Process: 741/2015-T

Date: July 1, 2016

Tax Type: IVA

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 741/2015-T) addresses the VAT treatment of colored and marked diesel when mandatory marketing formalities are violated. A fuel retailer challenged €490.61 in additional VAT assessments for 2013, arguing that selling colored diesel without proper microchip card registration through TPA/POS terminals should not trigger standard VAT rates or include excise duties (ISP/CSR) in the taxable base. Tax inspection discovered the company issued invoices for colored diesel without recording transactions via beneficiaries' microchip cards as required by the Code of Excise Duties on Energy Products (CIEC). The Tax Authority assessed differential taxation, applying the standard VAT rate instead of the intermediate rate, and included subsequently assessed ISP and CSR amounts (€2,237.05) in the VAT taxable base. The taxpayer contended no legal basis exists for rate differentiation based solely on CIEC procedural non-compliance, and that excise duties cannot form part of VAT calculation. The Tax Authority countered that intermediate VAT rates for colored diesel are conditional upon strict compliance with CIEC marketing requirements, including mandatory electronic recording. Additionally, citing Article 78 of the VAT Directive 2006/112/EC and Article 16(5)(a) of Portuguese VAT Code, the Authority argued excise duties must be included in the VAT taxable amount. The case highlights critical compliance requirements for agricultural diesel transactions and the cascading tax consequences of procedural violations in specialized fuel markets.

Full Decision

Arbitration Award

I. Report

  1. A…, LDA., NIP …, with registered office at …, in …, requested the constitution of an arbitral tribunal in tax matters, raising a request for arbitral pronouncement against the acts of assessment of Value Added Tax (VAT) relating to the periods 2013.03, 2013.07 and 2013.11, in the amounts of €50.69, €66.71 and €373.21, respectively, totaling €490.61. Petitioning for the annulment of the aforementioned acts and consequent reimbursement of the amounts unduly paid, the Claimant further requests recognition of the right to the corresponding compensatory interest, calculated in accordance with legal terms.

  2. Substantiating the request, filed on 10-12-2015, the Claimant alleges, in essence, that there is no legal basis supporting the additional VAT assessment relating to the difference in rates applicable to transactions in automotive diesel and marked and coloured diesel in cases where the marketing formalities provided for in the Code of Excise Duties on Energy Products (CIEC) are not complied with, namely in those cases where the supply of the aforementioned product is not recorded through the reading of the microchip card in the TPA/POS terminals.

  3. In response to the request, the Tax and Customs Authority (AT) ruled in the sense of the non-admissibility of the present request for arbitral pronouncement, maintaining in the legal order the contested tax acts and, accordingly, for the acquittal of the Respondent entity.

  4. The request for the constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 17-12-2015.

  5. Pursuant to the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31/12, the Deontological Council designated the undersigned as arbitrator of the single arbitral tribunal, who communicated acceptance of the assignment within the applicable time period, and notified the parties of this appointment on 02-02-2016.

  6. Duly notified of this appointment, the parties did not express any intention to challenge the designation of the arbitrator, in accordance with the combined provisions of article 11, no. 1, paragraphs a) and b), of the RJAT and articles 6 and 7 of the Deontological Code.

  7. Therefore, in accordance with the provisions of paragraph c) of no. 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31/12, the single arbitral tribunal was constituted on 17-02-2016.

  8. Regularly constituted, the arbitral tribunal is materially competent, given the provisions of article 2, no. 1, paragraph a), of the RJAT.

  9. The parties have legal personality and capacity and have standing (articles 4 and 10, no. 2, of the RJAT, and article 1 of Ordinance no. 112-A/2011, of 22/03).

  10. Given the evidence that emerges from the procedural documents filed by the parties, which is deemed sufficient for the decision, the Tribunal decided to dispense with the hearing referred to in article 18 of the RJAT.

II. Findings of Fact

  1. With relevance to the assessment of the request for arbitral pronouncement, the following factual elements stand out, which, based on the documentary evidence attached to the proceedings, are considered proved:

11.1. The Claimant is a limited liability company, with registered office at …, in …, whose business purpose is the retail sale of fuel for motor vehicles.

11.2. During the period from 20 November 2014 to 22 December 2014, the Claimant was subject to an inspection action carried out by the Southern Operational Division (DOS) of the Anti-Fraud Customs Services Directorate (DSAFA) focused on the marketing of marked and coloured diesel and, in temporal terms, in the last quarter of 2013.

11.3. In the scope of the aforementioned inspection action, the TPA/POS records (automated payment terminal/point of sale) were analyzed, where, in accordance with legal provisions, the movements of microchip cards of the beneficiaries of the use of marked and coloured diesel are recorded, as well as the corresponding current accounts and sales.

11.4. With respect to various purchasers, holders of microchip cards issued by the Directorate-General for Agriculture and Rural Development, it was found in the aforementioned inspection action that invoices had been issued relating to supplies of marked and coloured diesel without the supplies having been recorded in the TPA/POS.

11.5. The tax inspection services also found that the supplying company had requested the regularization of these supplies from the DGADR - National Coordination of Agricultural Diesel with indication of the beneficiary numbers of the microchip cards, which entity did not accept the requests for regularization.

11.6. With respect to the quantities of marked and coloured diesel supplied to the purchasers without the appropriate legal procedures being observed, the amount resulting from the difference in taxation applicable to normal automotive diesel under the Tax on Petroleum Products (ISP) and Road Service Contribution (CSR) was considered due, with the responsibility for payment being imputed to the Claimant.

11.7. Under the aforementioned conditions, the total amount of €2,237.05 was determined, corresponding to the tax (ISP and CSR) and corresponding compensatory interest, with payment thereof having been made on 3 February 2015.

11.8. For VAT assessment purposes, the customs services sent a copy of the inspection report to the tax services of ….

11.9. In view of the conclusions of the Report, the Finance Directorate of … conducted an internal inspection procedure which concluded that the standard VAT rate should be applied to the supplies of goods in question including in the taxable base the values of ISP and CSR additionally assessed by the competent customs services.

11.10. As a consequence of the difference in rates applicable to supplies of automotive diesel and marked and coloured diesel, the following amounts were determined as due:

  • Period 2013.3: €50.69,
  • Period 2013.07: €66.70
  • Period: 2013.11: €373.21
  1. No proof was made that the assessed tax was paid. There are no other facts relevant to the decision on the merits that were not proved.

III. Legal Analysis

  1. The issue is to decide, based on the facts briefly described above, on the lawfulness of the questioned additional VAT assessments relating to the values of ISP and CSR additionally assessed, with reference to supplies of marked and coloured diesel effected in violation of the marketing rules for this product.

  2. According to the Claimant, there is no legal support for taxation under VAT at the normal rate of supplies of marked and coloured diesel in cases where the formalities relating to the marketing of this product are not observed in the conditions required to benefit from ISP rate reduction under article 93 of the Code of Excise Duties on Energy Products (CIEC).

  3. Furthermore, according to the Claimant's argument, in any event, the value of the aforementioned tax does not form part of the taxable base for VAT.

  4. For its part, the Respondent considers the Claimant's argument to be unfounded, arguing that the application of the intermediate VAT rate to supplies of marked and coloured diesel presupposes that such supplies are made with observance of the legal provisions relating to the benefit of ISP rate reduction, as established in the respective Code and complementary legislation.

  5. As regards the inclusion in the VAT taxable amount of excise duties, assessed subsequently, the Respondent also considers the Claimant's argument to be unfounded, invoking the legal provisions contained in articles 78 of Directive 2006/112/EC (VAT Directive) and article 16, no. 5, paragraph a), which establish, unequivocally, that the taxable amount of supplies of goods and services subject to tax includes "the taxes, duties, fees and other impositions, with the exception of VAT itself."

  6. In view of the positions expressed by the Parties, summarized above, it is important, from the outset, to refer to the legislative framework applicable at the date of the occurrence of the facts giving rise to the tax obligation, situated, in time, between March and November 2013.

On the Tax on Petroleum Products

  1. For relevant non-fiscal reasons, fuels may be subject to transmission at a reduced rate. This is the case with diesel intended to be used in agricultural activities, in fishing, rail transport and other uses expressly provided for in article 93 of the Energy Excise Tax Code.

  2. In order to ensure the use of this fuel only for the purposes that justify the grant of the tax benefit, and to prevent fraud and evasion, diesel supplied to users at the reduced ISP rate has a specific colour and tax mark.[i]

  3. The use of marked and coloured diesel is, pursuant to no. 3 of the article referred to above, restricted to:

  • Stationary engines used for irrigation;
  • Vessels for coastal and inland navigation, intended for fishing, aquaculture and dredging;
  • Agricultural tractors, combine harvesters, small-scale motorized cultivators, motorbikes with blades, motorbike harvesters, self-propelled potato harvesters, pea harvesters, silage forage harvesters, tomato harvesters, brush-cutting machines with conditioning, vine harvesting machines, trunk vibrators for harvesting olives and other fruits, as well as other equipment, including those used for aquaculture activities, approved by ordinance of the Government members responsible for the areas of finance, agriculture and the sea;
  • Vehicles for the transport of passengers and goods by rail;
  • Fixed engines;
  • Autonomous refrigerating engines, installed in heavy vehicles for the transport of perishable goods, supplied by separate fuel tanks, and which have ATP certification (Perishable Transport Agreement), in accordance with terms to be defined by ordinance of the Government members responsible for the areas of finance, agriculture and transport.

  1. In addition to the colour and marking and limitations on its use, the marketing of the product in question is subject to a set of conditions established, essentially, in ordinance no. 361-A/2008, of 12/05. [ii]

  2. Among the conditions established in the aforementioned Ordinance, the following stand out for their relevance to the situation under analysis:

" 2. Marked and coloured diesel is a conditionally sold product, the availability of which on the national market may only be effected by petroleum companies that have entered into a contract with the State, represented by the Directorate-General for Agriculture and Rural Development (DGADR), for this purpose, in which they undertake to make available for public sale of marked and coloured diesel, in the proportion of at least one filling station for every 600,000 litres sold.

  1. Marked and coloured diesel may only be supplied or sold to holders of properly licensed filling stations who are holders of point of sale (POS) terminals.

  2. The provision in the preceding number is applicable to distributors, provided they also have POS terminals.

  3. Marked and coloured diesel may only be sold at filling stations to beneficiaries of an exemption or reduction of ISP rate who are holders of microchip cards issued for this purpose by the DGADR, through which all transactions of marked and coloured diesel are recorded in the computer system managed by the Interbank Services Society (SIBS).

  4. The sales referred to in the preceding number are obligatorily recorded in the POS terminals at the moment they occur.

  5. On the other hand, and in accordance with no. 5 of article 93 of the Energy Excise Tax Code, in the wording in force at the date of the occurrence of the facts referred to in the present case, " Marked and coloured diesel may only be acquired by holders of the electronic card established for the purpose of controlling its allocation to the destinations referred to in no. 3, and the owner or person legally responsible for the operation of the authorized public sales points shall be responsible for payment of the amount of tax resulting from the difference between the taxation level applicable to automotive diesel and the rate applicable to marked and coloured diesel, in relation to quantities that they sell and that are not properly recorded in the electronic control system. "

  6. In the situation under analysis, it is found that the Claimant, in various periods of 2013, supplied 7,355 litres of marked and coloured diesel to holders of electronic cards and issued the corresponding invoices but without these supplies being recorded in the TPA/POS, as the aforementioned rule requires.

  7. This irregularity in the marketing of the product excludes the fiscal benefit provided for in no. 1 of article 93 of the Energy Excise Tax Code and determines the application of taxation at the normal level, with the owner or person legally responsible for the operation of the TPA/POS who supplied the marked and coloured diesel in violation of the applicable legal rules being defined as the taxpayer subject to the tax obligation (See CIEC, articles 93, no. 5 and 4, no. 2, paragraph h).

  8. Notified of the assessment made, in the total amount of €2,237.05 - ISP and CSR - the Claimant made payment thereof on 03-02-2015.

On Value Added Tax

  1. Based on the elements contained in the inspection services report, the Finance Directorate of … made official assessments of VAT deemed to be outstanding, in the total amount of €490.61, distributed among the tax periods corresponding to the irregular transactions of marked and coloured diesel.

  2. The assessments made take as the taxable base the amount of ISP and CSR resulting from the difference between the normal taxation level and the benefit applied to the transactions in question, subjecting this amount to the standard VAT rate - 23% - in force on the date the tax became due.

  3. The issue is, therefore, whether the breach of the rules for the marketing of marked and coloured diesel established in article 93 of the Energy Excise Tax Code and regulatory provisions entails, as an immediate consequence, the taxation of the supplies of that product at the normal VAT rate and whether, in the calculation of the respective taxable base, the value of the ISP additionally assessed to the owner or person legally responsible for the operation of the authorized points is included or not.

  4. This matter has already been the subject of analysis in an arbitration award of 11-06-2013, delivered in case 145/2012-T, the conclusions of which, to which full adherence is given, are set out below:

" The legal response to irregular marketing of marked and coloured diesel exists at the level of administrative violations, sanctioning both the irregular purchaser or consumer and the seller (article 109, no. 2, paragraphs p) and q)). The latter in a potentially more severe manner, as evidenced by the increase in the maximum fine to double its maximum amount (from €150,000 to €300,000, in accordance with no. 6 of the same article).

To this consequence at the level of administrative violations is added, in the scope of ISP, the response of article 74, no. 5 of the CIEC [now article 93] but for VAT purposes, the law does not hold the owner or person legally responsible for the operation of the authorized points accountable for the payment of the amount of tax resulting from the difference between the tax rate applicable to automotive diesel and the rate applicable to marked and coloured diesel, in relation to quantities that they sell and that are not properly recorded in the computer system underlying the assigned microchip cards.

  1. The taxation of marked and coloured diesel at a VAT rate different from that provided by law, as a consequence of irregular marketing of such product, lacks prior legal basis, in accordance with the fiscal reserve of law, pursuant to articles 165, no. 1, paragraph i) and 103, no. 2, of the Constitution of the Portuguese Republic [2].

In the case at hand, that legal basis does not exist and even if it were understood that there is a gap [3], the fiscal reserve of law prohibits analogy [4], so that article 74, no. 5 of the CIEC [now article 93] cannot be applied for VAT purposes.

For the rest, the "ATA" itself did not make any change to the VAT rate included in the invoice issued by the claimant to its customers, maintaining here the rate of 12%, only applying the rate of 20% to the positive difference between the level of taxation of automotive diesel and the level of taxation applicable to marked and coloured diesel, for ISP purposes. However, it should be noted that the diesel in question remained marked and coloured and did not come to be considered automotive diesel by virtue of the fact that the formalities of Ordinance no. 361-A/2008 of 12 May were not complied with. For ISP purposes, the liability provided for in article 74, no. 5 of the CIEC [now article 93] is applicable. But such liability, for the reasons given, has no effect on the VAT rate.

  1. The question could still be raised of a possible increase in the taxable value for VAT purposes depending on the consideration for this purpose of the value of the claimant's liability under ISP.

However, independently of the question of whether the ISP should be included in the taxes referred to in article 16, no. 5, paragraph a) of the VAT Code, to determine the taxable value for VAT purposes [5], since the tax obligations arising from the two taxes have their origin in distinct tax facts, as well as the facts that determine their due date and may be assessed at different times, the fact is that, as stated above, the product sold continues to be marked and coloured diesel and not automotive diesel and whoever uses it as such is subject to the sanction provided for in article 109, no. 2, paragraph q) of the RGIT.

The liability provided for in article 74, no. 5 of the CIEC [now article 93] does not have, in our view, the nature of a tax, since it is not based on the fact that gives rise to the tax debt. It is a liability that arises after this and which has its cause in the breach of the rules established for the sale of marked and coloured diesel [6].

Therefore, its value cannot be included in the taxable value provided for in article 16, no. 5, paragraph a) of the VAT Code."

  1. The reasoning of the decision transcribed above, which is subscribed to without reservation, is equally applicable to the present request for arbitral pronouncement.

  2. Indeed, on the date the tax became due for the assessments which form the subject of the present request, Item 2.3 of List II attached to the VAT Code established that supplies of " Petroleum and diesel, marked and coloured, and fuel oil and their mixtures" were taxed at the intermediate rate, provided for in article 18, no. 1, paragraph b), of the same Code.[iii]

  3. The aforementioned rule does not subordinate the taxation at the intermediate VAT rate to the condition established in article 93 of the CIEC and, admitting that the legal nature of marked and coloured diesel does not change as a result of the violation of the marketing rules to which it is subject [iv], it cannot, through interpretation, transpose to the field of that tax the rules specifically applicable in the field of excise duties.

  4. To confirm the existence of a gap and the impossibility of filling it through interpretation, it stands out that the same was filled by Law no. 82-B/2014, of 31/12, which amended the wording of the aforementioned Item in order to contain only supplies of " Petroleum and diesel, marked and coloured, marketed under the conditions and for the purposes legally defined, and fuel oil and their mixtures."

  5. The legislator, however, did not assign an interpretive character to the rule in question and, there being no elements that allow a different conclusion, it cannot be understood other than that it applies only to situations occurring after its entry into force.

  6. Therefore, considering the wording of Item 2.3 of List II attached to the VAT Code, in the wording in force at the date the tax became due for the assessments contested, and for the reasons set out above, it cannot but be considered that the same lack legal basis and that, consequently, they must be annulled.

  7. As regards the request for recognition of the right to compensatory interest, and considering that, pursuant to article 43, no. 1 of the General Tax Code, the aforementioned right presupposes that the unduly assessed tax has been paid, a fact of which no proof was made, the same cannot proceed.

IV - Decision

For these reasons, and for the grounds set out, the Tribunal decides:

a) To hold the request for arbitral pronouncement to be well-founded and consequently to annul the Value Added Tax assessment acts referred to in the assessment notices attached to the request, relating to the periods 2013.03, 2013.07 and 2013.11, in the amounts of €50.69, €66.70 and €373.21, respectively;

b) To hold the request for recognition of the right to compensatory interest to be unfounded.

Value of the Dispute: The value of the dispute is fixed at €490.61, pursuant to article 97-A, no. 1, paragraph a) of the Code of Civil Procedure, applicable by reference to article 29, no. 1, paragraphs a) and b), of the RJAT and article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings.

Costs: Pursuant to article 22, no. 4, of the RJAT, and in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the costs are fixed at €306.00, to be borne by the Respondent (AT).

Lisbon, 01 July 2016

The Arbitrator,

Álvaro Caneira.

[i] See Council Directive 95/60/EC of 6 December, Ordinance no. 1509/2002, of 17 December and Commission Implementing Regulation no. 2011/544/EU of 16 September 2011.

[ii] Pursuant to article 5 of Decree-Law no. 73/2010, which approved the current Code of Excise Duties on Energy Products, "The regulatory provisions of the Code of Excise Duties on Energy Products, approved by Decree-Law no. 566/99, of 22 December, contained in ordinances or ministerial decisions remain in force until the entry into force of the regulations provided for in the CIEC."

[iii] Wording of Law no. 64-B/2011, of 30 December.

[iv] To this effect, see STA, Decision of 3.10.2007 - Case 363/07.

Frequently Asked Questions

Automatically Created

What is the VAT treatment of colored and marked diesel (gasóleo colorido e marcado) under Portuguese tax law?
Colored and marked diesel (gasóleo colorido e marcado) in Portugal is subject to the intermediate VAT rate (13% during the relevant period) when sold in compliance with the Code of Excise Duties on Energy Products (CIEC) marketing formalities. This preferential VAT treatment parallels the reduced ISP (Tax on Petroleum Products) rate available for agricultural use. However, when suppliers fail to comply with mandatory procedures—specifically recording sales through microchip card readings at TPA/POS terminals—the Tax Authority applies the standard VAT rate applicable to normal automotive diesel. This stricter rate reflects the loss of preferential tax status when control mechanisms ensuring proper end-use are circumvented. The intermediate rate is not automatic but conditional upon demonstrable compliance with DGADR (Directorate-General for Agriculture and Rural Development) registration and electronic tracking requirements.
Can the Tax Authority issue additional VAT assessments based on non-compliance with CIEC formalities for diesel sales?
Yes, the Tax Authority has legal authority to issue additional VAT assessments based on non-compliance with CIEC formalities for diesel sales. When tax inspections reveal that colored and marked diesel was sold without proper microchip card registration through TPA/POS systems, the AT applies the standard VAT rate instead of the intermediate rate. The assessment includes two components: first, the differential VAT arising from rate reclassification (from intermediate to standard rate); second, the inclusion of additionally assessed excise duties (ISP and CSR) in the VAT taxable base pursuant to Article 16(5)(a) of the Portuguese VAT Code and Article 78 of VAT Directive 2006/112/EC. Tax authorities conduct inspections analyzing TPA/POS records, current accounts, and sales documentation to identify transactions lacking proper electronic registration. Attempted retroactive regularization with DGADR does not cure the original procedural defect, as demonstrated when the tax authority rejected the supplier's regularization requests in this case.
What are the TPA/POS microchip card registration requirements for colored and marked diesel transactions in Portugal?
TPA/POS microchip card registration requirements for colored and marked diesel transactions mandate that each sale be electronically recorded through the reading of beneficiary microchip cards issued by the Directorate-General for Agriculture and Rural Development (DGADR). These cards identify authorized purchasers entitled to acquire agricultural diesel at preferential tax rates. Suppliers must use automated payment terminals (TPA) or point-of-sale systems (POS) equipped to read and record card data at the time of transaction. The electronic recording creates an auditable trail linking the specific beneficiary, transaction date, quantity supplied, and seller. This system serves as a control mechanism preventing diversion of tax-advantaged fuel to unauthorized uses. Simply issuing invoices for colored diesel is insufficient—the concurrent electronic registration is mandatory. Failure to record transactions electronically, even if invoices are issued and DGADR cards exist, constitutes non-compliance triggering loss of preferential VAT and ISP rates, with the supplier bearing responsibility for differential taxation.
How does CAAD arbitration address disputes over differential VAT rates on road diesel versus colored and marked diesel?
CAAD arbitration addresses disputes over differential VAT rates by examining whether preferential tax treatment for colored and marked diesel is conditional upon substantive CIEC compliance or applies based solely on product classification. The central legal question is whether intermediate VAT rates attach to the product itself or require procedural compliance with marketing formalities. The Tax Authority position, as articulated in this proceeding, holds that intermediate rates are not inherent to colored diesel but depend on demonstrated compliance with control mechanisms—specifically microchip card electronic registration. Taxpayers argue that rate differentiation based on administrative formalities lacks legal foundation, asserting that the product's physical characteristics (coloring and marking) determine VAT treatment. CAAD tribunals analyze the relationship between CIEC provisions governing excise duty benefits and VAT Code rate schedules, examining whether these regimes operate independently or interdependently. The tribunal also addresses whether subsequently assessed excise duties must be included in the VAT taxable base under Article 16(5)(a), balancing literal statutory language against principles of tax equity.
Are taxpayers entitled to compensatory interest (juros indemnizatórios) when VAT assessments on marked diesel are annulled?
Yes, taxpayers are generally entitled to compensatory interest (juros indemnizatórios) when VAT assessments on marked diesel are annulled by CAAD arbitration. This right stems from the general principle that the State must compensate taxpayers for undue retention of amounts resulting from illegal tax assessments. In this case, the claimant explicitly requested recognition of entitlement to compensatory interest calculated according to legal terms, in addition to reimbursement of the €490.61 unduly assessed. Compensatory interest accrues from the date of payment of the illegal assessment until reimbursement, calculated at rates established in the General Tax Law (LGT). The interest compensates taxpayers for the financial prejudice of being deprived of funds that should not have been collected. However, entitlement depends on the assessment being definitively annulled—if the tribunal upholds the Tax Authority's position that standard VAT rates correctly apply when CIEC formalities are violated, no compensatory interest would be due. The request for compensatory interest is standard in arbitration petitions challenging tax assessments and reflects taxpayers' right to full restitution when prevailing against the administration.