et seq. of Decree-Law No. 10/2011, of 20 January (Legal Regime for Tax Arbitration, hereinafter referred to only as LRTA), in which the TAX AND CUSTOMS AUTHORITY is the respondent.

The claimant opted for non-designation of an arbitrator.

The request for constitution of the arbitral tribunal was accepted by the President of CAAC and was automatically notified to the Tax and Customs Authority.

Pursuant to the provisions of paragraph (a) of Article 6, paragraph 2, and paragraph (b) of Article 11, paragraph 1, of the LRTA, the Deontological Council designated as arbitrators of the collective arbitral tribunal the signatories, who communicated acceptance of the appointment within the applicable time limit.

On 17-12-2014, the parties were notified of this designation and manifested no intention to refuse the appointment of the arbitrators, pursuant to the combined provisions of Article 11, paragraph 1, paragraphs (a) and (b), of the LRTA and Articles 6 and 7 of the Deontological Code.

Thus, in accordance with the provision of paragraph (c) of Article 11, paragraph 1, of the LRTA, the collective arbitral tribunal was constituted on 05-01-2015.

The claimant seeks to have the following declared illegal and annulled:

(i) the act correcting the tax losses declared by the present claimant for the year 2011, in the corrected amount of €318,833.54, which established its tax losses for the fiscal year 2011 at €21,561.84;

(ii) the acts assessing additional VAT and compensatory interest for the periods 1103T, 1106T, and 1109T, in the amounts of €32,625.91, €35,728.94, and €26,541.80, respectively, and corresponding compensatory interest;

(iii) with the inherent condemnation of the Public Treasury to reimburse the present claimant all respective tax and correlated interest already fully paid, plus indemnity interest in accordance with Article 43 of the General Tax Law, calculated from 25 June 2014.

The Tax and Customs Authority filed a response raising the exceptions of illegality of cumulative claims and timeliness of the claim concerning corporate income tax, and defended the lack of merit of the claims.

The claimant issued written comments on the exceptions, attaching a document in order to prove that it was notified of the act correcting tax losses on 13-08-2014.

The Tax and Customs Authority commented on the document presented by the claimant, stating, in summary, that it does not refer to the notification of the tax loss correction act that the claimant challenges, but to another one, and that, with respect to the act challenged in the present proceedings, the claimant accessed it on 19-04-2014 in the electronic mailbox of ViaCTT.

At the meeting provided for in Article 18 of the LRTA, the claimant commented on the exceptions raised and requested that, in the event that the timeliness of the request for arbitral ruling concerning corporate income tax is recognized as lacking, it be permitted to substitute the challenged act with another, due to an oversight on its part in indicating the relevant act.

At that meeting witness evidence was produced, and it was agreed that there would be successive written arguments.

The parties submitted arguments.

The Arbitral Tribunal was duly constituted and the parties are properly represented.

The parties have legal personality and capacity and are legitimately party to the proceedings (Articles 4 and 10, paragraph 2, of the same instrument, and Article 1 of Ordinance No. 112-A/2011, of 22 March).

No other defect is apparent.

2. Question of Timeliness of Challenge to Corporate Income Tax Assessment

The issue of timeliness of the claim relating to the correction of corporate income tax shall be addressed first, as it is logically priority.

The document attached by the claimant demonstrating that notification of the tax loss correction for corporate income tax purposes occurred on 13-08-2014 relates to the "Correction of Losses F (IRC-2014…)."

However, as referred to by the Tax and Customs Authority and accepted by the claimant when commenting on the timeliness issue at the meeting held, that notification refers to the correction of losses for the year 2013, which changed from the declared value of €99,378.80 to €0.00 (documents nos. 2 and 3, attached by the Tax and Customs Authority in response to the document presented by the claimant), and the corporate income tax assessment challenged in the present proceedings concerns the year 2011, and its respective electronic notification has the electronic notification code number, identified by the code 2014… (document no. 4 attached by the Tax and Customs Authority and document no. 1, attached with the request for arbitral ruling, whose contents are deemed reproduced).

The claimant's access to this assessment identified by the code 2014… occurred on 19-05-2014, as shown by document no. 5 attached by the Tax and Customs Authority.

Thus, it must be concluded that the request for arbitral ruling, received at CAAC on 27-10-2014, was not presented within the 90-day period from the date of notification, as provided in Article 10, paragraph 1, paragraph (a), of the LRTA.

The thesis defended by the claimant at the meeting held, to the effect that the time period for challenging all acts based on the Tax Inspection Report should be those applicable to VAT assessments, the last of which were based on it, has no legal support, as paragraph (a) of Article 10, paragraph 1, of the LRTA provides for the counting of time periods for challenging assessment acts from "the facts provided for in paragraphs 1 and 2 of Article 102 of the Tax Procedure and Process Code, with respect to acts capable of autonomous challenge," whereby it is relative to each of the independently challengeable acts that the respective time period for presentation of the request for arbitral ruling must be counted.

With respect to the correction of the request for arbitral ruling, considering that it should challenge the correction act relating to the year 2013, instead of 2011, which the claimant also suggested at the aforementioned meeting, this likewise has no legal support.

In truth, pursuant to Article 10, paragraph 2, paragraph (b), of the LRTA, the identification of the act which is the subject of the request for arbitral ruling is mandatory, and such identification is of paramount importance, as arbitral proceedings were created according to the model of objective contention of the process against an act, which characterizes the process of judicial challenge. Therefore, a proceeding against an act different from the one indicated in the request for arbitral ruling is a different proceeding.

From this perspective, the corrections to procedural documents to which paragraph (c) of Article 18, paragraph 1, refers must be understood as relating to their inadequacy for the assessment of the legality of the act which is the subject of the request for arbitral ruling and no other, this possibility not being extended to the substitution of the act which is the subject of the proceeding. Certainly, it will be embraced by the possibility of correcting deficiencies in the identification of the act which the taxpayer challenged, such as error in the indication of its number, date, or assessment amount, as these will be cases where the correction does not involve substitution of the act which is the subject of the proceeding, merely aiming to clarify the expression of the taxpayer's intention to challenge it. But different from corrections of that type will be cases where the act which was the subject of the request for arbitral ruling is perfectly identified and there was no error in the expression of the taxpayer's intent. The admissibility of substitution of the act would not involve a mere correction of the request for arbitral ruling, but the presentation of a new petition, which would give rise to a new proceeding with a new subject matter.

Confirming that this possibility of correction does not involve the possibility of substitution of the act, it is noted that, even in cases of excusable error, the Tax Procedure and Process Code (TPPC) only admits correction, in its Article 98, paragraph 5, when the error is as to the identification of the author of the act, but not as to the indication of the act. In light of the requirement made in Article 108, paragraph 1, of the TPPC that the identification of the challenged act and the entity that made it be effected in the initial petition, it cannot be concluded otherwise than that the non-provision, in that paragraph 5 of Article 98, of the possibility of regularizing the petition when the error concerns the act itself corresponds to a legislative intention not to admit it.

This conclusion as to the unviability of regularization is reinforced by the fact that in the case at hand there is not even error as to the identification of the act which the taxpayer intended to challenge, as the year to which the correction relates and the amount at issue were indicated, as well as invoices relating to the year 2011 and their values (Article 22 of the request for arbitral ruling).

Thus, it is concluded that the request for arbitral ruling was presented untimely, with respect to the corporate income tax assessment for the year 2011, and we are not in a situation where correction is viable.

Thus, the exception of timeliness is upheld, whereby the Tax and Customs Authority is absolved of the proceedings with respect to the request for annulment of the corporate income tax assessment and dependent claims.

3. Question of Illegality of Cumulative Claims

Having concluded that absolution of the proceedings is warranted with respect to the corporate income tax assessment, the question of illegality of cumulative claims is rendered moot, as only VAT assessments remain as the subject matter of the proceeding.

4. Factual Matters

4.1. Proven Facts

The following facts are deemed proven:

a) The claimant, established as a limited liability company, began operating as "Tourism Resorts with Restaurant," CAE 55117, on 1987-12-01, being classified, in the fiscal year in question, for corporate income tax purposes under the general regime and for VAT purposes under the normal regime with quarterly periodicity;

b) The claimant's corporate purpose includes "Promotion, construction, management, and operation of own tourism enterprises, purchase and sale of real estate";

c) The claimant is owner of a tourism resort located in …, called "B", composed of 77 townhouses and 55 apartments, where in addition to lodging, auxiliary services are provided in the area of sports, leisure, and food services;

d) The claimant granted occupation rights to the resort to a company called C…, with headquarters in the Isle of Man, United Kingdom, which manages the resort through a members' club;

e) Services are provided to the general public at the resort, but more advantageous conditions are offered to the so-called members of B - … (Club), managed by C… (hereinafter C…);

f) The right of lodging at the resort belongs to club members, pursuant to the terms contracted between them and C…;

g) The invoicing of such lodging is performed by the claimant to C…, based on amounts stipulated in a contract executed between the parties, which includes, among other things, the following:

II Activities developed by the parties

  • A… is the owner and manager of the tourism resort located in …, in Portugal, called B…, hereinafter referred to as the resort;

  • C… is the holder of the occupation rights to the B… resort which it manages through a members' club;

  • The right of lodging at the resort belongs to club members pursuant to the terms contracted between them and C…, and A… may only lodge third parties in the cases and conditions specially provided for and authorized by C…;

  • A… directly operates the club's equipment and facilities, including the facilities designated as "clubhouse" which include the restaurant, hairdressing salon, shops, and bar, charging the respective price to users when applicable.

h) The claimant was subject to a comprehensive tax inspection action, pursuant to service order no. OI2012…, in which corrections were made, for VAT and corporate income tax purposes, relating to the year 2011;

i) In the Tax Inspection Report, whose contents are deemed reproduced, it states, among other things, the following:

III. 1 Lodging Invoicing

III.1.1 Lodging Invoicing - The Facts

Having analyzed the accounting, which was made available by the taxpayer at its facilities, namely trial balances, account statements, journal entries, and respective supporting documents, account SNC 7222 - lodging 23% was highlighted, the extract of which is presented:

Two different situations can be distinguished:

Situation 1:

Invoices nos. 13 and 14, issued by the taxpayer to C… (hereinafter also referred to as C…) on 30-11-2011 and 31-12-2011, respectively (copies of which are in the taxpayer's file) and recorded under nos. 110,001 from November and 120,001 from December, both in journal 53.

Invoice no. 13 contains:

And invoice no. 14 contains:

A request was made to the official accountant (OA, Dr. D… Tax ID ….),of the taxpayer, by email of 2013-11-08:

4 - With respect to invoice no. 13/2011 issued to C…, recorded by document no. 110001 from journal 53, explain:

  • What does "Disturbance allowance" and "Reversal of uncoll Accom Serviço Fee" mean and how were the corresponding amounts determined..."

To which a response was provided, by email of 2013-11-21:

4.2 - What does "Disturbance allowance" and "Reversal of uncoll Accom Serviço Fee" mean and how were the corresponding amounts determined; Disturbance Allowance

It corresponds to actual reductions to Lodging Services (Accommodation Services Fees), which typically occur in the months of January to March and November to December, in order to adjust the price of lodging to the quality of services offered. The price of Lodging Services initially ignored the need to differentiate the week based on its positioning in each season of the year, such that the disturbance allowance introduces a negative discrimination (discount for some members), as a result of, for example, noting that in low-season months, part of the villas are subject to renovation and remodeling work, causing inconvenience to the guests (members) of neighboring villas, whereby a discount is applied to the price of accommodation fees charged to those members accommodated, in order to compensate for the disturbances caused. The value of such discounts may correspond to 25, 50, 75, or 125 euros, depending on the villa and week to be occupied.

Reversal Of Uncoll Accom Serv Fee

It corresponds to reductions to Lodging Services (Accommodation Services Fees). This reduction to Lodging Services typically occurs due to the suspension of members, as a consequence of the existence of unpaid amounts, as well as reductions to Lodging Services (Accommodation Services Fees), as a consequence of member resignations. The amounts of Lodging Services charged for the fiscal year are thus reversed to the extent that they would not be owing, due to the occurrence of suspension or resignation previously...."

Situation 2:

  • Invoice no. 2, recorded by document 20001 of 2012-02-28, journal 53

Credited to account SNC 7222 is €392,512.76 and debited to the same account €26,153.05 and €23,619.82, whose difference corresponds to the amount of "Accommodation Fees" of invoice €342,739.89

  • Invoice no. 3, recorded by document 30001 of 2011-03-31

Credited to account 7222 is €5,082.97, €9,256.20, and €420,623.69, and debited to the same account €621,086.60, whose difference corresponds to the amount of "Accommodation Fees" of invoice €413,876.26.

An email was sent to the official accountant on 13-02-2014 with the following:

"Within the scope of the ongoing inspection action, I request the following clarifications:

  • Invoices nos. 2, 3, 4, and 5 issued in 2010 by A… to C…, which are recorded under documents nos. 20001, 30001, 40001, and 50001 of journal 53:

  • It appears that the movements in the journal entry do not correspond to the description of the invoice, why is this?

  • Please demonstrate how the price contained in each invoice was determined (invoice 2: €342,739.89, invoice 3: €413,876.26, invoice 4: €412,910.68, and invoice 5: €335,450.40)."

The response in the taxpayer's file was received by email on 03-03-2014, and it states:

"It appears that the movements in the journal entry do not correspond to the description of the invoice, why is this?"

The descriptions presented in the journal aim to provide supplementary information to management with respect to the invoice issued and integrated automatically into the accounting.

Recovering the information that was sent to you by email on 21/11/2013, in the response to point 4.2 What does "Disturbance allowance" mean, it is stated that the price of Lodging Services, in the cases in question, is formed by two components: the lodging price for a determined week with respect to which, possibly, there may be a reduction, such that the taxable amount for those periods should include the Lodging Services and the respective reduction made within the invoice.

However, not wishing management to lose the information of the amounts relating to Disturbance Allowance, evidence of such amounts is left.

"Disturbance allowance - It corresponds to actual reductions to Lodging Services (Accommodation Services Fees), which typically occur in the months of January to March and November to December, in order to adjust the price of lodging to the quality of services offered. The price of Lodging Services initially ignored the need to differentiate the week based on its positioning in each season of the year, such that the disturbance allowance introduces a negative discrimination (discount for some members), as a result of, for example, noting that in low-season months, part of the villas are subject to renovation and remodeling work, causing inconvenience to the guests (members) of neighboring villas, whereby a discount is applied to the price of accommodation fees charged to those members accommodated, in order to compensate for the disturbances caused. The value of such discounts may correspond to 25, 50, 75, or 125 euros, depending on the villa and week to be occupied.',.."

From the explanation in the preceding point, it is concluded that, although the procedure is different, in practice what occurs is that to the services invoiced by the taxpayer in a given month, various amounts are deducted, either in the invoice (Situation 1), or directly in the accounting entry (which does not correspond directly to the invoice, only to the net amount, as in Situation 2).

It is concluded that, in the case of lodging revenue invoicing owed by C…, the taxpayer operates on a cash basis, being recognized as revenue only the net amount of the transaction, when the correct procedure would be:

  • Invoice the amount arising from monthly service provisions, recognize that revenue accountably, and pay the corresponding VAT;

  • Issue a credit note to regularize situations of improper invoicing or reduction in invoiced amount, such as in the case of discounts, provided that accounting and tax requirements are respected.

Furthermore, in situations where the amounts deducted refer to suspensions and resignations of members, which the taxpayer designates as "Reversal Of Uncoll Accom Serv Fee," it is understood that such deduction to revenue is not the taxpayer's responsibility, inasmuch as the taxpayer's client is the English law company "C…" with headquarters in the Isle of Man, United Kingdom, and not the members of the members' club, who enjoy the lodging services and complementary services provided by the taxpayer and who entered into a contract with C….

With respect to this, see the contract signed between the taxpayer and the aforementioned company, its client, which is in the taxpayer's file and from which the part related to the activity developed by the company was transcribed on page 6 of this inspection report draft, but which is reiterated:

II Activities developed by the parties

  • A… is the owner and manager of the tourism resort located in …, in Portugal, called B…, hereinafter referred to as the resort;

  • C… is the holder of the occupation rights to the B… resort which it manages through a members' club:

• The right of lodging at the resort belongs to club members pursuant to the terms contracted between them and C…, and A… may only lodge third parties in the cases and conditions specially provided for and authorized by C…:

A… directly operates the club's equipment and facilities, including the facilities designated as "clubhouse" which include the restaurant, hairdressing salon, shops, and bar, charging the respective price to users when applicable.

A… further undertakes to.....:

....

  • In the context of good management of available resources, to promote the operation of available units, considering as such those for which there is no reservation of lodging.

As consideration for the services undertaken by A… within the scope of this contract, C… undertakes to pay to the former the amounts presented in Annex 1..." (emphasis ours)

It is also added that in the transfer pricing file of 2011, which is in the taxpayer's file, and referred to on page 17:

"5.3 Accommodation Fees

5.3.1 Brief description of the related operation

Providing to its partners/clients of C…, lodging in the villas of the A… Ltd tourism resort, in … in Portugal..."

(emphasis ours)

On the other hand, and as previously transcribed, when referring to "Reversal Of Uncoll Accom Serv Fee," the taxpayer assumed that these are amounts not collected from club members.

In accordance with the provisions of NCRF 20, revenue is recognized when it is probable that future economic benefits will flow to the entity and those benefits can be reliably measured. The same concept is adopted in Article 18, paragraph 1, of the Corporate Income Tax Code, according to which revenue is attributable to the tax period in which it is obtained, regardless of its receipt, in accordance with the economic accrual regime.

Whereby it is considered that revenue arising from lodging services should be recognized in the fiscal year in which the member is entitled to enjoy the dwelling/week, and should such payment not be made, the measures provided for in the Corporate Income Tax Code must be taken, namely in Articles 36 or 41, when the conditions set forth therein are met.

However, even considering the hypothesis that this type of deduction to revenue is the taxpayer's responsibility (which is not accepted based on what is set forth in the preceding paragraphs), the incorrectness in the recognition of revenue, by violation of the provisions of Article 18, paragraph 1, and NCRF 20, remains.

With respect to what is designated by the taxpayer as "Disturbance Allowance," that is, reductions to the price charged depending on the time of year, the same are provided for in the transfer price file drawn up by the taxpayer at point 5.3.2., and in practical terms, it constitutes a discount on the price charged.

(...)

III.1.2 Lodging Invoicing - Tax Corrections - VAT

VAT operates according to the input tax credit method, that is to say, "...the rate is applied to the total value of the company's transactions in a given period, and from the amount thus obtained, the tax paid by it in purchases in that same period is deducted, revealed in the respective acquisition invoices. The result corresponds to the amount to be remitted to the State...." — 2nd paragraph, point 4 of the preamble to the VAT Code.

That is to say, from the VAT assessed on active transactions, the amount supported in passive transactions is deducted, there being no place for set-off of accounts.

Regularizations in terms of rectification of the taxable amount or of the tax are provided for in Article 78 of the VAT Code, concluding that the taxpayer's practice does not respect what is stipulated in this article, whereby the regularizations effected are improper.

Corrections in VAT are ascertained, allocating the amounts to be corrected to the periods of the invoices in which they were improperly deducted:

[Table of VAT corrections]

III. 2 Sale of Golf Services Taxed at the Reduced Rate

III. 2. 1 Sale of Golf Services Taxed at the Reduced Rate - The Facts

Paragraph (a) of Article 18, paragraph 1, of the VAT Code (CIRC) states that the 6% rate applies to service provisions listed in List I annexed to the instrument, and paragraph (c) that the 23% rate applies to other service provisions.

Until 2010-12-31, item 2.15 of the list stated: "Shows, sports events and competitions, practice of physical and sports activities and other public entertainments. The following are excepted a)...b)..."

With the publication of Law No. 55-A/2010 of 31 December (State Budget for 2011), this item was amended, now reading: "Shows, sports events and competitions and other public entertainments. The following are excepted a)...b)..."

On 2011-02-14, Circular Order No. 30124 from the VAT Services Directorate was published, which in point 7 states "... it should be understood that item 2.15 of List I Annexed to the VAT Code covers, only, the entry or admission tickets to shows, sports events and competitions and other public entertainments"., further noting that the interpretation produces effects from 1 March 2011.

After analyzing the taxpayer's accounting, it was found that in 2011 the reduced rate was applied to services related to the practice of golf, namely in "green fees" (the amount charged to the golfer for the practice of the sport on the golf course).

In the revenue documents it appears that VAT is included, stating the 6% rate.

It was verified that the accounting agrees with the periodic declarations (PD's) submitted by the taxpayer and that field 3 (Tax assessed - reduced rate) contains the amounts of VAT assessed in accounts 24331181 (VAT assessed - sales - 6% rate local currency) and 24331281 (VAT assessed - general operations - 6% rate local currency).

In account 24331181 is recorded the VAT assessed, at the reduced rate, in golf sales, and in account 72438 Golf at 6% the corresponding revenue, extracts of which appear in the taxpayer's file (from March to December).

The taxpayer recognizes revenue and assesses VAT by daily revenue, which is obtained from lists generated by the computer system and which corresponds to the service actually provided, namely in the case of lodging, revenue is recognized on the days of the actual stay, in the case of food and beverage services or golf, on the dates when the service is provided. The invoice is issued at the end of the client's lodging period, for the total, and is not recorded.

III. 2. 2 Sale of Golf Services Taxed at the Reduced Rate - Tax Corrections - VAT

Therefore, the correction to be made in the present inspection action takes into account the amounts credited in the extracts of the revenue account (72438), minus the amounts debited, having confirmed the corrections effected in favor of the taxpayer.

Copies of the daily revenue and corresponding golf sales invoices are in the taxpayer's file.

As stated above, in 2011, sports services, including golf, should be subject to the normal VAT rate, that is, 23%.

Having the taxpayer applied 6%, an additional 17% should be assessed on the taxable base, as shown in the table that comprises Annex 1 (6 sheets printed front and back, totaling 12 pages) to this inspection report draft and which is summarized in the following table:

[Table of golf sales VAT corrections]

NOTE: In the inspection report draft, monthly periods were considered for VAT purposes; reconfiguration is made in quarterly periods, in accordance with the taxpayer's classification in 2011. There is no change in amounts.

III. 2. Gross VAT Corrections

Resulting from the corrections made in points III.1.2 (lodging) and III.2.2 (golf), the gross VAT corrections are obtained:

[Table of total VAT corrections]

NOTE: In the inspection report draft, monthly periods were considered for VAT purposes; reconfiguration is made in quarterly periods, in accordance with the taxpayer's classification in 2011. There is no change in amounts.

j) The claimant was notified to exercise the right to a hearing on the Tax Inspection Report Draft, but did not exercise it;

k) The claimant periodically invoices C… for the weeks that are being used by the club members in accordance with the amounts that are set each year;

l) When a club member resigns from that status or when he fails to make any payment due to C…, and therefore does not exercise or cannot exercise his right of lodging, no amount is, in turn, owed by C…, inasmuch as no service is provided by the claimant;

m) The membership status and its inherent lodging right is suspended or extinguished, should the member fail to make any payment charged to him by C…;

n) Amounts corresponding to lodging that members could not or did not wish to use, because they did not pay or simply because they lost interest, are not charged by the claimant to C…;

o) For mutual control between C… and the claimant, such amounts are reflected according to the appraisal made annually by the former and verified by the latter - in the invoices issued to C…, typically in the last one of the year, under the designation of reversal of uncoll accom serv fee;

p) Such amounts are thus deducted typically in the last invoice of the year because only then is it possible for C… to identify all the weeks that were not occupied by members during that year for any of the aforementioned reasons that led to the suspension or extinction of their lodging rights at the claimant's resort;

q) In the year 2011 at issue, the claimant included in its invoices nos. 13/2011 and 14/2011, dated 30 November 2011 and 31 December 2011, respectively, both issued to C…, under the heading reversal of uncoll accom serv fee negative amounts of €57,203.25, €24,230.08, €74,623.46, and €78,551.34, in the November invoice and €84,225.44 in the December invoice (documents nos. 6 and 7 attached with the request for arbitral ruling, whose contents are deemed reproduced);

r) These amounts are based on lodging services that were not actually provided to members during 2011;

s) Disturbance allowance designates a discount granted to C… that applies to the price of lodging for club members in low-season months;

t) Such discounts are reflected sometimes only in the accounting of the claimant, sometimes also in the invoices issued to C…, also for mutual control of the parties:

u) In 2011, the claimant issued to C… invoices no. 2/2011 and no. 3/2011, dated 28 February 2011 and 31 March 2011, respectively, in consideration for the lodging service it provided during those periods to club members, in the amounts of €421,570.06 and €509,067.80, VAT included (documents nos. 9 and 10 attached with the request for arbitral ruling, whose contents are deemed reproduced);

v) Such amounts included a discount of €49,772.87 relating to January and €21,089.60 relating to February, both as disturbance allowance;

w) On such amounts the tax administration assessed additional VAT of €16,298.37, on the ground of violation of Article 78 of the VAT Code, which it included in the assessment for period 1103T;

x) In 2011, the claimant contracted with various companies preferential access conditions for its clients to the following golf courses (document no. 11 attached with the request for arbitral ruling, whose contents are deemed reproduced);

y) Between March and December 2011, the total number of golf rounds sold by the claimant to its clients amounted to €674,657.19, plus VAT of 6% (page 16 of the Report and Annex I thereto);

z) The claimant paid the amounts relating to the VAT assessments and compensatory interest (document no. 20 attached with the request for arbitral ruling, whose contents are deemed reproduced);

aa) On 27-10-2014, the claimant filed the request for constitution of the arbitral tribunal that gave rise to the present proceedings.

4.2. Unproven Facts

There are no facts relevant to the decision of the case that were not proven.

4.3. Reasoning for the Factual Findings

The facts were deemed proven based on the documents attached to the request for arbitral ruling and which are in the administrative file and based on the testimony given at the meeting held.

The witnesses examined appeared to testify with impartiality and with knowledge of the facts on which they pronounced themselves.

5. Legal Matters

5.1. Question of VAT Relating to Lodging

The Tax and Customs Authority made a VAT correction on the understanding that VAT operates according to the input tax credit method, whereby the rate should be applied to the total value of the company's transactions in a given period and the tax supported in purchases in that same period deducted from the amount thus obtained, as revealed in the respective acquisition invoices, based on the 2nd paragraph, point 4 of the preamble to the VAT Code.

In the understanding of the Tax and Customs Authority, from the VAT assessed in active transactions, the amount supported in passive transactions is deducted, there being no place for set-off of accounts, and regularizations in terms of rectification of the taxable amount or of the tax are provided for in Article 78 of the VAT Code, concluding that the taxpayer's practice does not respect what is stipulated in this article, whereby the regularizations effected are improper.

The claimant contends that the matter has no scope within Article 78 of the VAT Code and that the taxable amount excludes "discounts, abatements, and bonuses granted," as expressly results from paragraph 6 of Article 16 of the VAT Code. The claimant argues that, constituting what is designated as "disturbance allowance" a discount, as the inspection services acknowledge, nothing prohibits, indeed everything requires, that it be excluded from the taxable amount of invoices nos. 2/2011, 3/2011, 13/2011, and 14/2011.

The VAT correction made by the Tax and Customs Authority regarding discounts made with respect to lodging has no legal foundation.

First, the preamble of the VAT Code has no normative value, being relevant only to interpret norms of that Code.

Furthermore, Article 78 VAT Code refers to regularizations subsequent to the issuance of invoices, as explicitly results from its paragraph 1, in establishing, in the version in force in 2011, that "the provisions of Articles 36 and following must be observed whenever, having issued the invoice or equivalent document, the taxable amount of an operation or the respective tax comes to be rectified for any reason."

In the case at hand, at the time of issuance of the invoice, a reduction relating to "disturbance allowance" was made, and therefore the issuance of the invoice should be made, as it was, deducting the value of the discount from the total value of the service provided, as results from Article 16, paragraph 6, paragraph (b), of the VAT Code which establishes that "from the taxable amount referred to in the preceding paragraph the following are excluded: (...) b) Discounts, abatements, and bonuses granted."

Thus, having the aforementioned invoices been issued when the reduction had already occurred, this norm provides legal support for not considering the value of the reduction in the value of the transaction.

Therefore, the correction effected is tainted with the vice of violation of law, namely Articles 16, paragraph 6, paragraph (b), and 78 of the VAT Code, which justifies the annulment of the VAT assessment relating to period 1103T in the part corresponding to €16,297.68 (Tax Inspection Report, page 14) ( [1] ).

5.2. Question of Application of the Reduced VAT Rate

The claimant established contracts with companies operating golf courses to provide its clients with preferential access.

By analyzing the claimant's accounting, the Tax and Customs Authority found that in 2011 the reduced VAT rate of 6% was applied to services related to the practice of golf, namely to so-called "green fees," which is the amount charged to the golfer for the practice of the sport on the golf course.

The Tax and Customs Authority understood that in the year 2011 the normal VAT rate of 23% should have been applied, based on the wording of item 2.15 of List I, annexed to the VAT Code.

The normal VAT rate in 2010 was 23%, pursuant to paragraph (c) of Article 18, paragraph 1, of the VAT Code, in the version of Law No. 55-A/2010, of 31 December.

List I annexed to the VAT Code lists the goods and services subject to the reduced rate, which was 5% and became 6% with the version given by Law No. 12-A/2010, of 28 August, to paragraph (a) of Article 18, paragraph 1, of the VAT Code.

With Law No. 55-A/2010, of 31 December, the wording of item 2.15 of List I became the following:

2.15 - Shows, sports events and competitions and other public entertainments.

In the prior version this item had the following wording:

2.15 - Shows, sports events and competitions, practice of physical and sports activities and other public entertainments

That is to say, in the version in force in 2011, the reference to "practice of physical and sports activities" was removed from the provisions of services to which the reduced rate is applicable.

The interpretation that flows linearly from this legislative amendment is that the reduced rate ceased to apply to services related to the "practice of physical and sports activities," provided that this is not connected with shows, sports events, and competitions.

The Supreme Administrative Court has repeatedly and uniformly held that, in light of this new wording of item 2.15 (currently repealed), the so-called "green fee," which constitutes a "use fee for the course," is not covered by the reduced rate.

Reference is made in the judgment of the Supreme Administrative Court of 08-04-2015, rendered in case no. 0744/14:

"It is commonly accepted that 'green fees' are usage fees for 'greens' by golfers on courses of which they are not members or associates, or on purely commercial courses, as on courses operated by clubs or associations of which the golfers are members, the use of the 'green' is one of the rights of the member, arising from that status.

In the view of the CJEU, such 'green fees' constitute the economic consideration for the granting of the right to use that golf course to visitors who are not members of that same body, cfr. Judgment dated 19/12/2013, Case no. C-495/12, Commissioners for Her Majesty's Revenue and Customs v. Bridport and West Dorset Golf Club Limited.

The CJEU further clarifies that, "Inasmuch as access to the golf course is necessary in order to practice this sport, the provision consisting of the granting of the right to use a golf course is closely related to the practice of sport within the meaning of Article 132, paragraph 1, paragraph (m), of Directive 2006/112, regardless of whether the person in question practices golf regularly or in an organized manner, or with a view to participating in organized sports competitions."

From this excerpt, we can already begin to get an idea of the type of use of the 'green' that is intimately connected with the said 'green fee'.

As can also be seen from the website of the Portuguese Golf Federation (http://portal.fpg.pt/web/guest/clubes), its member Clubs, Associations, and Companies - such as the respondent - can be noted. Among these members, some have their own 'Course' - such as the respondent - and among the affiliated members with their own 'Course', only some are qualified to organize Tournaments – in which the respondent is not included.

Furthermore, as can be inferred from the 'Rules of Golf', also found on the Federation's website (http://portal.fpg.pt/web/guest/regra-7-treino), in Rule 7, practice is provided for as opposed to competitions, and it is certain that these 'Rules' are established for the conduct of competitions between athletes (professional or amateur), and not all possible uses of the 'Golf Course' in non-competitive situations are expressly provided for therein.

Moreover, as a rule, all golf competitions have their own regulations, which establish a maximum number of player registrations, the amount to be paid for registration, the modality, other rules, and respective technical information.

That is to say, from this we can conclude, with some ease, that the so-called 'green fee' is not intended to permit the golfer's access to the golf course in order to participate in a competition, event, or sports show, but rather is intended to permit the golfer to have access to the course in order to practice his individual game, or accompanied by other golfers, but without it being possible to attribute to such sports activity the characteristics proper to a sports show or event, as such.

In truth, the concept of sports event, as used in the Tax Laws, in the Law on Basis of Physical Activity and Sports, Article 32, and in Regulatory Decree no. 2-A/2005 of 24/03, Articles 2 and 6, implies that the sports event, whether intended for competition or for the promotion of sports activities, requires prior preparation, prior organization that implies public disclosure, adaptation of spaces, availability of qualified personnel for auxiliary or refereeing tasks, obtaining of licenses, etc… It being also certain that the expression "sports event," without the character of competition, is always intimately linked to sports activity in public space, cfr. the legal provisions referred to above.

Moreover, the establishment of the "Handicap" of each golfer, which (may) occur(s) outside of competition, is not intimately linked to the payment of the "green fee," since each golfer may make the "round" of the course for the establishment of such "Handicap" within the scope of the quality of associate of a Club affiliated with the FPG (cfr. http://portal.fpg.pt/web/guest/sistema-de-handicaps-ega) and if they do so on the course of the club of which they are a member, as we have already seen, they do not need to pay the said "green fee," since they already pay an annual membership fee.

Thus, and pursuant to Articles 9 of the Civil Code and 11 of the General Tax Law, the provisions in question are not susceptible to any interpretation other than this, since the same expressions used by the legislator in the various legal instruments always assume the same meaning, always refer to the same material reality, to the same fact of real life that they intend to regulate and regulate".

This jurisprudence was reiterated in the judgments of 08-04-2015, rendered in cases nos. 745/14 and 0797/14, and in the judgments of 22-04-2015, rendered in cases nos. 0763/14 and 0747/14.

In light of this interpretation, which has manifest support in the text of item no. 2.15 in the version introduced by Law No. 55-A/2010, of 31 December, what is decisive for the classification of a provision of services within its scope is not the circumstance of whether or not it is a regulated sports activity, but rather whether it falls within a show, sports event, or public nature competition.

Therefore, the position taken by the Tax and Customs Authority is correct, in understanding that the reduced rate is not applicable to service provisions that consist of providing access to golf courses, outside the scope of shows, sports events, and competitions.

Thus, the request for arbitral ruling lacks merit on this issue.

6. Reimbursement of Amounts Paid and Indemnity Interest

As results from the foregoing, only the request for arbitral ruling regarding the issue of annulment of the correction relating to VAT relating to lodging service provision is meritorious.

In that respect, the error in the assessment is attributable to the Tax and Customs Authority, since the claimant in no way contributed to its commission.

Therefore, having the claimant paid the amounts of VAT and compensatory interest that were assessed, it has the right to their reimbursement and to indemnity interest, pursuant to Article 43, paragraph 1, of the General Tax Law, in the part corresponding to the VAT and compensatory interest that it paid with respect to that provision of lodging services.

Indemnity interest is due at the legal default rate, from the date on which the aforementioned amounts were paid (24-06-2014) until the date on which reimbursement occurs.

With respect to the other amounts paid, the request for arbitral ruling lacking merit, the requests for reimbursement and indemnity interest also lack merit, as they presupposed the illegality of the assessments.

7. Decision

In these terms, the arbitrators of this Arbitral Tribunal hereby agree to:

a) Find the exception of timeliness with respect to the challenge of the corporate income tax assessment to be well-founded and absolve the Tax and Customs Authority of the proceedings, in the respective part;

b) Find the request for arbitral ruling partially meritorious with respect to the issue of VAT relating to lodging and annul the VAT assessment relating to period 1103T in the part corresponding to €16,297.68, as well as the assessment of compensatory interest in the part corresponding to this amount, and condemn the Tax and Customs Authority to reimburse the claimant such amount and respective compensatory interest, as well as to pay the claimant indemnity interest calculated at the legal default rate on the amount to be reimbursed from 24-06-2014, until full payment;

c) Find the request for arbitral ruling to lack merit with respect to the VAT assessments and compensatory interest relating to periods 1106T and 1109T, in the amounts of €35,728.94 and €26,541.81, respectively, and absolve the Tax and Customs Authority of the requests for annulment, reimbursement, and indemnity interest relating to these assessments;

d) Find the request for arbitral ruling to lack merit with respect to the assessment relating to period 1103T in the part corresponding to VAT relating to golf-related expenses (€16,328.24) and compensatory interest relating to this amount, and absolve the Tax and Customs Authority of annulment, reimbursement, and indemnity interest relating to this part of the assessment relating to period 1103T and respective compensatory interest;

8. Case Value

In accordance with the provision of Article 306, paragraph 2, of the Code of Civil Procedure and Article 97-A, paragraph 1, paragraph (a), of the Tax Procedure and Process Code and Article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the case value is fixed at €423,858.37.

9. Costs

Pursuant to Article 22, paragraph 4, of the LRTA, the amount of costs is fixed at €6,732.00, pursuant to Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 05 June 2015

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(Jaime Carvalho Esteves)

(Filipa Barros)

[1] The assessment relating to period 11/12T is not challenged in the present proceedings.

Frequently Asked Questions

Automatically Created

Can a taxpayer cumulate IRC and VAT claims in a single arbitration request under Portuguese tax law?
Under Portuguese tax arbitration law, the cumulation of IRC and VAT claims in a single arbitration request is procedurally contested. In Process 741/2014-T, the Tax and Customs Authority raised an exception of illegality regarding the cumulative filing of corporate income tax (IRC) and value-added tax (VAT) claims. While the arbitral decision excerpt does not provide the final ruling on this specific exception, it demonstrates that tax authorities challenge such cumulation as potentially improper. The legal framework requires each independently challengeable administrative act to be properly identified and timely challenged according to its own notification date, suggesting that combining distinct tax types may face procedural obstacles, though taxpayers may still attempt such cumulation subject to tribunal acceptance.
What is the applicable VAT rate for golf-related sales in Portugal?
The applicable VAT rate for golf-related sales in Portugal is a substantive issue addressed in Process 741/2014-T, which specifically involves the 'application of reduced VAT rate to golf sales' as one of its central themes. The case concerns whether golf-related transactions qualify for the reduced VAT rate rather than the normal rate. Portuguese VAT legislation provides for reduced rates (currently 6% or 13% depending on the Autonomous Region) for specific goods and services listed in Article 18 of the VAT Code (CIVA). Golf sales typically involve both goods (equipment, merchandise) and services (green fees, instruction), each potentially subject to different rates. The arbitral decision indicates this classification was disputed, with the Tax Authority presumably arguing for the normal rate (23% in mainland Portugal) while the taxpayer contended for reduced rate application. The proper classification depends on the specific nature of the golf-related sales and their qualification under CIVA provisions.
How is VAT on accommodation services treated under Portuguese tax arbitration?
VAT on accommodation services under Portuguese tax arbitration is treated as a distinct substantive issue requiring proper legal classification. Process 741/2014-T specifically addresses 'VAT related to accommodation' as one of its key themes, involving additional VAT assessments for quarterly periods 1103T, 1106T, and 1109T. Portuguese VAT law provides special treatment for accommodation services under Article 18(1)(d) of the CIVA, which may qualify for reduced VAT rates depending on the specific type of establishment and services provided. In tax arbitration proceedings, accommodation-related VAT disputes typically concern whether the taxpayer correctly applied the appropriate rate, properly documented transactions, or legitimately deducted input VAT. Taxpayers challenging additional VAT assessments on accommodation services can seek both annulment of the unlawful assessments and reimbursement of amounts paid, plus compensatory interest under Article 43 of the General Tax Law (LGT), calculated from the payment date. Each VAT period assessment constitutes an independently challengeable act with its own 90-day arbitration filing deadline from notification.
What are the time limits for filing a tax arbitration request regarding IRC fiscal loss corrections?
The time limit for filing a tax arbitration request regarding IRC fiscal loss corrections is 90 days from the notification date, as established in Article 10(1)(a) of the Legal Regime for Tax Arbitration (LRTA - Decree-Law No. 10/2011). In Process 741/2014-T, the arbitral tribunal strictly enforced this deadline, ruling that the taxpayer's request was untimely because the IRC tax loss correction act was accessed electronically on 19-05-2014 but the arbitration request was only filed on 27-10-2014, exceeding the 90-day period. Critically, the tribunal rejected the taxpayer's argument that when multiple tax assessments derive from the same tax inspection report, they should share a unified deadline based on the last notification. Instead, the tribunal held that each independently challengeable administrative act has its own time period counted from its respective notification under Article 102 of the Tax Procedure Code (CPPT). Electronic notifications through platforms like ViaCTT are deemed effective upon access by the taxpayer. This strict deadline is mandatory and cannot be extended by attempting to substitute the challenged act with another during proceedings.
When can a taxpayer claim compensatory interest on unlawful additional VAT assessments in Portugal?
A taxpayer can claim compensatory interest on unlawful additional VAT assessments in Portugal when the tax has been paid and is subsequently determined to be illegally assessed. Under Article 43 of the General Tax Law (Lei Geral Tributária - LGT), taxpayers are entitled to compensatory interest when tax amounts are refunded due to annulment of assessment acts or recognition of their illegality. In Process 741/2014-T, the claimant requested reimbursement of VAT amounts for periods 1103T, 1106T, and 1109T (totaling approximately €95,000) that had been fully paid, plus compensatory interest calculated from 25 June 2014 pursuant to Article 43 LGT. The right to compensatory interest arises automatically once the tax assessment is declared illegal and annulled by the arbitral tribunal or court, without requiring separate proof of damages. The interest rate and calculation method are established by law, and the interest accrues from the date of payment of the unlawful tax until the date of actual reimbursement. This mechanism compensates taxpayers for the financial cost of having funds wrongfully retained by the Tax Authority and operates independently of any indemnity interest (Article 43(3) LGT) that may be due for delays in processing legitimate refund requests.